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

Regional State Administrative Agencies supervise companies that employ foreign workers in Finland

Source: Regional State Administrative Agency, OSH DivisionI

In 2022, the OSH Division carried out 2,356 inspections in companies operating in Finland that employ foreign workers. This included both companies registered in Finland and foreign companies that had posted their employees to Finland. This text is based on the 2022 inspections that were completed by 3 February 2023. Regarding 2022, slightly fewer than 90 inspections were still in progress at the beginning of February which means that the final number of inspections will be a little higher than the figure mentioned at the beginning of this text (2,356).

The inspections conducted under foreign labour supervision assessed whether the employers complied with Finland’s statutory minimum requirements set for the employment relationships of foreign employees in Finnish legislation and whether the employer had verified that their foreign employees have the right to work in Finland. The aim of the inspections was to ensure an equal and fair labour market for everyone and fair competition between businesses.

In 2022, cases in which it was suspected that employment relationships had been used to cover self-employment were highlighted more clearly than before in supervision. Self-employed “light entrepreneurs” were discovered during 71 inspections, mostly in the construction sector. The total number of such self-employed individuals was 422. As the occupational safety and health authority only supervises work carried out in an employment relationship, it first needed to assess whether an employment relationship had been established. However, the occupational safety and health authority cannot issue any legally binding decisions.

In 2022, inspections were conducted as unannounced, focusing on the right to work, and as business inspections, also covering the minimum terms of employment. Companies were also inspected based on documents. The largest share of the foreign labour inspections was carried out in the hotel and restaurant sector (31%) and in the construction sector (20%). Inspections were also carried out in agriculture (12%), industry (7%), trade (7%) and the cleaning sector (0,7%), among others (Figure 1). In addition, inspections were targeted at service companies, including car washes and repair shops, beauty service providers and massage companies.

Inspections were often carried out with other authorities. In 2022, a total of 453 business inspections were carried out in the whole of Finland, meaning that the authorities were engaged in cooperation in nearly 20% of all inspections. Most joint inspections were carried out with the Police of Finland. Several joint inspections were also conducted with the Finnish Tax Administration and the Finnish Border Guard.

Several non-compliances with statutory minimum employment terms of foreign employees

A key issue that foreign labour inspections focus on is the supervision of compliance with the statutory minimum terms in the employment of foreign employees. These compliance inspections involve assessing whether the employer complies with the Finnish Working Time Act and Employment Contracts Act, and with the provisions on wages in the sector’s generally binding collective agreement in the employment of foreign employees. The significance of supervising the minimum terms of employment has been highlighted in foreign labour supervision in recent years. As a result, more than half of inspections conducted in 2022 were targeted at supervision within the scope of which the minimum terms of employment are assessed (business inspections).

In the foreign labour inspections, a significant number of deficiencies in compliance with the statutory minimum terms was observed in the employment of foreign workers. In particular, wage deficiencies were found in compliance with the provisions of the relevant generally binding collective agreement: deficiencies were discovered in nearly half of inspections conducted to assess the accuracy of wages. The construction and restaurant sectors had the most deficiencies. In the construction sector, nearly 60% of inspections uncovered deficiencies. In the hotel and restaurant sector, deficiencies in the payment of wages were found in almost 54% of the inspections in which the matter was examined. In agriculture, nearly 45% of inspections showed deficiencies (Figure 2).

The most significant deficiencies in compliance with the provisions on wages in the generally binding collective agreement were to do with the level of basic wages and various supplements. However, there were differences between sectors – for example, in the construction industry, the basic wages paid to foreign workers exceeded the minimum level set in the generally binding collective agreement more often than in the restaurant and cleaning sectors, while there were several deficiencies in paying compensation for overtime. Instead, the non-payment of evening and night increments and Sunday compensation was regrettably common in the restaurant sector. Deficiencies in wages were also discovered among employer organisation members. Any failures to comply with the collective agreement by companies that are members of an employers’ association were reported to these associations, to which the supervisory obligation belongs under the Collective Agreements Act.

In 2022, attention was also paid to whether employers observed the principle of non-discrimination in the payment of wages. In foreign labour inspections, the principle of non-discrimination mostly refers to ensuring no one is discriminated against in terms of wages due to their origin, nationality or language. In 2022, deficiencies in non-discrimination were found in 9% of the inspections where the matter was examined.

Workers without a right to work still found in many inspections

Another key element of foreign labour supervision is whether the employer has ensured their foreign employees’ right to work in Finland. In foreign labour supervision in which foreign employees’ right to work was examined, 15% of workplaces had at least one foreign employee with no right to work in their current role in Finland. Instead, only a few individuals staying and working illegally in Finland were discovered. Each employee’s residence permit defines the field(s) in which the permit holder can work. Working in an incorrect field was the most common deficiency.

In the construction sector, more than every fifth inspection brought to light foreign employees with no right to work. In agriculture, at least one foreign employee with no right to work in Finland was found in every seventh inspections carried out. In the hotel and restaurant sector, foreign employees with no right to work in Finland were found in every tenth inspection (Figure 3).

In 2022, the findings made in inspections of employees with or without the right to work changed so that the percentage of foreign employees without the right to work was lower than in 2021. One reason may be that, thanks to the additional foreign labour inspectors recruited in 2021, supervision is increasingly conducted without any tips or other background information concerning a suspected breach of law. As a result, the percentage of inspections carried out on basis of tips has decreased. Another significant factor has probably been that Ukrainian refugees seeking temporary protection have obtained an unlimited right to work immediately after submitting their application. Previously, there have been significant deficiencies in posted Ukrainian workers’ right to work.

Many deficiencies in the wages paid to posted employees

The OSH Division carried out 119 inspections in foreign companies that had posted employees in Finland in 2022. Posting companies are mainly inspected based on documents. The inspections focused on verifying that the statutory minimum terms were complied with in the employment of the posted workers to combat labour exploitation, and on ensuring that the posting company complies with its obligations, in relation to which a negligence fee may be imposed for non-compliance.

Most inspections were conducted in the construction sector, with more than half of inspections targeting foreign construction companies. These were followed by posting companies in the industrial sector (26%). Deficiencies in wages paid by posting companies were discovered in 46% of all inspections, being nearly at the same level as in foreign labour supervision targeted at Finnish companies. In addition, obligations were imposed in the supervision of non-discrimination in posting companies in nearly every seventh inspection in which the matter was examined. In addition, 183 inspections carried out in 2022 focused on verifying that the Finnish contractors of the posting companies complied with their obligations.

Data access rights used extensively

The occupational safety and health authority’s data access rights were exercised broadly in foreign labour inspections. The UMA register for foreigners and the Finnish Tax Administration’s Incomes Register were both used during more than 1,000 inspections. The UMA register is used to identify foreign employees’ right to work and information related to residence permit applications, whereas the Incomes Register provides information about wages paid. In addition, the employees met during inspections are compared with data submitted to the Incomes Register to identify any undeclared wages. The Incomes Register can also be used to identify the duration of any illegal work periods.

In addition to the UMA register and the Incomes Register, the Population Information System, compliance reports and the Finnish Tax Administration’s Raksi information regarding construction sites have been used in foreign labour supervision.

The Act on the Contractor’s Obligations and Liability when Work is Contracted Out combats the grey economy

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

The Division of Health and Safety of the Regional State Administrative Agency for Southern Finland is responsible for supervising compliance with the Act on the Contractor’s Obligations and Liability when Work is Contracted Out (1233/2006, “the Contractor’s Liability Act”) in the whole of Finland. The purpose of the Contractor’s Liability Act is to promote even-handed competition between companies and compliance with terms of employment. The Act provides contractors with tools to ensure that their subcontractors and partners providing temporary agency workers fulfil their statutory obligations, including regarding the payment of taxes and taking out pension insurance for employees.

Compliance with the contractor’s obligation to provide information is supervised with inspections

In 2022, a total of 1,317 contractor liability inspections were carried out, of which 50 were still in progress on 1 March 2023. The contractor liability inspections served to supervise the compliance of roughly 4,600 contractual partners with the obligation to provide information in agreements on the use of temporary agency workers or work based on subcontracting (Figure 1).

In 2022, supervision was targeted based on risks and phenomena rather than business sectors as usual. Information available to the authorities was broadly used in the selection of targets for supervision and in individual cases. Contract and employee information in the construction sector and compliance reports conducted by the Finnish Tax Administration’s Grey Economy Information Unit were in particularly extensive use, which the occupational safety and health authority obtains from the Finnish Tax Administration. The use of public-sector information has enabled supervising to be targeted more accurately at subcontracting agreements and agreements on the use of leased employees, in which the companies carrying out work have flaws in the fulfilment of their statutory obligations.

In 2022, a follow-up inspection project was carried out for contractors in the transport, construction, cleaning and industrial sectors. The project assessed what impact the obligations issued during previous inspections has had on compliance with the Contractor’s Liability Act and whether contractors have made changes in their operations as a result of the previous inspections. The project’s results showed that most contractors had made changes after the previously issued obligations. During the project, it was discovered that contractors had provided training for their personnel, prepared agreement templates, deployed electronic services and information systems, and adopted practices stricter than the minimum requirements set out in the Contractor’s Liability Act. Then again, the results show that there is a significant need for follow-up inspections. In only 57 follow-up inspections (28 per cent of all inspections conducted during the project) the contractor had complied with their obligation to provide information correctly, even though 135 contractors had made changes (69 per cent).

Summary of 2022 supervising results

In the inspections carried out, the contractor’s obligation to provide information had been observed as required by legislation in 326 inspections, 255 of which concerned the construction sector. The high figure in the construction sector can partly be explained by the follow-up project, but also by worksite inspections carried out at the level of main contractors. Even though awareness of the contractor’s liabilities is higher in the construction sector than in other sectors, supervising results show that there are still flaws in compliance with minimum legal requirements, especially in long subcontracting chains.

When the occupational safety and health authority observes an unlawful situation, it issues written advices and may impose a negligence penalty on the contractor. More than 2,000 written advices were issued. The highest number of written advices per inspection were issued to foreign contractors. They were followed by inspections regarding construction companies, industrial companies, and inspections targeted at seasonal work (Figure 2).

The use of public-sector information was reflected in inspections resulting in further measures. A negligence fee was considered in 85 inspections; two thirds of the targets of these inspections were selected based on official information acquired with the authorities’ right to access information. Imposing a negligence fee was most often considered in the case of foreign contractors (Figure 3).

A negligence fee may be imposed if the contractor has:

1. neglected its obligation to provide information;

An increased negligence fee may be imposed if the contractor has:

2. made an agreement on work specified in the Contractor’s Liability Act with a self-employed individual who has been subject to a ban on 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 subject to a ban on business operations; or

3. made an agreement of the type specified in the Contractor’s Liability Act even though the contractor must have known that the partner does not intend to comply with statutory obligations and payments as the contracting party and employer.

In most cases, the negligence fee was considered on the grounds of the obligation to provide information being neglected. In individual cases, a negligence fee was considered in individual cases on the grounds that the contractor must have been aware that the other party to the agreement did not intend to fulfil its statutory payment obligations as the contracting party and employer. In every case, one or more foreign companies acted as the contracting party. These types of cases often have indications of underpayment and underpricing.

It was also observed in supervisory activities that, in subcontracting chains, the number of foreign self-employed individuals has continued to increase even further. Supervision cannot always provide full certainty to determine whether the question is of appropriate self-employment or “bogus self-employment”. Bogus self-employment enables employer obligations to be evaded, and the person may not always know that they are a self-employed individual. In the worst case, these situations may be linked to labour trafficking or involve other milder forms of discrimination.

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. With its supervision, the Finnish Centre for Pensions (ETK) also secures pension provision for employees and self-employed persons as required by law.

Supervision of employers’ earnings-related pension insurance obligation

Employers generally meet their pension insurance obligations well, but supervision by the Finnish Centre for Pensions reveals deficiencies in pension insurance in almost all sectors. The results indicate that the sum of earnings missing from the insurance contributions decreased in 2020–2022 compared to previous years (Figure 1). Since 2019, employers have reported earnings payments to the Incomes Register whereas, before that, they were reported to several different parties, including pension insurance providers. The change of reporting method has most likely reduced the number of mistakes and therefore decreased the sum of earnings missing from insurance contributions.

Figure 2 presents numbers relating to the supervision of how well employers meet their earnings-related pension insurance obligation. In 2022, the Finnish Centre for Pensions took a closer look at how 5,393 employers met their insurance obligation. Around 788 employers (affecting about 4,002 workers) showed shortcomings in meeting their insurance obligation.

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

As shown in Figure 3, about 4,999 self-employed persons were placed under enhanced supervision and 994 new insurance policies were taken out in 2022. The pension insurance supervision figures for self-employed persons have remained at the same level for several years now. Figures for 2019 and 2020 are different. In 2020, supervision was carried out based on data from two tax years (2018 and 2019). As a result, the number of supervised self-employed persons was higher. 

In 2022, the supervision figures are slightly trending upwards, because the supervision activities were extended to include the supervision of self-employed persons using invoicing services.

Every year, the Tax Administration provides ETK with tax data on around 180,000 self-employed persons, and shareholders of business partnerships and consortiums for insurance supervision. Supervision of self-employed persons using invoicing services is based on the data reported to the Incomes Register. This data is compared with YEL insurance data.

A record number of employers neglecting the insurance obligation in 2022

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 1,400 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.

TVK’s supervision has become more effective and current since 2020 due to being able to use the data in the Incomes Register. Negligence can be addressed quickly after being observed. 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 employers who have neglected their insurance obligation are a heterogeneous group comprising not only Finnish companies but also foreign companies and household employers.The companies were divided across different sectors, had often operated for several years, and were mostly in the under EUR 400,000 turnover categories. Uninsured wages totalled roughly EUR 50.1 million in 2022.

The deployment of the Incomes Register has changed the monitoring of unemployment insurance contributions

Source: Employment Fund

The Employment Fund imposes and collects statutory unemployment insurance contributions. In addition, it monitors that employers have fulfilled their unemployment insurance contribution obligations and reported the correct earnings payment data to serve as the basis of payments. The Incomes Register’s earnings payment data has been used as the basis of determining unemployment insurance contributions since 1 January 2019.

Monitoring activities are targeted at the current and three previous insurance years. In 2022, the Employment Fund monitored the insurance years 2019–2022, focusing for the first time only on years following the deployment of the Incomes Register. Before the Incomes Register was deployed, the Employment Fund compared the wage amounts reported by employers to the Employment Fund with annual information returns obtained from the Finnish Tax Administration, and investigated any differences identified in earnings payment data.

Currently, employers report earnings payment data centrally to the Incomes Register, as a result of which the Employment Fund’s monitoring activities have changed. At present, the Employment Fund focuses on ensuring the accuracy of earnings payment data in the Incomes Register. The Employment Fund investigates both clearly inaccurate reports and reports whose accuracy should otherwise be identified. Data sources used in monitoring activities include the Incomes Register and other authorities.

The Employment Fund consults employers in investigating the accuracy of earnings payment data. If an error is identified in the Incomes Register’s earnings payment data, the employer in question will be requested to correct the data in the Incomes Register. In the end, the Employment Fund can impose unemployment insurance contributions by assessing the information obtained through monitoring activities if the employer does not correct the data in the Incomes Register despite requests.

As a result of the deployment of the Incomes Register, the number of monitoring cases and the amount of additional charges and refunds based on monitoring have decreased significantly. It is probable that the deployment of the Incomes Register has reduced situations where the wage amount reported as the basis of unemployment insurance contributions is too low or too high.

The Incomes Register has also made monitoring a more real-time activity. The Employment Fund can already investigate the accuracy of earnings payment data a few months after the payment of wages, also making it easier to identify the situation with employers. This also prevents any recurring errors more effectively.

Page last updated 4/14/2023