Employers and contractor’s obligations

Regional State Administrative Agency | Finnish Centre for Pensions | Finnish Workers’ Compensation Centre | Employment Fund

Monitoring of employers safeguards: fairer competition, taxes and payments to society, benefits and pensions for employees

The Regional State Administrative Agency monitors the employment of foreign nationals in Finland

Source: The Division of Health and Safety of the Regional State Administrative Agency for Southern Finland

In 2019, the immigration control team of the Regional State Administrative Agency for Southern Finland conducted a total of 847 immigration control operations in Southern Finland. The operations focused on verifying that foreign employees had the right to work and that their employment contracts complied with the minimum terms and conditions laid down in Finnish law.

About 42 per cent of the operations in Southern Finland were carried out in the hotel and restaurant sector, while around 29 per cent examined construction industry companies and 8 per cent cleaning industry companies. The rest of the operations were conducted in a range of different sectors (Figure 1).

In 2019, immigration control operations were carried out as both unannounced visits and as regular preannounced company visits. Most of the control operations were made at different companies; only approximately 11 per cent were targeted at sites that had been inspected previously the same year.

In 2019, the number of tips related to immigration control in Southern Finland doubled compared to 2018. In 2019, more than 440 tips useful for control purposes were received in total, while in 2018 the corresponding number was 220. Most of the tips were received from other authorities working with the employment of foreigners in Finland. Most of the tips came from the construction and restaurant sectors – the number of tips from the construction sector, in particular, more than tripled compared to 2018.

The operations uncovered large numbers of foreign employees with no right to work

In OSH immigration control operations in Southern Finland in which foreign employees’ right to work was examined, more than 20 per cent of workplaces had at least one foreign employee with no right to work in their current role in Finland. Nearly 300 foreign employees with no right to work were encountered during the operations. In most cases, there were only one or two foreign employees at the workplace who had no right to work (Figure 2).

Nearly 70 per cent of the sites subject to immigration control in Finland where foreign employees with no right to work were encountered were located in Southern Finland. In 2019, 52 per cent of all immigration control operations were carried out in Southern Finland, which partly explains the large number of observations.

Foreign employees with no right to work can be found in all sectors

At least one foreign employee with no right to work was found in one-fourth of immigration control operations in the cleaning sector. More than every fifth control operation in the construction industry brought to light foreign employees with no right to work.

In 2019, regular company visits found clearly more foreign employees with no right to work than unannounced visits. An example of this is the accommodation and food services industry, in which approximately every fifth regular company visit discovered foreign employees with no right to work, as compared to slightly less than eight per cent in the case of unannounced visits. Unannounced visits should also be made in the future, however, as they provide useful comparative data for the more in-depth supervision of employees’ right to work and the minimum terms and conditions in the form of regular company visits.

The number of foreign employees with no right to work found in the operations doubled compared to 2018. During the past three years, operations have largely been targeted at workplaces where employers have not fully complied with employment legislation and have failed to verify employees’ right to work. Targeting operations at problem sites partly explains the high incidence of foreign employees with no right to work. The high incidence also indicates that the operations have been correctly targeted. On the other hand, foreign employees with no right to work are working in fields such as the construction sector more often, which means that the changes in control observations on the right to work cannot be explained only by the targeting of control; instead, they also indicate that the sector has changed.

Non-compliance with minimum terms and conditions for foreign employees

Another key issue that immigration control operations in Southern Finland focus on is the supervision of compliance with minimum terms and conditions in the employment of foreign employees. It assesses whether the employer complies with the Finnish employment legislation with regard to the wages of the employees. In 2019, attention was also paid to whether employers observed the principle of non-discrimination.

There was a high incidence of deficiencies in compliance with minimum terms and conditions for foreign employees in Southern Finland. There were particular problems in complying with the provisions of the collective bargaining agreement on wages. The largest number of problems were found in the construction and restaurant sectors. In the construction sector, deficiencies in wages were discovered in 68 per cent of the inspections (2018: 54.4 per cent) while in the restaurant sector, wage deficiencies were found in 59 per cent of the inspections (2018: 53 per cent). In the cleaning sector, wage deficiencies were also found in more than one third of the inspections focusing on the issue (Figure 3).

The major deficiencies in compliance with the provisions on wages in the collective bargaining agreement were to do with the level of basic wages and various supplements. There were differences between sectors, however – for instance, in the construction industry, the basic wages paid to foreign workers exceeded the minimum level set in the collective bargaining agreement more often than in the restaurant and cleaning sectors. However, many deficiencies were detected in all of the above sectors in the payment of various supplements. Any failures to comply with the collective bargaining agreement in companies that were members of an employers’ federation were reported to these federations.

An ongoing challenge in immigration control operations is the verification of employees’ actual working hours. In 2019, many operations revealed that the employer had not kept a record of the working hours of their employees as required by the Working Hours Act. In such cases, it is difficult for the inspector to establish whether or not the minimum terms and conditions are being met in the case of a foreign employee, as the wages paid to the employee cannot be compared to the actual number of hours worked. The largest number of deficiencies related to keeping a record of the working hours as required by the Working Hours Act were found in the restaurant sector, where deficiencies in the record of the working hours were found in 70 per cent of the inspections.

In the restaurant sector, the deficiencies related to work schedules were highlighted; they were found in 65 per cent of the inspections. Many deficiencies in keeping a record of the working hours were also found in other sectors. In the construction sector, deficiencies in keeping a record of the working hours were found in 63 per cent and in the cleaning sector in 42 per cent of the inspections.

In 2019, supervision of the minimum terms and conditions of foreign employees in Southern Finland was successful, as evident from the high number of administrative hearings, decisions and pre-trial investigation reports.

Many deficiencies in the minimum employment terms and conditions for posted employees

Immigration control in Southern Finland carried out 43 inspections in companies posting employees in Finland in 2019. Most of these operations targeted the construction sector. Many deficiencies were found in the inspections of companies posting employees; for example, the wages of posted employees were in order in only every third case.

Under the Act on Posting Workers laid down in 2016, an administrative negligence fee may be imposed in cases where the law has been broken. Deficiencies detected during the monitoring of posting companies in Southern Finland have led to the initiation of a negligence fee process in several cases.

New phenomena in the field of immigration control

In 2019, inspectors came across situations in which they were told that the person working on the site was not in an employment relationship with the employer. In such cases, the inspector may, based on the findings of the inspection, deem that the criteria of an employment relationship are met for the person in question. Most of these cases concerned the restaurant industry. Some of these findings are the result of the increased number of unannounced visits, which shed better light on the actual situation at the workplace. The more extensive rights of occupational safety and health authorities to information by law has proved helpful in resolving such situations. For example, it is possible to utilise information provided by another authority to verify whether an employee has at any point been paid wages by the employer on which taxes have been paid. In the restaurant sector, a guideline on the characteristics of an employment relationship was given in more than 6 per cent of the inspections in 2019. In 2018, the same number was 3 per cent (Figure 4).

Slightly fewer asylum seekers were encountered than before

Many asylum seekers were encountered during the immigration control inspections in Southern Finland in 2017 and 2018. In 2017, more than 200 asylum seekers were found to be working at around 100 workplaces, and in 2018 these figures grew to slightly over 260 asylum seekers at more than 110 workplaces. In 2019, the number decreased to 219 asylum seekers at 65 workplaces.

In addition to the restaurant sector, the cleaning sector seems to be employing more asylum seekers. A bit less than 14 per cent of the inspections were conducted in the cleaning sector, and more than half of the asylum seekers found in immigration control were encountered during inspections in the cleaning sector. Asylum seekers were found in more than every third inspection in the cleaning sector.

Foreign companies also hire employees directly from Finland

As in the previous years, in 2019, control operations targeting foreign companies in the construction sector uncovered cases in which a foreign company had hired at least some of its employees directly from Finland, which means that these employees cannot be treated as posted employees. The phenomenon is particularly common among Estonian companies in the construction sector. Control operations in the construction sector uncovered 28 companies employing more than 240 non-posted employees in total. The number of companies has remained at the same level compared to 2017 and 2018. The Act on Posting Workers and related obligations are not applicable to these companies, which may make supervising their conduct more challenging in many situations.

Inspections carried out in collaboration with other authorities

Immigration control in Southern Finland conducted 284 joint visits with other authorities in 2019. As in previous years, the most important authorities acting as partners were the police, the Border Guard and the Finnish Tax Administration.

The police were involved in about 210 visits. Almost one half of the joint visits with the police were targeted at restaurants; these visits were unannounced. The number of joint visits with the police has decreased somewhat compared to the two previous years. This is at least partly due to the fact that in immigration control, more attention than in the previous years has been paid to the accuracy of the targeting of control instead of simple quantitative goals. The presence of the police at inspections was very useful from the perspective of the occupational safety of inspectors and verifying the identity of the employees encountered.

Cooperation with the Border Guard was carried out in 75 inspections (2018: 96 inspections). The inspections were mainly focused on unannounced visits in the restaurant sector. There was also some cooperation with the Border Guard in other sectors, such as the cleaning and construction sectors. As a rule, information on the site had already been exchanged before the joint inspections with the Border Guard – as a result, the joint inspections have mostly been very successful with regard to the targeting of control.

A total of 68 joint inspections with the Finnish Tax Administration were carried out (2018: 91 inspections). Nearly all of the inspections with the Finnish Tax Administration were unannounced construction site visits. These joint inspections with the Finnish Tax Administration in the construction sector are planned together, and the sites are selected together with the authorities participating in the inspections. The Finnish Centre for Pensions participated in construction site inspections in 2019 in the usual way (41 inspections).

The Contractors’ Obligations and Liability Act protects against the shadow economy

Source: The Division of Health and Safety of the Regional State Administrative Agency for Southern Finland

The OSH Division of the Regional State Administrative Agency for Southern Finland monitors compliance with the Act on the Contractor’s Obligations and Liability when Work is Contracted Out (Contractors’ Obligations and Liability Act, 1233/2006) in Finland as a whole. The Contractors’ Obligations and Liability Act’s objective is to promote equal competition among businesses and compliance with the terms of employment. The Act also enhances the opportunities of contractors when work is contracted out to ensure that the subcontractors and partners providing leased workers fulfil their statutory obligations to pay taxes and provide pensions insurance for employees, for example.

Compliance with the contractor’s obligation to check is monitored with inspections

In 2019, monitoring was especially targeted at the construction industry, industrial sector, logistics, the service industry, joint municipal authorities, and foreign contractors. In total, slightly under 1,600 inspections of contractor’s obligations and liability were carried out in 2019. Of those inspections, roughly 1,500 were completed by 23 March 2020. Inspections of contractor’s obligations and liability were used to monitor the compliance with the obligation to check a total of about 6,000 contracting partners who had concluded a contract for the use of leased workers or subcontractors (Chart 1).

The monitoring was carried out in close co-operation with the Finnish Tax Administration, Finnish Centre for Pensions, and other authorities; and the Occupational Safety and Health Authority utilised the information obtained from them in the inspections. More specifically, the Occupational Safety and Health Authority had extensive access to the contract information and employee data of the construction industry, as well as to the obligation compliance reports of the Grey Economy Information Unit provided by the Tax Administration. Improved access to information enabled more specific targeting of monitoring to contracts for the use of subcontractors and leased workers, in which the company performing the work has failed to fulfil its statutory obligations.

Summary of 2019 monitoring results

According to the monitoring observations, awareness of the contractor’s obligations and liability when work is contracted out was more extensive in the construction industry than in other sectors. Large construction industry operators in particular go beyond the minimum requirements set forth in the Contractor’s Obligations and Liability Act in their worksites, whereas failure to meet the Act's minimum requirements is still common within subcontracting chains.

When the occupational safety and health authority observes an unlawful situation, it issues written advices and may impose a negligence fee on the contractor. Approximately 2,500 written advices due to an unlawful situation were issued. The number of such written advices issued during an individual inspection was the highest for foreign contractors. The second highest numbers of written advices issued per inspection were issued during inspection visits made to construction companies and inspections targeted at municipal consortiums (Chart 2).

The imposition of a negligence fee was considered as the result of roughly 100 inspections: most of these involved foreign contractors and construction companies (Chart 3).

A negligence fee may be imposed if:

1. the contractor has neglected his obligation to check information

A negligence fee may be imposed if:

2. the contractor has made an agreement for work specified in the Act on the Contractor’s Obligations and Liability when Work is Contracted Out with an entrepreneur that has been prohibited from engaging in business operations pursuant to the Business Prohibitions Act (1059/1985) or with a company whose co-partner, board member, CEO or other comparable person has been prohibited from engaging in business operations, or

3. the contractor has made an agreement of the type specified in the Act on the Contractor’s Obligations and Liability when Work is Contracted Out, even though the contractor must have been aware that the other party to the contract does not intend to fulfil his statutory payment obligations as the contracting party and employer

In most cases, the basis for considering the imposition of a negligence fee is the contractor having neglected his obligation to check information. As the result of the inspections made in 2019, the imposition of a negligence fee was considered in 14 cases on the basis that the contractor must have known that the other party did not intend to fulfil his statutory payment obligations as a contracting party and employer. Such cases often show signs of underpayment and underpricing. Compared to the monitoring observations made in 2018, the number of cases in which a negligence fee was considered on the basis of underpayment and underpricing has increased, in contrast to increased compliance with checking obligations.


Accuracy of earnings-related pension insurance has remained at a good level

Source: Finnish Centre for Pensions (ETK)

One of the statutory tasks of the Finnish Centre for Pensions is to supervise earnings-related pension insurance. It supervises insurance taken out under the Employees Pensions Act and the Self-Employed Persons’ Pensions Act. Ensuring that employers and the self-employed have equal responsibilities with respect to the insurance obligation promotes equal competition between companies and prevents the shadow economy. Supervising insurance also helps pension providers administer the insurance and collect pension contributions, which helps secure the funding base of the earnings-related pension scheme. By supervising pension insurance, the Finnish Centre for Pensions also makes sure that employees and the self-employed get their statutory pensions.

As a rule, employers meet their pension insurance obligations. The results of the supervision of earnings-related pension insurance have been quite consistent in the 2010s (Figure 1). On average, the uninsured wages have amounted to about 110 million euros each year. These errors account for about 0.2 per cent of the total insurable wage sum under the Employees Pensions Act.

Supervision of employers’ earnings-related pension insurance obligation

Figure 2 presents numbers relating to the supervision of how well employers meet their earnings-related pension insurance obligation. In 2019, the Finnish Centre for Pensions took a closer look at how 8,500 employers met their insurance obligation. Around 1,700 employers (affecting about 13,500 workers) showed shortcomings in meeting their insurance obligation.

No major changes in the figures for supervision were to be observed. In 2019, the supervision mainly covered the surveillance material for 2018, so the possible effect of the Incomes Register is not yet visible in the supervision statistics.

Supervision of self-employed persons’ earnings-related pension insurance obligation

Figure 3 shows that a total of 1,183 self-employed persons were examined in more detail. The number was lower than in 2018 since, due to IT changes, the annual handling of data from the Tax Administration on persons practicing a profession, entrepreneurs and shareholders in business partnerships was postponed to the beginning of 2020.

In 2019, the insurance of persons receiving a wage via an invoicing company were supervised (around 800 of a total of 28,000 potentials). The supervision is still partly ongoing, but it has proved useful. Already 300 entrepreneurs using an invoicing service have taken out insurance under the Self-employed Persons’ Pensions Act after being contacted by the Finnish Centre for Pensions.

Other supervised self-employed persons included individuals who popped up through occasional surveys or in connection with the supervision of employers.


Ignorance is often the cause for not having insurance 

Source: Finnish Workers´ Compensation Center (TVK)

Employers are obliged to provide workers` compensation insurance to their employees. The employer is obliged to provide workers` compensation insurance when earnings from work paid to all employees exceed EUR 1,300 in a single calendar year.

The supervisory obligation of the Finnish Workers´ Compensation Center (TVK) is based on the Workers’ Compensation Act.  Mass monitoring by TVK covers all employers in Finland, and it was started in 2016.

The number of cases monitored by TVK has grown each year.  Negligence is often based on unawareness of insurance obligations and the grounds for these obligations: for instance, the difference between an employment relationship and self-employment as well as the earnings and age limits for the insurance obligation. 

The majority of the investigated cases do not involve negligence. These cases end up being investigated due to record errors, which include payment type errors in reports submitted to the Tax Administration and errors in insurance register materials (Figure 1).

The employers who have neglected their insurance obligation are a heterogeneous group comprising not only Finnish companies but also foreign companies and household employers (Figure 2). 

The companies were divided across different sectors, had often operated for several years, and were mostly in the under EUR 400,000 turnover categories. Trade was the most common sector, just above others. Figure 3 does not include household work that, as a rule, comprised childcare, domestic help, renovation or housebuilding work.


Unemployment insurance contributions finance unemployment security

Source: Employment Fund

The Unemployment Insurance Fund and Education Fund merged on 1 January 2019 to form the Employment Fund.  The merger did not change the tasks of these funds. The Employment Fund handles the funding of earnings-related unemployment benefits, the collection of unemployment insurance contributions and granting of adult education benefits.

Both employers and employees have a statutory obligation to pay unemployment insurance contributions. Employers pay the employer’s component and withhold the wage earner’s component from employees in connection with each payment of wages. The employer handles the remittance of unemployment insurance contributions to the Employment Fund.

The Employment Fund cooperates with the Tax Administration, other authorities, the Finnish Centre for Pensions (ETK), and the Finnish Workers’ Compensation Center (TVK). For instance, information received from the Tax Administration can be used for monitoring purposes and compared with information reported by employers.

Most cases of neglect and errors in reports are due to human error. In particular, there is a lack of awareness about the requirements for reporting on the wages of partial owners and self-employed persons as well as the preconditions of other payment obligations. The Employment Fund seeks to prevent such situations by providing guidance and advice to employers on issues related to insurance payment obligations and the preparation of reports.