Not only is payroll processing a crucial element of any organisation’s financial operations, but it also plays a significant role in maintaining the well-being of employees. In turn, smooth payroll practices can solidify a company’s reputation as a good and reliable employer.
In this article, we will explore the key aspects of payroll in Finland, including employee costs, minimum salaries, employee benefits, overtime work, and work on public holidays.
Employee Costs in Finland
In Finland, payroll calculation involves determining the net salary of an employee based on Finnish legislation and Collective Bargain Agreements (CBAs). Payroll accountants are responsible for this.
The process includes the following:
- Calculating and reporting income
- Handling tax contributions
- Communicating with authorities like KELA (the Social Insurance Institution of Finland), trade unions, and insurance providers
In Finland, employees are subject to:
- Personal income tax on qualifying gross income (12.64% – 44.25% based on salary)
- Social security contributions (1.9%)
- Pension insurance contributions (7.15% or 8.65% based on age)
- Unemployment insurance contributions (0.59%)
There may also be voluntary trade union contributions and compulsory distraint payments. Foreign employees have specific tax and social insurance regulations based on their home country and the nature of their stay in Finland.
Minimum Salary in Finland
Finland does not have a legally mandated minimum salary. Instead, minimum wage levels are determined by the applicable CBA or left to the employer’s discretion. By law, pay must be deemed normal and reasonable based on industry standards, and normal wages must be paid during probationary periods.
Overtime Regulations in Finland
Overtime work in Finland is defined as work performed in addition to regular working hours. Normal working hours are up to eight hours per day and up to 40 hours per week. When these limits are exceeded, the extra hours qualify as overtime. Overtime compensation in Finland is typically 50% or 100% of the employee’s hourly wage, and employers must pay it as additional compensation or provide equivalent paid time off.
Work on Public Holidays in Finland
Public holidays in Finland are considered paid time off. Working on a Sunday or public holiday entitles employees to a 100% hourly wage, and CBAs may specify additional payments for work on certain holidays and eves, such as Midsummer, Christmas, and New Year’s Eve.
Employee Benefits and Taxation
Finnish employees receive various fringe benefits. They can include things like company paid phones or cars, or housing benefits. These benefits are considered taxable (fictional) income, and employers are responsible for paying taxes, including withholding tax and social contributions based on the benefit’s value. Employers in Finland can also offer some tax-free benefits to employees.
Tax-free benefits in Finland may include:
- Bicycle benefit up to EUR 1,200 per year
- Public transport tickets for commuting up to EUR 3,400 per year (including bicycle benefit amount, if applicable)
- Up to EUR 400 per year for cultural or sporting activities (usually offered in the form of a voucher with which employees can buy a service of their choice)
Mandatory State Social Security Contributions
In addition to employee contributions, employers in Finland are required to make various contributions.
These include:
- Social security contribution (1.87%)
- Accident and group life insurance (amount varies based on salary, job risk, and CBA)
- Pension insurance (average contribution of 17.38%)
- Unemployment insurance (0.2% or 0.8%, depending on total wage)
All of the above contributions are calculated based on the employee’s gross salary, and contribution rates change frequently! Consult with a professional on tax and payroll in Finland to find out the latest rates.
Leinonen Finland: Supporting Foreign-owned Businesses With Payroll, tax, and Accounting
The Finnish payroll system is highly regulated, with various components that must be adhered to by both employers and employees. Adherence to the complex CBAs and Finnish holiday regulations is crucial to ensure accurate and compliant payroll processing.
Foreign-owned businesses in Finland must have a strong understanding of the intricacies of payroll in Finland. This understanding will allow them to maintain legal compliance and support the wellbeing of their employees.
Operating in 11 locations across Northern, Central, and Eastern Europe, Leinonen specialises in supporting cross-border businesses. Leinonen Finland’s local team are experts in accounting, tax, and payroll in Finland, and are ready to help your foreign-owned business thrive.
To find out more on managing payroll as a foreign-owned business in Finland, read this article. Alternatively, contact Leinonen Finland to arrange a consultation and get the personalised support and guidance your business deserves.
