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.
Employer registration by the Tax Administration
For purposes of taxation, employers can be considered either regular or casual.
If an employer pays wages regularly, the employer must register in the Employer Register as a regular employer. Register as an employer online or using the Y form (Business Information System, BIS). You can also check a company's register data in BIS Search. The service is free of charge. You can search for information by either the company name or its Business ID.
A company is a regular employer if one of the following conditions is fulfilled:
- The company regularly pays wages to at least two wage earners.
- The company simultaneously pays wages to at least six wage earners whose employment is temporary and meant to be short-term.
The company is an employer paying wages occasionally if either one of the following conditions is fulfilled:
- The company only employs one regular employee.
- The company employs one to five employees, whose employment does not last the whole calendar year.
If you are treated as a casual employer and prefer not to be registered as an employer, you will not be entered in the register.
Both employers who pay wages regularly and occasionally must report wages paid and taxes withheld on or after 1 January 2019 to the Incomes Register no later than on the fifth calendar day after the payment date. All earnings payment data must be reported regardless of the amount. The employer's health insurance contributions must be reported monthly, no later than on the fifth day of the calendar month following wage payment. Regular employers registered in the Employer Register must submit the employer's separate report also for the months in which no wages were paid.