Before hiring people in Finland and becoming an employer there are several aspects you should consider. The decisions you make, your liabilities and obligations will determine your success as well as business risks.

In the following article we bring out the 5 most important aspects every foreign entrepreneur starting his business in Finland should know.

Wage income or trade income

If you pay someone for the work he did for you, it can be treated as wage income or as trade income. The distinction between employment and business activities is important because your obligations depend on how the compensation is defined.

According to the Tax Administration and Finnish legislation wages are paid for the performance of work within an employer/employee relationship. Non-wage compensation i.e. trade income is the compensation paid for the performance of work, an assignment, or for the rendering of a service.

According to the Prepayment Act the following fees are to be treated as wages even if no employer/employee relationship is formed:

• fees paid in compensation for attending a meeting/conference
• fees paid for giving a lecture or speech
• fees relating to Board membership or membership in a similar administrative organ of a corporation
• fees of a Managing Director
• compensation agreed to be paid to the shareholders of a partnership or limited partnership
• fees paid to an individual who holds a position of trust.

Employers typically may provide fringe benefits (such as company car, free meals and company telephone) to their employees in addition to cash wages. These benefits are treated in the same way as wage income in taxation.

Importance of personal identity number

All foreigners are required by law to register in the Population Information System if they reside in Finland for over a year. EU citizens do not need a residence permit, but must register their right of residency if they stay in Finland for more than 3 months.

Once your (future) employee is registered, he or she receives a personal identity number called henkilötunnus. This number is needed for taxation, health care and juridical administration.

Once your employee is registered, the System will forward the data to the Social Insurance Institution called Kela. Then your employee can apply for a Kela card, which proves his or her entitlement to social security benefits, such as health care. If the application is accepted, a Kela card will be sent to your employee automatically, at no cost.

As of 2014 you as an employer can obtain all necessary tax rate information online from the national Tax Administration.

Trade Unions and dispute resolution

It is important to know that 3/4 of Finns are members of a trade union and according to the International Labour Organization the Finnish unions are amongst the most effective in the world. This means that the rights and benefits of a union members are well safeguarded.

Finnish unions are occupation-based and when hiring your first employees, make sure you are aware of the existence of the relevant collective agreements. These agreements will determine certain terms and conditions of employment. For example, your employee might be entitled to the salary determined by the collective labour agreement.

If you get into dispute with your employee, contact your lawyer or consultant to ask how to proceed. Most collective agreements provide a grievance procedure for settling disputes.

You can find a list of main Finnish trade union confederations from here: http://www.expat-finland.com/employment/unions.html 

Employer obligations and liabilities

The most common obligations a Finnish employer will have include withholding tax on the pay, calculating a health insurance contribution and paying the withholding and the contribution to the Tax Administration. Also, if you are an employer who pays wages on a regular basis, you must become registered in the Employer Register maintained by the Tax Administration.

As an employer you are obliged to do the following:

• comply with legislation, employment contract and collective labour agreements
• pay wages, withhold taxes and pay them to the Tax Administration
• submit on payroll declaration to the Tax Administration, pension and insurance companies and the Unemployment Insurance Fund
• submit Employer Payroll Report to the Tax Administration
• arrange mandatory insurance of employees and payment of insurance premiums
• arrange for and pay for statutory occupational healthcare for employees. Kela reimburses reasonable and necessary costs of providing occupational healthcare
• provide the employee with payslips

Debt management 

Debt is something you as an employer and a private person should avoid when starting your business in Finland. Even a small debt can “snowball” and need to be addressed immediately in order to avoid accumulation. Keep in mind that communication and co-operation with debtors in Finland is essential.

In case you or your company has a debt problem the following solutions are possible:

• extending payment term
• freezing the interest for late payments
• requesting a temporary hold on payments

If you already have a debt or have had a debt, consult with 1Office to understand how it might affect your business in Finland.

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