Being an employer
When you pay someone for the work they do for you, it can be treated as wage income or, if the beneficiary is self-employed, as trade income. The payer's employer obligations in taxation are determined by which is the case.
The instructions apply to all companies and corporate entities that act as employers. There are separate instructions for households as employers.
When is compensation regarded as wages?
Wages are paid for the performance of work within an employer/employee relationship. Additionally, the following fees listed in the Prepayment Act are to be treated as wages even if no employer/employee relationship is formed:
- Fees paid in compensation for attending a meeting/conference
Fees paid for giving a lecture or speech
Fees relating to Board membership or membership in a similar administrative organ of a corporation
Managing Director's compensation
Compensation agreed to be paid to the shareholders of a partnership or limited partnership
Compensation for acting in a position of trust.
Employers typically give fringe benefits (such as company car, free meals and company telephone) to their employees in addition to cash wages. These benefits are treated in the same way as wage income in taxation.
When is compensation regarded as trade income?
If work is done as an independent contractor, the compensation is regarded as trade income.
Employment relationship and independent contractor relationship; the payer's obligations
With regard to the payer's obligations, the deciding factor is whether the work is performed in an employment relationship or as independent contracting.
The employer/contractor and the performer of the work can sign an employment contract or commissioning contract for the work. Already when drawing up the contract, you should
- take into account the criteria for these contract types
- ensure that the type and content of the contract as well as the actual operations correspond to the intention of the parties.
In a possible conflict situation, an overall assessment will be made on the basis of the criteria for the contract types to determine whether the payment is wages or trade income.
More information and guidance on the difference between employees and the self-employed (in Finnish or Swedish)
The obligations of a wage payor
Ensure the following matters when you pay wages on the basis of an employment or public-sector employment relationship or for payments separately decreed as wages:
- withhold tax
- in most cases, pay the employer's health insurance contribution
- take out an earnings-related pension insurance for the employees
- additional insurance contracts may include accident and unemployment coverage and group life insurance
- submit reports on wages:
- Report data on wages paid on or after 1 January 2019 to the Incomes Register on the earnings payment report. Report the employer's health insurance contributions to the Incomes Register on the employer's separate report. Annual information returns are no longer submitted for the payment year 2019.
- Report wages and employer's contributions paid in 2018 or earlier to the Tax Administration on the tax return for employer's contributions. The annual information return must also be submitted for the payment year 2018.
- register in the Tax Administration's Employer Register if you pay wages regularly.
Obligations of a trade income payer
Ensure the following matters if you pay trade income to a recipient who is not in an employment relationship with your company and who is not entered in the prepayment register:
- withhold tax
- submit reports on trade income
- Report trade income paid on or after 1 January 2019 to the Incomes Register on the earnings payment report. Annual information returns are no longer submitted for the payment year 2019.
- Report trade income paid in 2018 or earlier to the Tax Administration on the tax return for employer's contributions. The annual information return must also be submitted for the payment year 2018.