Finland, a vibrant hub of skilled talent in the north, offers incredible opportunities for businesses looking to expand. But before you tap into this market and start hiring in this beautiful country, it’s essential to understand the full cost of employing. Beyond competitive salaries, there are important factors like social security contributions, taxes, and employee benefits that can impact your budget. In this blog, we’ll walk you through the key elements of employing staff in Finland, helping you plan your hiring costs with confidence.
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Base Salary
The base salary is the foundation of your employee’s compensation package. In Finland, there are no statutory minimum wage laws. However, collective agreements (called Työehtosopimus, or TES) in various sectors often set minimum wages for employees. It’s essential to review these sector-specific agreements to ensure compliance when setting salaries.
That being said, Finnish salaries are generally in line with other Northern European countries. As of 2023, the average monthly gross salary in Finland is around €3,800, however, this figure varies considerably between different sectors
Employer Contributions: Social Security and Pension
In addition to salary, employers in Finland must contribute to the employee’s social security and pension schemes. Here’s a breakdown of the most important contributions:
- Pension Insurance (TyEL): Employers are required to pay pension insurance premiums to Finland’s statutory earnings-related pension scheme. The contribution rate varies slightly but is generally around 25% of the employee’s gross salary, with the employer covering approximately 17.34 % of this and the employee contributing around 7.15 % (deducted from their salary).
- Health Insurance: Employers are also responsible for paying a share of the employee’s healthcare contributions. The rate is approximately 1.16% of the employee’s salary.
- Unemployment Insurance: Employers contribute around 0.27%–1.09% of an employee’s salary, depending on the total payroll amount. Employees also contribute with 0.79 %, but this is deducted directly from their salary.
- Accident and Occupational Health Insurance: Finland requires employers to provide accident insurance for employees. The rate for this varies by industry and the level of risk associated with the job but typically ranges from 0.2% to 1.54% of the gross salary.
- Group Life Insurance: This contribution is part of most collective agreements and generally costs employers about 0.06% of the salary.
Employee Benefits
Employers in Finland are generally expected to provide a range of benefits. These may not always be mandatory, but they are common practice and help ensure employee satisfaction:
- Annual Leave: Employees in Finland are entitled to 24-30 days of paid annual leave depending on their length of employment. The employer covers the full salary during this period, and there’s an additional holiday pay bonus in most collective agreements, which can amount to 50% of the employee’s salary during the leave.
- Sick Leave: If an employee falls ill, employers are required to pay full salary for the first 10 days of sick leave. After this period, the Social Insurance Institution (Kela) steps in to provide compensation, although employers can supplement this.
- Parental Leave: Finland offers generous parental leave policies, allowing both mothers and fathers to take extended paid leave. Employers contribute towards this, based on the length of leave and collective agreements. For one child, parental allowance is available for a total of 320 working days, with each parent entitled to 160 days. Additionally, parents can transfer up to 63 of their parental allowance days to another person caring for the child.
- Occupational Health Care: Employers are responsible for providing basic healthcare services to their employees. This usually includes preventative health checks and some basic medical treatments, typically offered through private healthcare providers.
Taxes and Withholding
Employees in Finland pay progressive income tax, meaning the higher the salary, the higher the tax rate. The employer is responsible for withholding the correct amount of taxes from each paycheck and submitting them to the Finnish Tax Administration. Finnish tax rates can vary from around 6% to 57% depending on the employee’s income and location (due to municipal taxes).
In addition, employees pay their share of social security, unemployment, and pension contributions through salary deductions.
Administrative Costs
In addition to the direct salary and contributions, there are administrative costs tied to payroll management, tax reporting, and compliance with Finland’s employment regulations. For businesses operating from abroad, these costs can increase if local expertise is needed to navigate Finland’s employment laws and social security systems.
Hidden Costs: Employee Well-being and Work-Life Balance
While Finland may have higher employer contributions compared to some other countries, it’s important to note the country’s emphasis on employee well-being. Finnish companies often promote flexible working hours, work-life balance, and a positive workplace culture. This leads to lower turnover rates, higher productivity, and a more engaged workforce—all of which can save money in the long run.
For more details about the cost of employing in Finland, visit the Finnish Tax Administration (Verohallinto), the Finnish Centre for Pensions (Eläketurvakeskus) and The Social Insurance Institution of Finland (Kela).
Conclusion
Employing in Finland involves more than just paying a salary. When you consider mandatory contributions to pensions, healthcare, unemployment insurance, and other benefits, the overall cost can be significantly higher than the base salary. However, the country’s well-developed social system, high levels of employee satisfaction, and stable labor market make Finland an attractive place to hire skilled workers.
Just like building a solid foundation before entering a new market is key to success, establishing a strong framework for employment is crucial when hiring staff. By navigating local regulations, ensuring compliance, and anticipating costs, businesses can lay the groundwork for sustainable growth. In Finland, as with other countries, understanding these costs in advance will help you budget effectively and ensure compliance with labor laws.
To manage these complexities, companies often rely on local HR and payroll service providers. Internago, with its expertise in the Nordic and European employment markets, can help you build that solid foundation by streamlining payroll and administrative tasks, ensuring compliance, and guiding you through the intricacies of Finnish labor laws. With proper planning, you can not only manage your workforce effectively but also seize the opportunities in Finland’s thriving labor market.
If you’re thinking of hiring in Finland, reach out to us for guidance on setting up payroll, understanding collective agreements, and navigating the local employment landscape.
To learn more about employment costs, see our earlier blogs covering the Czech Republic, UK, Spain, France, and Italy. For further inquiries, please contact us at info@internago.com or visit our Payroll Portal.