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 OSH Division at the Regional State Administrative Agency of Southern Finland

In 2018, the Regional State Administrative Agency conducted a total of 1,047 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 38 per cent of the operations in Southern Finland were carried out in the hotel and restaurant sector, while around 21 per cent examined construction industry companies and 11 per cent cleaning industry companies. The rest of the operations were conducted in a range of different sectors (Chart 1).

In 2018, 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 slightly over 7 per cent were targeted at sites that had been inspected previously the same year.

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, 15 per cent of workplaces had at least one foreign employee with no right to work in their current role in Finland. A total of at least 120 foreign employees with no right to work were encountered during the operations. In most cases, however, there was only one foreign employee at the workplace who had no right to work (Chart 2).

Two-thirds of the workplaces with foreign employees with no right to work were located in Southern Finland. In 2018, 56 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-fifth of immigration control operations in the cleaning sector. More than every seventh control operation in the construction industry brought to light foreign employees with no right to work.

In 2018, regular company visits found clearly more foreign employees with no right to work than unannounced visits. An example of this is the construction industry, in which every third regular company visit discovered foreign employees with no right to work, as compared to slightly over eight per cent in the case of unannounced site visits. As a rule, unannounced and site visits are always conducted without notifying the employer, while a large proportion of company visits are preannounced. Unannounced visits will continue to be made in the future, as they provide useful comparative data for the supervision of employees’ right to work and the minimum terms and conditions.

The number of foreign employees with no right to work found in the operations declined slightly compared with 2017. Monitored workplaces in Southern Finland still employ a relatively high number of foreign employees with no right to work. 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.

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. The purpose of the supervision is to establish whether an employee complies with Finnish occupational legislation with regard to their employees, particularly with respect to wages. In 2018, 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 highest incidence of non-compliance was in the construction industry, where 54 per cent of operations revealed deficiencies (Chart 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 2018, 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. Deficiencies in keeping a record of the working hours of employees, as required by the Working Hours Act, were the most common in the construction sector, in which working hours records were in order in only one of three inspections.

In 2018, 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

In 2017 and 2018, immigration control in Southern Finland carried out more control operations targeting companies posting employees to Finland. Whereas 35 such operations were carried out in 2016, more than 60 were conducted per year in 2017 and 2018. Most of these operations targeted the construction sector.
The visits uncovered many deficiencies; for example, wages were found to comply with legal requirements in only about 40 per cent of visits targeting companies that posted employees.

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 2017 and 2018, inspectors often came across situations in which they were told that the person working on the site was not in an employment relationship with the employer (Chart 4). In these cases, the inspector may 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.

More asylum seekers found

Immigration control operations found many foreign asylum seekers working in Southern Finland. In 2017, more than 200 asylum seekers were found to be working at around 100 workplaces, and in 2018 these figures grew to more than 260 asylum seekers at over 110 workplaces. In addition to the restaurant sector, the cleaning sector seems to be employing more asylum seekers. Slightly over 11 per cent of inspections were made in the cleaning sector and more than one third of asylum seekers who were found in immigration control operations worked for cleaning companies.

Foreign employers also hire employees directly from Finland

In 2018, control operations targeting foreign companies in the construction sector uncovered more cases in which a foreign company had hired at least some of its foreign employees directly from Finland, which means that these employees cannot be treated as posted employees. This phenomenon is particularly common among Estonian companies in the construction sector. Control operations in the construction sector uncovered 14 companies employing more than 200 non-posted employees. The number of such companies has remained at the same level since 2017, but the number of employees hired appears to have increased substantially. 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 joint visits with other authorities in all sectors in 2018. The police were involved in about 220 visits. Almost two-thirds of the joint visits made with the police were targeted at restaurants; these visits were unannounced. The presence of the police on visits is very useful, as it often gives the inspector better opportunities to observe and intervene in any shortcomings discovered during the visit.

The greatest challenge in collaboration with the police has been the lack of national coordination between the Occupational Safety and Health Administration and the National Police Board – there is a lack of shared decision-making concerning sites to be visited during joint visits and the scheduling of these visits. Partly for this reason, the number of joint visits with the police has declined slightly compared with 2017. Immigration control in 2018 has paid greater attention to ensuring that joint visits focus on targeted monitored rather than fulfilling merely quantitative objectives.

Collaboration was also frequent with the Border Guard (96 visits), Tax Administration (91 visits) and Customs (55 visits). Most of these joint visits were made in the restaurant sector, especially during the intensive monitoring week of the police. A number of joint visits of construction sector operators were also made with the Tax Administration and Finnish Centre for Pensions.

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

Source: The OSH Division at the Regional State Administrative Agency of Southern Finland

The OSH Division at the Regional State Administrative Agency of Southern Finland monitors compliance with the Act on the Contractor’s Obligations and Liability when Work is Contracted Out (1233/2006) in all of Finland. The goal of monitoring compliance with the Act is to prevent the shadow economy and unhealthy competition from having adverse impacts on companies.

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

The monitoring projects carried out in 2018 targeted the construction sector, industry, logistics, service sector, municipalities and primary production. The main focuses of monitoring in 2018 were municipalities and information-based targeting of monitoring in different sectors.  No other significant changes to monitoring were made since 2017.

In 2018, inspectors specialising in contractors’ obligations and liability carried out a total of 1,801 inspections. The inspections monitored compliance with the obligation to check in subcontracting or leased employee agreements involving a total of about 6,700 contractual partners (Chart 1).

Summary of 2018 monitoring results

Inspections completed by 21 March 2019: a total of 1,722

When the occupational protection authority observes an unlawful situation, it issues operating instructions and may impose a negligence fee on the contractor. About 2,900 operating instructions to rectify an unlawful situation were issued (Chart 2).

The most operating instructions per inspection have been issued to foreign contractors. This was fully as expected. The second highest number of instructions have been issued to contractors selected on the basis of information and industrial companies.

Regardless of the type of monitoring project in question, the two most commonly issued operating instructions are:

  1. To obtain the necessary documentation before signing an agreement; and
  2. To keep this documentation for at least two years after the completion of the work.

A negligence fee has been considered in more than 130 cases (Chart 3).

The highest number of cases in which a negligence fee was considered involved the information-based targeted monitoring project and inspections in the construction and service sectors. The situation is different when examining the proportion of all project inspections accounted for by inspections in which a negligence fee was considered. In the case of foreign contractors, every third inspection led to the consideration of a negligence fee. Information-based monitoring and the municipal sector are next.

A negligence fee may be imposed if the contractor has:

  1. neglected its obligation to check;
  2. 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 Trading Prohibition 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. 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 its statutory payment obligations as the contracting party and employer.

With the exception of a few individual cases, a negligence fee is considered due to neglect of the obligation to check. During the year, a negligence fee was considered on the basis of prohibition from business operations in one case. A negligence fee was considered in 11 cases on the basis that the contractor should have known that the other party did not intend to fulfil its statutory payment obligations as a contracting party and employer.

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.