Finland is the world’s happiest country, and setting up a business in Finland is equally great. The country’s GDP is $303.95 billion, making it the 46th highest global GDP contributor. The Human Development Index of Finland stands at 0.94, making it one of the most developed nations in the world. The country is a part of the European continent, providing easy access to all European markets.
Finland is renowned for having one of the most developed welfare systems in the world, including a free school system and a top-notch healthcare system. The country ranks high for ease of doing business in terms of starting a business and protection towards minor investors.
You must establish an effective payroll system when you register a new company in Finland. A payroll system in Finland should address all the payroll needs of the company and the employees. It should also adhere to all the labor regulations in Finland. Read on to learn about the payroll policies and procedures in Finland so that you can set up an effective system for your company.
How is payroll calculated in Finland?
Companies usually use a tool or software to implement the payroll system. However, bigger organizations hire a team and complete the process manually. Therefore, the method by which payroll elements are calculated will depend upon the company’s size and budget.
Generally, payroll in Finland involves calculating the gross pay, net pay, allowances, benefits and other elements of the compensation structure. It also includes the calculation of deductions like taxes, social security contributions, etc.
The company should define a standard process to calculate the payroll of all its employees. Also, all of these calculations must adhere to the payroll procedures and policies in Finland. An Employer of Record (EOR) like Multiplier can do all of these for you so you can focus on scaling up the business.
Important elements of salary structure in Finland
The salary structure in Finland has several components, which include:
Cost to company (CTC)
The cost to the company (CTC) shows the aggregate amount that a company bears to onboard an employee. It includes fixed and variable payments, along with bonuses, if any. The CTC of every employee is stated on the letter of employment.
Gross salary
The employee’s annual earnings are known as the gross pay. It comprises all the elements of the payroll calculation.
Net salary
The amount credited to the employees’ bank accounts is the net salary. An employee’s net pay is calculated by deducting all the necessary taxes and social security contributions from the gross pay.
Basic salary
The basic salary, or base pay, is the primary component of the payroll system in Finland. It accounts for around 30% to 40% of the employee’s total salary. Also, it acts as a base for calculating other components like allowances. The base pay is decided depending on the employee’s designation and the current industry standard.
Allowances
Finland is an employee-friendly country, providing different kinds of allowances to employees. These allowances help the employees bear the additional cost while working for the company. The kind of allowances the employees get is based on the company’s policy. Some standard allowances offered in Finland include the following:
- Meal allowance
- Fuel allowance
- Telephone allowance
Bonus
While there is no legal requirement to pay a bonus, holiday bonuses are pretty standard in Finland. If a company decides to pay a bonus to the employees, the clauses governing the payment of the bonus must be clearly stated in the employment contract.
How to set up payroll in Finland?
To set up payroll in Finland, you can follow the step-by-step approach discussed below:
Step 1: Select the kind of company you want to set up in Finland. It can be a sole proprietorship or a subsidiary company. Decide on the name of the company and start with the incorporation process.
Step 2: Create essential documents like the Articles of Association, etc., and submit them to the authorities that take care of the incorporation. You must also collect all the incorporation documents from the concerned authorities.
Step 3: Register your new business with all the tax and social security authorities. Mutually decide on the date you will make all the tax payments.
Step 4: Set up a bank account to make all the payroll-related payments. You must set up this account in one of the local banks of Finland.
Step 5: To calculate the employee’s gross pay, check their timesheets to know the number of hours they have worked. The timesheet will also help you calculate overtime payments.
Step 6: Once the gross pay is ascertained, you can calculate all the other salary elements. This step also includes the calculation of deductions like taxes, etc.
Step 7: Choose a payroll system for your company that meets all the needs of the employees. You also need to decide on the payroll procedure in Finland to ensure the payments are made on time.
Step 8: Select a payroll cycle so that you can make all the payroll calculations and payments in time. Also, ensure that you stick to the payroll rules and regulations in Finland to avoid any legal issues.
A step-by-step process of payroll processing in Finland
The payroll procedure in Finland includes the following steps:
Step 1: Choose a system
Finland accepts different kinds of payroll systems. The choice of payroll system depends on different factors. Some typical payroll systems in Finland include the following:
- Manual payroll: This system is opted for by larger companies with a dedicated team to take care of the entire payroll system. A manual payroll system costs significantly more as you must onboard a team and train them for the job.
- Payroll outsourcing: Here, you can choose to outsource your payroll function to an external vendor. They will take care of all the payroll calculations, etc.
- Payroll software: You can also use payroll software to manage the entire activity. The software is the best system for companies who want to automate their payroll.
Step 2: Create a payroll policy
- To standardize the process, you must have a guide that states the payroll policies in Finland.
- You must consider collective agreements in force and the Finland Labor Act while preparing a payroll policy.
Step 3: Add the employees to the system
- Once you choose a payroll system, you must add all the employees.
- You need to add their details, like name, date of birth, phone number, compensation elements, etc., to the payroll system.
- The payroll system should also define the payroll cycle to make employee payments on time.
Step 4: Verify the timesheets
- You must check your employees’ timesheets to calculate overtime and gross pay.
- Once you have the gross pay, you can factor in all the deductions to calculate the employees’ net pay.
Step 5: Reconcile
- Payroll reconciliation is a crucial step. You must check all the employee details before making salary payments.
- In this step, you must also look for errors and make necessary corrections in real time.
Step 6: Distribute the payslips
- As soon as the payroll calculations are made, you should issue a pay slip to all the employees based on their compensation structure.
- You can disburse the payslips via email or payroll software.
Payroll contributions
The payroll contributions are decided based on the payroll rules and regulations in Finland. It is crucial to adhere to these regulations to avoid any legal issues at a later stage. Some significant payroll contributions include the following.
Minimum wages
There is no standard minimum wage for employees in Finland. However, you must pay the employees freely depending on the nature of the work and the sector. A few collective bargaining agreements across sectors decide on the minimum wage for a particular sector.
Overtime
Employees who work beyond their regular hours, i.e., 40 hours a week, are entitled to overtime pay. The employees are compensated an additional 50% for the first 2 hours of overtime. Beyond that, the rate of overtime payments becomes an additional 100% of their regular pay.
Employer contribution
Employers make necessary contributions in Finland to ensure the well-being of their employees. These contributions are directly made to the Government authorities who manage these funds.
Contribution | Rate of contribution |
Pension Insurance- TyEL contribution (varies by company and contract type) | 25.55% |
Health Insurance | 1.53% |
Unemployment Insurance, applied as 0.20% up to €2,455,500 of wages and 0.80% on the exceeding amount. | 0.20% |
Accident insurance premium | Based on salary and job risk |
Group life insurance premium (if so agreed in the collective labor agreement) | Varies by industry and company |
Total employment cost | 27.28% |
The total contribution percentage depends on the employee’s gross earnings and the federal laws in place.
Employee contribution
The employees also make necessary contributions to the social accounts to ensure they have enough funds post-retirement. The contribution amount is directly deducted from the employee’s salary and is paid to the concerned authorities.
Contribution | Rate of Contribution |
Pension Insurance (average) | 7.15% (8.65% of employees aged between 53-62) |
Health Insurance | 1.96% (inclusive of daily allowance – which is zero for earnings below €15,703 annually, and medical care contribution) |
Municipal Tax | 4.36%-10.86% |
Church Tax | 1.00%-2.20% |
Unemployment Insurance | 1.50% |
Total employee cost | 15.97% to 23.67% |
Taxes
All the employees in Finland have to pay taxes on the income that they earn in the country. These taxes are directly deducted from the employee’s salary and paid to the tax authorities. However, the employees have to file annual tax returns.
Unlike other countries, the employees of Finland are charged a different tax rate on their salary and the benefits they receive from the company.
Income level | Tax rate on salary | Tax rate on benefits | Tax rate on pension |
<€10,000 | 0.0% | 16.0% | 0.0% |
€16,000 | 2.0% | 19.5% | 10.5% |
€20,000 | 5.0% | 21.5% | 16.5% |
€30,000 | 13.0% | 24.5% | 23.0% |
€40,000 | 18.5% | 28.0% | 28.0% |
€50,000 | 22.5% | 30.5% | 30.5% |
€60,000 | 25.5% | 32.5% | 33.5% |
>€70,000 | 27.5% | 33.5% | 35.5% |
Bonus
While there are no legal requirements for employee bonuses, most companies pay a holiday bonus. The terms of these bonuses are stated in the contract of employment.
Leave
Finland provides comprehensive leave entitlements to employees, ensuring work-life balance and employee welfare. Understanding these leave provisions is essential for proper payroll processing and compliance.
Annual leave
Employees in Finland are entitled to annual vacation leave based on their length of service. The standard entitlement is 2.5 days per month of employment, which equals 30 working days per year for full-time employees.
Sick leave
Employees are entitled to sick leave with pay continuation. The first day is typically unpaid (waiting day), but subsequent days are compensated. Employers usually pay sick leave for the first 9 days, after which social insurance takes over.
Maternity/Paternity leave
Finland offers generous parental leave benefits. Maternity leave includes 105 working days, while paternity leave provides 54 working days. These can be combined and shared between parents.
Other leave types
Additional leave types include compassionate leave for family emergencies, study leave for professional development, and military service leave for reservists.
Leave Type | Duration | Compensation |
Annual Leave | 2.5 days/month (30 days/year) | Full pay |
Sick Leave | As needed | Full pay (after waiting day) |
Maternity Leave | 105 working days | Social insurance benefit |
Paternity Leave | 54 working days | Social insurance benefit |
Payroll cycle
The payroll cycle runs from the start of the month to its end, and employees receive their salary on the last day of every month.
Finland payroll options for companies
There are multiple payroll options for companies working in Finland. You must compare these payroll options before choosing one for your company. You must also fix a budget for the payroll system and list all the requirements you want the system to meet. Some standard payroll options in Finland include the following:
Internal payroll
Large companies with enough resources to hire a specialized team for payroll choose internal payroll. The business takes care of all the aspects of the payroll on its own.
Remote payroll
If you are a subsidiary company, you can be part of the parent company’s payroll. This is referred to as remote payroll. However, the employees and the salary payments would be subject to the compensation laws in Finland.
Payroll processing companies
Several payroll processing companies can help you with the payroll process. However, you need to take care of all the compliance-related issues.
Global PEO
You can reach out to a PEO to pass over the payroll responsibility. You can consult the experts working in a PEO like Multiplier.
Entitlement and termination terms
The employment contract should outline the employee’s rights and contain termination provisions to avoid any problems. Compensation, working conditions, leaves, and other benefits are a part of the employees’ rights. The employer must justify an employee’s termination. Employers should have a strong and valid reason for terminating employees:
- Agreement reached by both the employer and the employee
- While employed there, the employee acted dishonestly
- If the business experiences a significant change
Employers must include the reason for termination in the letter of termination given to the employee. Terminated employees are entitled to severance pay from their employers.
Finland payroll processing company
While expanding your business in a country like Finland is simple, you need to understand all the local laws and norms applicable in the country. You can reach out to experts in the field who can help you understand the process.
Contact a PEO company like Multiplier for details on the local laws and regulations governing Finland’s payroll systems. Keep your options open if you want the best payroll aid support.
How Multiplier can help with global payroll
Complying with local labor rules and regulations is necessary while setting up a payroll in Finland. However, you can quickly set up a compliant payroll system with the proper guidance and expert assistance.
You can reach out to a global Professional Employer Organization (PEO) like Multiplier to understand your payroll requirements. Multiplier has helped several companies worldwide build an effective and efficient payroll system. Our team will help you set up a reliable payroll system that meets all the needs of the company and the employees.
Excited to start your journey in Finland?
Book a demo today to see how easy it is to go global.
FAQs
Is it mandatory to have a payroll system in place when starting a business in Finland?
Yes, companies must establish a payroll system that complies with Finnish labor and tax laws.
How often are employees paid in Finland?
Employees are typically paid monthly, with salary disbursed on the last day of the month.
Are bonuses legally required in Finland?
No, but holiday bonuses are customary and must be specified in the employment contract if offered.
What payroll contributions are required from employers in Finland?
Employers contribute to pension, health, unemployment, accident, and group life insurance, totalling around 27.28%.
Can I outsource payroll in Finland instead of handling it internally?
Yes, you can use payroll software, external vendors, or partner with a Global PEO like Multiplier.
