At Bradford Jacobs our Employer of Record (EOR) platforms provide complete solutions for companies moving into Finland, a leading member of the European Union. We know successful international expansion depends on making the right moves from day one. This is vital for foreign companies establishing their presence and operating payroll in Finland. Compliance with Finnish payroll laws is essential to your business’s smooth and stress-free transition into the market.
Our teams step in from the start, locating talent through our Professional Employer Organization (PEO) networks, then dealing with Finland’s Central Tax Administration and the Social Insurance Institution (Kela). We do the work, so you do not have to.
When expanding into a new country, you may encounter some challenges regarding payroll, but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for Finland.
What Finland Payroll Options are available for Companies?
Remote payroll - This option allows businesses to operate under a single payroll system, by adding employees in Finland to your parent company’s payroll. However, these employees must operate under different regulations, which can cause some problems.
Internal payroll - You may operate payroll from your subsidiary, especially if you are committed to growing your company’s presence in Finland. However, this does require hiring dedicated HR staff that understand the Finnish employment and compliance laws.
Finland payroll processing company - If you are considering outsourcing, working with a Finnish payroll company will help in processing your payroll – but not when it comes to compliance.
Finland payroll outsourcing - However, there is another option available which solves both concerns – by working with a company such as Bradford Jacobs.
We can handle both your payroll and compliance for all your employees in Finland. We take the stress of administration off your shoulders so you can focus on what you do best.
Finland Payroll Services
Finland’s payroll regulations are complicated and change frequently. Businesses must keep up to speed or risk fines and sanctions if they fail to comply. Bradford Jacobs’ payroll services ensure employers stay up to date with the rules – we administer filings and associated payments for wage tax and social security contributions directly from our payroll system to the relevant authorities. Our role includes:
- Registering with Central Tax Administration to obtain employees’ 12-digit tax number
- Registering for a Finnish identity number for foreign workers, if required, before applying for the tax number
- Obtaining a Business Identity Code (YTJ)
- Registering with the Social Insurance Institution (Kela)
- Registering company with the Employer Register of the Central Tax Administration
- Creating contracts for employees that comply with the Finnish Employment Contracts Act in Finnish, and English if required
- Applying for employees’ special expatriation status (if applicable)
- Calculating employees’ monthly salary and sending them their pay slips
- Researching for any available tax incentives
- Submitting employees’ or employer’s wage tax returns and national insurance forms
- Corresponding with the applicable national authorities regarding payroll changes and payments
- Creating and submitting your company’s annual accounts and year-end statements
- Creating payment schedules for wage tax, national insurance, and net wages
- Ensuring proficient personal income tax returns for you and your employees
This ‘to do’ list emphasizes why the popular choice for the majority of foreign companies expanding into Finland is to hand payroll administration to Employer of Record (EOR) providers such as Bradford Jacobs. Outsourcing company payroll guarantees employees are paid, tax returns are filed, and social security obligations are all met in full and on time. Bradford Jacobs provides the complete service to remove all the stress and anxiety from your company.
What is required to set up Finland Payroll?
Requirements for setting up payroll in Finland depend on how foreign companies establish their presence in the country. Setting up a subsidiary is one option as the first step. However, this takes time and can be a complex process depending on where you incorporate your company as well as the type of entity you choose to operate.
To begin processing payroll in Finland, you will need:
- A 12-digit tax number for employees, tax card and employment contract
- Registration with the Central Tax Administration
- Registration with Trade Register, VAT Register and Employer Register through the Finnish Patent and Registration Office, which works with the Central Tax Administration
- Report employees’ salaries to the Incomes Register of the Tax Administration within five days of payment, via the ‘real time’ e-Register
- Registration with the Social Insurance Institution (Kela)
A local company bank account is not mandatory, but employees should have a local account to receive payments.
What Entitlement/Termination Terms apply to Finland Payroll?
Employees in Finland are protected by benefits covering employment contracts, working hours, annual holidays, and privacy. Additionally, national and sector collective agreements also lay down minimum employment requirements.
National Minimum Wage: Finland does not have a national minimum wage, with minimum levels of salary applied by collective and union agreements and by sectors. These are legally binding and apply to Finnish and foreign workers.
Working Hours: The Working Time Act covers regular working, plus additional work and overtime which require the employee’s consent.
General working time is eight hours per day or 40 per week or can average 40 hours weekly over 52 weeks. Period working time is restricted to 80 hours over two weeks or 120 hours over three weeks and is allowed only in certain sectors by law or collective agreements. ‘Flexiwork’ can be agreed between employer and employee but must not average more than 40 hours a week over four months.
Employees are entitled to a one-hour break after six hours work and are allowed to leave the workplace. Shorter breaks are allowed if employer and employee agree. Employees must have at least 11 hours’ rest between working days and a continuous 35-hour break every seven days.
Overtime: The Working Time Act stipulates employees receive 50% above their regular wage for two hours’ overtime and 100% extra for subsequent hours.
Annual Leave: Under the Annual Holidays Act, leave is calculated between April 1 and March 31 as the credit year. Leave is two days per month for employees working 14 days or 35 hours each calendar month for employment of less than 12 months and two-and-a-half days per month after working more than 12 months.
Employees can claim additional days if they are unable to take their full entitlement due to illness, injury, or medical rehabilitation, up to a maximum of 75 days.
Sick Leave: The Employment Contracts Act requires employees unable to work through illness or injury to receive sick pay from their employer from the first day of incapacity and the following nine days. Those having worked for less than one month receive 50% of their salary. After this period the Social Insurance Institution (Kela) pays sickness benefit for a maximum 300 days and compensates the employer if they have paid the employee’s salary. Benefits are calculated according to salary.
Public Holidays: There are generally 11 recognized paid public holidays in Finland.
- New Year’s Day
- Epiphany – January 6
- Good Friday
- Easter Monday
- May Day – May 1
- Ascension Day
- Whit Sunday
- All Saints Day
- Independence Day – December 6
- Christmas Day
- Boxing Day
The Working Hours Act stipulates those required to work on public holidays receive twice their normal pay, while collective agreements can provide for further holidays and salary entitlements in lieu.
Maternity and Paternity Leave: Under the Employment Contracts Act, maternity leave in Finland may begin 50 days before the birth due date at the earliest, and 30 days before the birth due date at the latest. The Social Insurance Institution (Kela) pays benefit from when leave begins for 105 working days (Monday to Saturday), or about four months. Mothers are also eligible for a tax-free lump sum of €170 (US$200).
Paternity leave in Finland consists of a maximum of 54 days. This time can include between one and 18 days taken at the same time as the mother’s leave while she receives maternity or parental allowance. The remainder of the paternity leave (after the end of parental leave) can be taken in a maximum of two separate periods. Kela also pays paternity allowance.
Parental Leave: Either parent may utilize parental leave in its entirety, or it can be shared between them. Kela pays an allowance for 158 days, during which period parents can work part time and receive a partial allowance.
Termination/Severance: The length of notice for termination depends on the length of the employee’s service and can be agreed in the employment contract if not already governed by collective agreements. If the employee’s contract is terminated without fault on their part, notice periods are:
- Up to one year’s employment – 14 days
- Up to four years – one month
- Up to eight years – two months
- Up to 12 years – four months
- Over 12 years – six months
If an employee terminates employment, they must give 14 days’ notice if they have been working up to five years and one month for over five years.
There is no statutory requirement for severance payments, unless covered by collective agreements in the case of mass redundancies, but the employer may choose to pay them.
There is no legal provision in Finland for a 13th month of salary.
What Taxation Rules exist for Payroll in Finland?
It is a vital that employers have a full understanding of complex tax laws and regulations in Finland. The tax year runs from January 1 until December 31. Returns are due by April 2 if the taxpayer has received a pre-completed tax return or by various dates in May if they have not. Final assessments are made by the end of the following tax year, with extra instalments or refunds due if too much or too little tax has been paid; interest charges apply if the final assessment exceeds preliminary payments.
Employers must report employees’ earnings to the Incomes Register of the Tax Administration within five days of payment, via the ‘real time’ e-Register. They must also withhold taxes towards social security contributions and face 7% surcharges on tax not paid on time.
Foreign employers paying salaries from abroad are not liable for withholding taxes if they have no permanent entity in Finland.
Employers and companies in Finland are subject to other payments:
- Corporate Tax: The Corporate Income Tax rate (CIT) is 20% for Finnish resident companies on their worldwide income. Permanent establishments of non-resident companies are also liable for CIT. Returns must be filed within four months after the end of the accounting period.
- Income Tax: Employees’ income tax is withheld by the employer and remitted every month to the Central Tax Administration. The rates for 2021 are graduated from 6% to 31.25%, with taxable income starting from €18,600 (US$22,023) and the top rate applying to income over €80,500 (US$95,320). The employer withholds taxes, which must be remitted by the 12th of the following month after the payment date.
- Social Taxes: Finnish social security laws stipulate local and foreign employers must make various social insurance contributions on behalf of their employees. Health insurance deductions are paid to the Central Tax Administration and other contributions to the Employment Fund and insurance providers.
- Health Insurance - 1.53% (no cap)
- Pension Insurance - 16.95% (average, no cap)
- Unemployment Insurance - 0.50% up to €2.17million (US$2.55m) of gross salaries; 1.9% above
- Group Life Insurance - 0.07% (average, no cap)
- Accident Insurance - 0.8% (average, no cap)
- Pension Insurance 7.15% (for under 53 years old); 8.65% (between 53 and 63 years); 7.15% (over 63 years)
- Unemployment Insurance 1.40% (between ages 17 and 67)
- Public Broadcasting Tax: Based on taxable income for the financial year, the rate is €140 (US$165) for taxable income under €50,000 (US$59,200) plus 0.35% of taxable income over that, up to a maximum of €3,000 (US$3,550) for corporate taxable income over €868,000 (US$1.27million).
- Municipal and Church Taxes: Municipal levies vary at flat rates between 16.5% and 23.50%. Church taxes range from 1%-2.2% at flat rates governed by municipal taxes, for members of certain religious communities.
- Foreign Expert Tax Regime: A flat rate of 35% applies to foreign employees with specialist knowledge and monthly earnings of at least €5,800 (US$6,860). After a maximum 48 months, normal tax rates apply.
Stress Free Global Expansion
Bradford Jacobs’ Employer of Record (EOR) solutions smooth your route into Finland and every new territory targeted for worldwide expansion. We are available every step of the way to ensure your company clear all the hurdles to establish a successful presence in the thriving Finnish economy.
Contact us today to see what our payroll services can do for you.