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Pay your team in Finland
Setting up payroll in Finland
Income tax and social security in Finland
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For foreign companies intending to expand their business into Finland, getting their local payroll up and running may seem like quite an overwhelming task, as there is a multitude of different registration requirements which differ depending on the employer’s circumstances.
Furthermore, employers are responsible for taking out various different insurances for their employees and contributions have to be paid separately to every service provider. However, tax calculation is simplified via a tax card system and tax-related reporting is limited to one declaration per month.
Although there is no legal obligation to set up a local legal entity or register a branch to hire employees in Finland, foreign employers still need to complete various registration formalities and set up several insurances for their future hires before they can start processing payroll.
However, many registration requirements only arise if the employer is classified as a regular employer, which is the case if:
The employer pays wages and/or salaries to at least two employees on a regular basis.
The employer pays wages and/or salaries to at least six employees at the same time, even if their employment is temporary and intended for a short term.
The first step when setting up payroll in Finland is to join the Employer Register which is administered by the Finnish Tax Administration. It is worth noting that registration can still be completed after the first employee starts working for the company and that only regular employers are formally required to register. In case a local legal entity or branch is set up, this registration can be done together with the electronic start-up notification of the business.
Another necessary requirement for running payroll in Finland is to sign up with the Incomes Register which is the national database for submitting information regarding wages and salaries paid to employees. Depending on whether or not the employer wants to establish a local entity, further registrations with the Trade Register, the VAT Register and other registers are necessary.
In addition to these statutory registration requirements, employers are obligated by law to take out the following insurances for their employees:
Employment pension insurance: mandatory for all regular employers; rates set by law, but companies are free to choose from the different private insurance companies
Occupational accident and disease insurance: applicable to regular employers paying more than EUR 1,300 in wages per year
Group life insurance: usually combined with occupational accident insurance; mandatory for all employers who are covered by a collective bargaining agreement requiring one
Unemployment insurance: mandatory and provided by the National Employment Fund
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The Finnish Social Security system may be confusing for foreign companies to begin with as there are multiple mandatory insurances of which only two are administered by the State. The income tax system is complex, but income tax calculation is simplified by tax cards which are issued by the Finnish Tax Administration for each employee upon request.
Income tax in Finland is collected on two different levels. i.e. on the national level and on the municipal level. Local income tax is levied at a flat rate determined by each municipality and varies between 16.5% and 23.5%. National income tax rates are progressive, with rates ranging from 6% to 31.25%.
Furthermore, members of certain religious institutions are required to pay church tax. The tax rates are set by each municipality and range between 1% and 2.2%. Detailed information on applicable tax rates and deductions can be found on the employee’s tax card. If the employee does not have a tax card, employers must withhold a flat rate of 60% of the employee’s salary.
Taxable income from employment comprises wages, salaries, bonuses, stock options as well as other kinds of compensation provided either in kind or in cash (e.g. housing allowance, company car etc.). Deductible items include the employee’s mandatory unemployment insurance and pension contributions (voluntary contributions are partially deductible) and employment-related expenses. The latter can be deducted in the form of a EUR 750 standard deduction if actual expenses are lower. The first EUR 19,200 of an employee’s income are exempt from national income tax.
Finnish residents are taxed on their worldwide income while non-residents only pay tax on income earned from work carried out in Finland. Tax residency is determined via either one of the following criteria:
Employees who have their permanent home in Finland
Employees who spend more than 6 months (continuous stay) in Finland during any given 12-month period
Non-residents are taxed at a standard rate of 35% and are subject to different deduction limits. There is a special tax regime for foreign experts coming to work in Finland. Under this separate regime, highly qualified expatriates working in Finland are taxed at a 32% flat rate. However, applicants must meet certain requirements and the duration of the tax scheme is limited to 48 months.
2022 National Income Tax Bands *
Corresponding Tax Rates
* Please note that there is an additional municipal tax of between 16.5% and 23.5%, plus an optional church tax.
Income tax in Finland must be withheld at source. It is therefore the employer’s obligation to calculate and deduct income tax from their employees’ earnings before paying salaries and wages. The withheld amounts must be paid to the Finnish Tax Administration no later than the 12th of the month following the payroll run.
Every month, a so-called “earnings payment report” must be filed with the Incomes Register which states the total amount of wages and salaries paid in the respective pay period. The report is due 5 days after the respective pay day and must be submitted electronically via the Incomes Register’s e-service. Information to be included in the report comprises salaries and wages as well as all other types of payments and fringe benefits.
Individuals only need to file an annual tax return if the information in the pre-completed tax declaration provided by the Finnish tax authority is incorrect or incomplete. In this case, the correct information must be submitted by mid-May. The tax year is the calendar year.
Both employees and employers in Finland are required to make contributions to several insurance funds. The obligation includes resident employees as well as non-resident employees if they are not covered by social security in a different country. The mandatory social security coverage includes pension insurance, health insurance (divided into a fund for daily sickness benefits and general healthcare), unemployment insurance, occupational accident insurance and group life insurance. Contribution rates are adjusted annually. The rates for 2022 are shown in the table below.
While employers must contribute to all of the above-mentioned insurance funds, employees only need to contribute to the health, pension and unemployment insurance. It is worth noting that social security contributions for expatriates taxed under the foreign experts scheme are already included in the 32% tax rate. Foreign employers without permanent establishment in Finland are exempt from making health insurance contributions.
Employers have the obligation to withhold the employee’s contributions to health, unemployment and pension insurance and submit them to the competent bodies together with their own share. Health insurance contributions must be paid to the local tax authority while all other contributions must be paid directly to the respective insurance provider.
Payments for health insurance are due by the 12th of the month following the payroll run. Unemployment insurance contributions are due on a quarterly basis, i.e. in January, April, July and October. Pay dates for contributions towards pension, occupational accident and group life insurance vary depending on the chosen insurance provider.
The outstanding amounts which need to be paid are communicated to the employer by the insurance providers who receive information on paid salaries from the Incomes Register. In addition to the standard salary and wages report, employers further need to file a separate monthly declaration detailing the calculated health insurance contributions. The deadline is the 5th of the month following the pay period.
* Employers pay a 0.5% contribution on the first EUR 2,197,500 of the total gross salaries paid to their workforce and 2.05% for any salary payments exceeding this threshold.
** Employees under 53 or over 62 make a 7.15% contribution while employees aged between 53 and 62 are required to make a 8.65% contribution.
*** Only applicable to employees between 17 and 64 years of age.
**** Divided into 0.53% medical contribution and 1.18% daily allowance contribution. The latter only applies to income exceeding EUR 15,128 a year.
Employees in Finland are entitled to various benefits. These include:
Annual leave and public holidays: 24 days during the first year of employment and 30 days for every year of service thereafter; 13 public holidays
Maternity leave: 105 working days paid by Social Security; 30 to 50 days of which can be taken before birth
Paternity leave: 54 working days, of which 18 can overlap with maternity leave
Parental leave: 158 days to be divided between both parents; during this time, employees receive a parental leave allowance; it is not possible for both parents to take parental leave at the same time
Sick leave: first 10 days (day of falling ill, plus 9 following days) paid by the employer; thereafter, employees receive sickness benefits from Social Security
For more information on employee benefits and other employment requirements in Finland (including severance pay and termination procedures), check out our Global Hiring Guide.
There is no national minimum wage in Finland which is stipulated by law. However, employers may be obligated to offer their employees a certain minimum salary in accordance with an applicable collective bargaining agreement.
Overtime work is permitted, but employers are required to get the employee’s consent. The pay rate for overtime work (i.e. hours exceeding the employee’s regular working hours) varies. The first two additional hours must be paid at a rate of 150% of the employee’s usual wages. For any hour thereafter, pay increases to 200% of standard pay.
Finnish labor law does not mandate the payment of an annual bonus in the form of a 13th salary or similar, but there are many collective bargaining agreements which mandate the payment of a holiday bonus equal to 50% of the pay employees receive during their annual leave.
It is common to process payroll once a month - unless a shorter pay period has been agreed. Wages and salaries generally have to be paid on the last day of the agreed pay period. However, a different pay date can be determined in the individual employment agreement.
Payments must be issued directly to the employee’s bank account and although there is no formal requirement to pay Finnish employees in the local currency, it is easier to issue payments in euros as the payroll-related reporting will have to be done in this currency.
After each pay period, employees must receive a payslip. There is no regulation as to the form in which the payslip is issued (i.e. electronically or in paper form), but employers must make sure to include the following information:
Basic salary, bonuses and allowances
Fringe benefits as well as other forms of compensation
Withheld income tax, social security contributions as well as any other deductions made from the employee’s salary
Learn about tax reporting, compensation laws, registration requirements and more in our free Payroll Guide for Finland.
This country guide is for informational purposes only and should not be construed as legal advice. The content of this guide contains general information, and although we update this guide regularly, it may not reflect current legal developments. Lano Software GmbH disclaims any liability for any actions you take or refrain from taking based on the content contained in this country guide.
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