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Employment in Finland

The Finnish labour market is characterized by highly organized relations between employee and employer, with a crucial role played by collective bargaining power in labour regulation. The core of Finnish employment legislation lies in comprehensiveness and detail of the legislation complemented by collective agreements. Around 80% of Finnish employees are covered by a collective bargaining agreement.

Key points on employment in Finland

The regulations and rules governing employment contracts, such as its definition, process of beginning and ending the contract, basic right and rules of job protection are codified in the Employments Contracts Act, applying to blue-collar workers and salaried employees, while managing directors typically fall outside these provisions. Specific provisions are also provided for other categories of workers, such as seamen and agricultural workers.

Due to the prevalence of collective agreements in the Finnish labour market, Finnish employers are obliged to provide their employees with more beneficial terms than they would receive under the statutory requirements. The power of Finnish trade unions therefore plays a significant role in the Finnish employment landscape.

  1. Contracts

    Employment Contracts

    There are several forms of basic employment contracts in Finland, administered under the Employment Contracts Act (ECA), which include permanent/fixed-term contracts, special contracts of employment, temporary agency work and probationary work. Employment contracts must be written exclusive of terms and conditions that may breach mandatory laws and provisions under the ECA or Collective Agreements Act (CAA).

    Contracts may be written, electric or oral, and for employment contracts extending longer than a month, the employer is obliged to provide a written contract detailing the following terms:

    • Location of work
    • Starting date and/or probationary period
    • Primary duties
    • Normal working hours
    • Collective agreement terms
    • Salary calculations
    • Holiday entitlements
    • Duration of contract
    • Required period of notice

    A main feature of the Finnish employment contract is that they are assumed to last indefinitely, unless a reasonable case or justification can be made for hiring an employee using a fixed-term contract for a certain period, or if the employee wishes to do so. A fixed-term contract does not need to be written, but the terms and conditions of the employment contract must be explicitly stated.

    Collective Agreements

    Collective bargaining of Finnish workers is regulated by the Collective Agreements Act which details to provisions for the terms of an employment contract negotiated between Finnish employers’ associations and trade unions. Collective agreements are very common in the Finnish labour market, with 80% of workers being members of a trade union. The collective agreements extend employment terms such as wage, salary, working hours, overtime, holidays, notice periods, etc. for the employee which are often more favourable than those stipulated under Finnish employment legislation. For example, Finland has no statutory minimum wage, but collective agreements specify minimum salaries for particular sectors which employers are obligated to comply with.

    In Finland, collective bargaining is divided into three levels: national, industry and company. The industry level negotiations involve setting out terms related to rates and basic conditions for a minimum standard in a particular industry, which in most cases employers are bound to.

  2. Probation Periods

    Parties may negotiate a probationary period up to a maximum of four months from the commencement of employment. If the employer offers the employee a training period that exceeds four months, the probationary period may be prolonged to a maximum of six months. The probationary period is strictly limited to no more than one half of the employment contract’s duration for fixed-term contracts shorter than 8 months.

    During the probation period, either party is free to terminate the contract without notice effective immediately, except in cases where the termination by employer is due to discriminatory reasons or reasons against the probation period’s purpose.

  3. Termination Procedures

    Notice periods

    A negotiation period up to a maximum of six months’ notice period may be negotiated in the employment agreement. If the employment contract fails to incorporate a notice period, the ECA and the collective agreements is responsible for defining an applicable notice period for both the employer and employee.

    The employer’s statutory notice period differ depending on the duration of employment:

    • Up to 1 year employment – 14 days
    • 1 year to 4 years – 1 month
    • 4 years to 8 years – 2 months
    • 8 years to 12 years – 4 months
    • More than 12 years – 6 months

    These notice periods are specified under Chapter 6, Sec. 3 of the ECA, and may be adjusted through negotiation of the employment contract.

    The employee may give notice of termination without stating the reason. The employer may only dismiss an employee if they provide substantial reasons for termination. The list of applicable reasons are covered in the ECA, however each case must be evaluated individually.

    During the notice period, employers must pay the regular salary to the employee, and the employee must work normally unless otherwise agreed.

    Termination without a notice period is possible, although an extremely weighty justification for dismissal is required. If an insufficient reason for termination is provided, the employer is liable to pay compensation. Typically equal to the pay foregone during the notice period.

    Compensation

    Compensation under Finnish legislation is dependent on the extent and justification of an employee’s unfair dismissal under Chapter 12 of the ECA. If the employer is dismissed without a just cause, the termination is considered illegal, where the compensation awarded to the employee may equal to 3-24 months’ pay. The extent of compensation depends on criteria such as:

    • Loss of earnings suffered by employee
    • Unemployment benefits awarded to compensate loss
    • Duration of employment relationship
    • Degree of guilt found on employer’s side

    If the employer provides a valid reason for termination but not for termination without notice, the compensation equals to the pay for the period of notice.

  4. Statutory Leave

    Annual Leave

    Under the Annual Holidays Act (2005), employees are entitled to 2.5 days of holiday for every full holiday credit month worked for employees working longer than 12 months, and 2 days of holiday per working month for those in employment contracts shorter than 12 months. Typically, there will be 30 days of holiday a year, equating to five weeks, or 24 days for those who have been working less than a year.

    For employees to qualify for the accrual of holidays, they must work a minimum of 14 days or 35 hours during a particular month. Employees who have worked less than 14 days or 35 hours every month of the year are entitled to 2 days per holiday credit month.

    The employer may grant the employee holiday leave in one of the two holiday seasons apart from exceptional circumstances. The summer holiday runs from May 2 to September 30 each year, while the winter holiday runs from 1 October to 1 May.

    An employee is entitled to receive holiday pay for the period of his/her holiday, commencing when their holiday starts. Collective agreements have also incorporated a holiday bonus (loomaraha) amounting to 50% of the statutory holiday pay.

    Sick Leave

    The employer is liable to pay wages during sick leave, given that the employer is informed of the employee’s disability without delay. The employee is obliged to provide a doctor’s certificate containing a diagnosis to be eligible for sickness benefits.

    The following statutory entitlements for employees who are on sick leave are as follows:

    • Full salary for 10 days for employment is longer than one month
    • Half salary for 10 days if employment is shorter than half a month
    • National sickness allowance based on the employee’s income is payable by Kela (Finnish Social Insurance Institution) under the Sickness Insurance Act (2004) for sick days after 10 days, up to a maximum of 300 days. The allowance is usually 70% of the employee’s salary, which decreases the higher the income.

    For most collective agreements covering blue-collar workers, employers are obliged to pay salary from the second day lost through sickness up to 4 – 8 weeks depending on the employee’s duration of employment. Salaried employees are entitled to full pay from 4 weeks up to 3 months. At this time, the Sickness Allowance provided by Kela is instead paid to the employer.

    Employees under a collective agreement typically receive greater benefits. Collective agreements have incorporated provisions for illnesses, including the omission of any sick pay if the illness or disability was caused deliberately or severe negligence.

    Maternity Leave

    Maternity leave is arranged for women during pregnancy and after childbirth is a means of protection for the employee and baby. The right to family leave is regulated under Chapter 4 of the ECA.

    The employee may commence maternity leave from 30-50 weekdays prior to the birth of the child, and lasts 105 weekdays. During this period, the employee receives a daily maternity benefit from the Social Insurance Institution equal to 90% compensation rate for the first 56 days, and 70% for the remaining period. Most collective agreement provisions oblige the employer to grant the employee full pay in during the first two or three months of the maternity leave, where the maternity allowance is instead paid to the employer.

    Parental leave is granted after the maternity leave period finishes, and lasts 158 weekdays. Either the mother or the father may take this leave, where a parental leave benefit is provided up to 70% of earnings.

    The ECA contains provisions for child care leave as well, which begins after parental leave and lasts until the child reaches three years old. A child care benefit is payable for this period if the parents choose not to place the child in day care.

  5. Pensions and Benefits

    The Finnish pension program is covered by two pension schemes: the National Pensions Scheme and the Employment Pensions Scheme. The National Pensions Scheme provides a minimum income and is a residence-based provision that covers all persons residing in Finland. The Employment Pensions Scheme is accrued for most earnings with no pension ceiling, accruing at the age of 18.

    National Pensions Scheme (NPS)

    The NPS offers a basic income for individuals with a very small earnings-related pension or those without any income-based pension at all. National pensions are administered by Kela, and are financed through employer contributions and tax revenues. The NPS under the National Pension Act is applicable to those older than 16 living in Finland, and includes old-age pensions, disability pensions, unemployment pensions, survivor’s pensions and early old-age pensions.’

    Employment Pensions Scheme

    Under the Employees Pensions Act (TyEL) is a mandatory benefit arrangement established through collective agreements which covers most of the private sector for earnings-related provisions. The TyEL provides protection for old age, incapacity for work, part-time pension, rehabilitation benefits, and farmers’ early retirement aid. The TyEL pension system is financed by both employers and employees and is administered under a decentralized system by pension insurance companies, company pension funds and industry-wide pension funds. These activities are coordinated by the Finnish Centre for Pensions (ETK).

    Unemployment Benefits

    The unemployment benefits in the Finnish labour market provide unemployment allowances via:

    • Basic Unemployment Allowance – Paid by Kela (Social Insurance Institution of Finland). Paid to registered job seekers who have been employed for at least 8 months in the previous two years. The allowance extends up to 500 days, and averages EUR551 per month. The amount depends on criteria like number of dependents and reasons for dismissal. Those who do not satisfy the conditions of the basic unemployment allowance may be eligible for the Labour Market Subsidy.

     

    • Earnings-related Unemployment Allowance – Paid by Unemployment funds. This allowance is paid to unemployment members of the unemployment funds. The allowance constitutes of a basic component, an earnings-related component and increases based on children.
  6. Working Hours

    Statutory rules for working hours in Finland are covered by the Working Hours Act. The act is a general law which applies to all sectors, and may be added upon by collective agreements that contain trade specific provisions on working hours. Working hours typically do not include travel time and any training time unless stated in the collective agreement or employment contract.

    The standard working hours under the Working Hours Act is 8 hours a day with 40 hours a week maximum. Certain trades and services afford the benefit of flexible special working hours, such as hotels, transportation and telecommunications, where hours worked may be up to a maximum of 120 hours over three weeks. Any overtime which exceeds the weekly maximum hours worked will have a 50% overtime rate in the first two hours, and 100% thereafter. The rates may be subject to change in collective agreements. Generally, overtime hours should not exceed 250 hours per calendar year.

    Collective agreements have sought to regulate working hours through reducing the weekly hours worked by 12.5 days a year, where some collective agreements in the industrial sector generally work for 37.5 hours a week only.

    Employees are entitled to a total rest period of at least 11 hours for each 24-hour period, which may be flexible depending on any collective arrangements or provisions in the employment contract.

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Finland. For companies which intend to employ their staff directly through their incorporated Finland entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Finland.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Finland.

The Shield GEO solution is an attractive alternative where:

the company is looking to employ staff quickly

the company doesn’t have an appropriately incorporated entity in Finland

the company wants to work within a defined budget

the company wants to limit its initial commitment in Finland

the company needs help with tax, employment, immigration and payroll compliance in Finland

Shield GEO can contract directly with the company to employ and payroll their staff in Finland. Shield GEO supplies local employment contracts for the staff which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits.  Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO.

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