Comprehensive Guide to Employment Laws and Employer Obligations in Finland

Finland is open to exciting business opportunities in emerging fields like green energy & electrification, health & life sciences, data centers, IoT solutions, gaming & metaverse, and the new space economy. Global companies and entrepreneurs looking for recent investment opportunities may consider Finland. 

The Nordic country is top-ranked for easy availability of the latest technologies, scientists, and engineers per the World Economic Forum Global Competitiveness Report. 

Companies may enter a legal employment relationship to tap the best local talents. Additionally, it will ensure employers follow some of the basic labor regulations in Finland, like

• a maximum of 48 hours of weekly work, including overtime
• five weeks of annual vacation leave 
• 40 days of maternity leave in Finland for foreigners and citizens
• additional 160 days of parental leave for each parent

The labor law in Finland is a tripartite agreement between the government, employer, and employee. Thus, the Finnish labor act rules aim to balance the welfare of the local workforce and secure employer interests. For instance, the Ministry of Economic Affairs and Employment grants employers subsidies to recruit unemployed job seekers. 

Continue reading this employment law in Finland guide to getting a comprehensive understanding of Finnish employment law and its significant provisions, like overtime compensation, payroll taxes & social security benefits, dismissal rules, and employee privacy obligations. 

Applicability of the Act

Finland’s labor law equally applies to all employees. There are no distinctions between different types of workers in Finland. However, provisions of Finnish employment law, like working hours, including overtime compensation, may not apply to managerial positions or independent contractors. 

As for foreigners employed in Finland, the rules for hiring are similar to those of domestic employees. However, there are a few additional requirements for foreign employees while hiring. 

The employers must ensure that the foreigner either has a work residence permit or does not require one. Usually, citizens of the EU or the European Economic Area do not require a permit to work in Finland.

Employment Contract

The Act on Employment Contracts governs the various types of employment contracts in Finland, and some of the most crucial types are listed below: 

• Open-ended contract:
  • All contracts are considered open-ended and valid until decided otherwise, as per the labor act rules of Finland. 

• Zero-hour contract:
  • The labor law in Finland allows employers to employ workers for a long time yet pay only for the number of hours worked in a week.
  • Employers cannot propose variable working hours if they have a permanent need, thereby preventing the casualization of labor.   
  • However, the zero-hour contract must guarantee minimum pay negotiated before the start of work.

• Fixed-term contract:
  • Fixed-term contracts include temporary staff members or seasonal work. 
  • The Finnish labor law prohibits consecutive fixed-term agreements, as it suggests permanent employment is possible. 

• Trial period contract:
  • The labor code of Finland states that the trial-period contract cannot exceed six months. 
  • And, in a fixed-term contract, the trial period cannot be for more than half the duration of the contract. 

As per Finnish labor law, a written employment contract is not a legal requirement. Although it is highly encouraged to have a written employment contract, a verbal or electronic employment agreement is equally binding. 

If there is no written employment contract, an employer must provide a written statement including information on specific key terms of employment by the end of the employee’s first payment cycle. 

When making changes in an employment contract, employers and employees can mutually agree on changing the terms. Moreover, an employer can make unilateral changes to an employment contract’s terms and conditions only if it is an alternative to dismissing the employee on valid grounds. 

Furthermore, the new Co-operation Act 2022 reforms Finnish labor law to expand the scope for dialogue between the employer and employees and improve the workplace. However, it applies to employers with 20 or more regular employees. 

Key Provisions of the Act

This section comprehensively deals with various employers’ obligations for hiring and managing local talents in Finland. Employers may frame Finnish employment rules and negotiate individual employment contracts based on the following: 

• Finnish labor legislations (for example, the Employment Contracts Act, Working Time Act, Annual Holidays Act, Non-discrimination Act, Act on the Protection of Privacy in Working Life, Study Leave Act, Wage Guarantee Act, etc.)
• European Union directives on employment 
• Case laws decided by Finnish labor courts
• Collective bargaining agreements 

Here are the key provisions of the above labor regulations in Finland, including working hours, leave schemes, payroll taxes, reporting obligations, dismissal rules, and data protection. 

Working hours

• Finland’s working hours law obliges employers to employ white-collar workers for typically 7.5 hours a day and 37.5 hours per week.
• Employers may fix the average working hours per Finnish labor law for other grade employees at 8 hours daily and 40 hours weekly.  
• Finnish labor law fixes the maximum weekly working hours at 48 hours, including overtime, measured over a four-month reference period. 
• Employers may accept flexible working hour requests per collective bargaining agreements. 
• While fixing the working hours for employees, employers must factor in mandatory daily rest of 11 hours and 35 consecutive hours every week. 
• The recent reforms under labor law in Finland ask employers to review minimum working hours every 12 months for employees under zero-hour and variable employment contracts. 

Overtime compensation

• The labor regulations in Finland enforce statutory obligations on employers to pay employees for overtime work. 
• The employee’s salary must generally be raised by 50% for the first two hours of daily overtime work and by 100% after that, where daily overtime work exceeds two hours unless otherwise provided by an applicable collective agreement. 
• Finnish labor act rules do not restrict work on public holidays or night work but oblige employers to pay an additional compensation of a 50% salary hike for hours exceeding 40 weekly working hours (and not considered as daily overtime). 

Minimum wage

The Finnish labor act rules do not prescribe a mandatory minimum wage. 

However, Finland’s employment law expects employers to follow collective labor agreements or, in their absence, make reasonable pay offers proportional to employees’ professional skills, experience, and workplace location.

Public holidays 

• Finnish labor law prescribes ten public or religious holidays per year, including New Year’s Day, Epiphany, Easter’s Day, May Day, Ascension Day, Whit Sunday, Midsummer Day, All Saints’ Day, Independence Day, and Christmas Day. 

Leave schemes

• Family leave
  • Finnish employment law breaks down family leave into maternity, parental, and childcare leave.
  • The labor act rules in Finland do not enforce mandatory salary payment during family leave. 
  • However, Finnish labor law mandates employers to ensure the right to return to comparable work after availing of family leave. 

• Maternity leave and Parental leave
  • Finland’s paid maternity leave period per statutory requirements is 40 days and must be taken at least 14 days before the due date. 
  • Employers must grant 18 working days of leave to the other parent. 

• Parental leave
  • Employers must ensure both parents take up to 160 working days of leave each for parenting purposes. 
  • Employers must also ensure part-time parental leave provisions. 
  • However, there is no specific provision for shared paternity leave in Finland, i.e., transfer of leave from one parent to the other. 

• Childcare leave:
  • Employers must grant childcare leave until the child turns three, which may start after 160 days of childbirth. 
  • Employers may grant a maximum of four childcare leave periods, each lasting for at least one month per labor law in Finland.  

• Annual leave:
  • Finland’s labor code established five weeks or 30 days of paid annual leave. 
  • The labor act rules in Finland regarding vacation leave mandate employers to allow employees to accrue two days of paid holiday per month and two and a half days after that. 
  • The accrual period for holidays is between 1 April to 31 March. 

Other leaves 

• Study leave:
  • Employers must grant up to two years of unpaid study leave for employees in five years of service. 
  • Finnish labor act rules on annual holidays apply to employees who take one month of study leave in the leave-earning year and return to work immediately after the study leave ends. 

• Job alternation leave:
  • The labor regulations in Finland oblige employers to grant 100-180 calendar days of unpaid leave for temporary absence from work.
  • Employers must reinstate employees in the same or comparable position after leave.  

• Sick leave:
  • The labor regulations in Finland oblige employers to grant nine paid leaves from employment for illness or recovery from an accident. 
  • Employers may extend such paid sick leaves for those employed for at least one month. Otherwise, employers may pay one-half of the wage during the absence. 

Payroll taxes & obligations

Here is a brief account of payroll tax obligations for employers per Finland’s labor law for the financial year that runs from 1 January to 31 December.

• Any employer in Finland must ensure the following while managing payroll:
  • deduct and withhold taxes and social security contributions from the salaried employee
  • pay social security premiums & file withheld taxes to respective Finnish authorities the following month. 
• Income taxes deduction
  • Finland enforces a progressive income tax system, and employers must withhold and report taxes accordingly:
    • 0.00%: Up to 19,200 EUR
    • 6.00%: 19,200 – 28,700 EUR
    • 17.25%: 28,700 – 47,300 EUR
    • 21.25%: 47,300 – 82,900 EUR
    • 31.25%: Over 82,900 EUR
  • Employers must file the withheld taxes electronically to the Incomes Register.
  • Finnish rules prescribe filing date should be no later than the 12th of the following month after salary payments have been made.
• Social security contributions
  • Employers in Finland must contribute towards:
    • Pension insurance (varies from employer to employer)
    • Health insurance
    • Unemployment insurance (depends on total compensation paid during a tax year)
    • Accident insurance and Group life insurance are based on specific collective labor agreements.
  • Total employer contributions towards employee social security benefits are 27.69% – 29.24% of the salary.

Payslip

• The labor code in Finland obliges employers to provide an annual account of the total salary paid, tax deductions, and social security premium contributions. 
• Employers may include the following details in the annual employee payslip:
  • Disclose information about the employer and employee, including name, address, tax cards, etc. 
  • Gross salary (before deductions) 
  • The total amount of taxes paid quarterly/annually 
  • Employer’s social security contribution
  • Employee deductions towards social security premiums
  • Date of monthly salary payment 

Dismissal rules

Finnish employment law regarding termination mandates employers to end employment contracts with a prior written warning. 

The actual procedure for termination of the employment contract depends on the grounds for dismissal, years of service, and the employer’s size.  

• Notice period:
  • Employers may ask employees to serve a notice period before terminating the employment contract. 
  • The labor regulations in Finland mandate employers to offer notice periods of a maximum of six months to a minimum of 14 days, based on seniority:
    • minimum 14 days for up to one year’s employment 
    • one month for one to four years of employment 
    • two months for four to eight years of employment
    • four months for eight to 12 years of employment
    • maximum six months for over 12 years of employment
  • However, employers may ask only for a maximum of one month notice period when an employee terminates the employment contract:
    • 14 days when employed for up to five years
    • maximum of one month when employed for over five years 

• Severance payment:
  • No other statutory requirements regarding severance pay apply per Finnish labor law.  

Data protection and employee privacy

Finnish employment law on employee privacy mandates employers to comply with the European Union’s General Data Protection Regulations (GDPR) while processing personal data for various reasons like background checks, payroll processing, workplace surveillance, email retrieving, etc. 

However, employers may make suitable provisions for some work to be done outside the workplace. In this context, Finnish employment rules allow employers to direct and supervise work remotely through electronic means. 

The labor regulations in Finland also force employers to disclose what kind of information is collected about job seekers or employees and how it is handled and processed. 

Penalties 

Employers may face the following penalties for not fulfilling certain obligations per the Finnish labor code: 

• Employers must pay an indemnity of up to EUR 35,590 for each affected employee in case of failure to conduct a consultation procedure before layoffs.
• Any breach of workplace safety (including remote work) and occupational health hazards may render a fine or a term of imprisonment for a maximum of one year.
• Failure to withhold taxes may result in recovery of owed amounts and even cancellation of prepayment registration with the Tax Administration. 

Upcoming Reforms Under Finnish Labor Regulations

Major reform under Finnish labor law is expected in Whistleblower Protection. 

As of September 2022, private sector employers with more than 250 employees (and from 17 December 2023, employers with 50 or more employees) may set up a whistleblowing scheme. It will apply to all financial companies and companies vulnerable to money laundering or terrorist financing, regardless of company size. 

Finnish whistleblowing scheme implements the European Union Directive on the Protection of Persons who Report Breaches of Union Law. It mandates employers to set up internal and external whistleblowing channels and frame guidelines for the procedures involved. Employers must also ensure zero negative consequences for the whistleblower due to the whistleblowing. 

Compliance Strategies for Employers

Employers must comply with the labor regulations in Finland throughout hiring and managing employees. Here are some ways you can accomplish compliance. 

• Use standard templates:
  • Finnish labor act rules prescribe guidelines for working conditions, annual leaves, dismissal rules, and other statutory employee rights. 
  • Employers can work around standard contract templates compliant with labor law in Finland to frame employment terms & conditions. 

• Develop an in-house HR team:
  • Employers can dedicate an HR team to oversee employees’ hiring, onboarding, and management. 
  • HR experts can draft contracts that comply with Finnish labor law. They can also look after social media background checks, employee appraisals, social security benefits, and dismissals and ensure compliance with GDPR when processing employee data.   

• Partner with third-party payroll solutions:
  • SaaS-based payroll solutions are popular among global companies and entrepreneurs looking to hire and expand with minimum effort. 
  • Companies can focus on core business, while third-party payroll solutions can handle onboarding, draft legally compliant contracts, salary payments, tax reporting, etc., all at the click of a button. 

How Can Multiplier Help?

Understanding Finnish labor laws and drafting legally compliant documents can be time-consuming. Moreover, misreading information or being unaware of specific regulations can leave the company vulnerable to legal risks. It can also affect the company’s day-to-day functioning. 

Therefore, it is highly beneficial to work with third-party firms like Multiplier to maintain compliance with the labor regulations of Finland. 

Multiplier is a PEO-EOR firm that excels in providing solutions compliant with global hiring regulations. It can also automate the process of creating employment contracts. To facilitate global hiring, Multiplier also provides multilingual contracts. 

Multiplier provides employment solutions to comply with local laws and regulations in more than 150 countries, including Finland. Employers can also avail of Multiplier’s payroll management services to facilitate payments and tax reporting in compliance with the labor regulations in Finland.