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 Agencies supervise the employment of foreign nationals in Finland

Source: Regional State Administrative Agency, OSH DivisionI

In 2021, the OSH Division carried out 1,617 inspections in companies operating in Finland that employ foreign workers. Included in the focus of these inspections was verifying that the employers had checked that their foreign employees have the right to work in Finland, and that the terms and conditions of their employment agreements complied with the statutory minimum requirements of Finnish labour legislation. The aim of the inspections was to ensure an equal and fair labour market for everyone and fair competition between businesses.

In 2021, inspections were carried out both as unannounced spot checks and preannounced company visits.  Some inspections were carried out as document-based inspections. The largest share of the foreign labour inspections was carried out in the hotel and restaurant sector (26%) and in the construction sector (21%). Inspections were also carried out in the agricultural (10%), cleaning (7%) and manufacturing (4%) sectors, among others (Figure 1).

Workers without a right to work found in many inspections

In foreign labour inspections verifying foreign employees’ right to work, one in five workplaces had at least one foreign employee with no right to work in their current role in Finland.

One in three foreign labour inspections in the construction sector brought to light foreign employees with no right to work in Finland. At least one foreign employee with no right to work in Finland was found in a quarter of the inspections carried out in the cleaning sector. In the hotel and restaurant sector, foreign employees with no right to work in Finland were found in every tenth inspection (Figure 2).

In the last few years, foreign labour inspections have mainly been targeted at workplaces where employers have failed to verify that their employees have a right to work in Finland in accordance with the Aliens Act (301/2004), for example. Targeting operations at problem sites partly explains the high incidence of foreign employees with no right to work in Finland. The high incidence also indicates that the operations have been correctly targeted. However, for example, a larger number of foreign employees with no right to work in Finland are working in the construction sector now than previously, which means that the increase in the number is not solely the result of correct targeting. Instead, it is a sign of a change that has occurred in the industry. 

Non-compliance with statutory minimum terms and conditions of foreign employees 

Another key issue that foreign labour inspections focus on is the supervision of compliance with the statutory minimum terms and conditions in the employment of foreign employees. These compliance inspections involve assessing whether the employer complies with the Finnish working time and employment contracts legislation when employing workers, and whether the employer complies with the provisions on wages in the sector’s generally binding collective agreement in the employment of foreign employees as well.

In the foreign labour inspections, a significant number of deficiencies in compliance with the statutory minimum terms and conditions 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 found in nearly half the inspections verifying compliance with the relevant generally binding collective agreement.  Most of these deficiencies were found in the construction and restaurant sectors, where they were found in 65 per cent of the inspections. In the agricultural industry, deficiencies in the payment of wages were found in almost 50 per cent of the inspections in which the matter was examined (Figure 3). 

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 instance, 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. Still, many deficiencies were detected in all the above sectors in the payment of various supplements. Any failures to comply with the collective agreement by companies that are members of an employers’ federation were reported to these federations. 

In 2021, 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 or nationality. In 2021, deficiencies in non-discrimination were found in 10 per cent of the inspections where the matter was examined.

Many deficiencies in the wages paid to posted employees 

The OSH Division carried out 140 inspections in companies that had posted employees in Finland in 2021. Inspections of posting companies are usually carried out as document-based inspections, and many of these inspections were only in closed in 2022. The inspections focused on verifying that the statutory minimum terms and conditions 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 of these inspections targeted the construction and manufacturing sectors. The inspections uncovered several deficiencies in the posting companies. For example, wages were found to comply with the requirements of mandatory Finnish labour legislation in less than half of the inspections. In addition, 120 inspections carried out in 2021 focused on verifying that the contractors of the posting companies complied with their obligations.

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 leased employees fulfil their statutory obligations. In addition to taxes and fees, obligations include among other things taking out pension insurance for employees.

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

In 2021, supervising activities were targeted at the construction sector, industries, logistics, and the cleaning and real estate sector. In 2021, a total of 1,160 contractor liability inspections were carried out, of which 1,120 were completed by 22 February 2022. The contractor liability inspections served to supervise the compliance of roughly 3,800 contractual partners with the obligation to provide information in agreements on the use of leased employees or work based on subcontracting. (Figure 1)

In 2021, contractor liability supervising and cooperation between authorities highlighted the use of information, as it was not possible to conduct inspections on-site as in previous years. Public-sector information was used extensively in the selection of targets for supervising and in individual supervising cases. Contract and employee information on in the construction sector and compliance reports conducted by the Finnish Tax Administration’s Grey Economy Information Unit were in particularly extensive use. 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 addition to inspections, contractor liability supervising kept on focusing on other influencing methods in 2021. Information was transmitted to workplaces by means of communication and by arranging online events of different sizes that reached a large number of companies.

Summary of 2021 supervising results

 In the inspections carried out, the contractor’s obligation to provide information had been observed as required by legislation in 218 inspections, 166 of which concerned the construction sector. Even though awareness of the contractor’s liabilities is higher in the construction sector than in other sectors, 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 fee on the contractor. More than 1,700 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 and inspections targeted at industrial companies. (Figure 2)

The use of public-sector information was reflected in inspections resulting in further measures. A negligence fee was considered in 75 inspections; two-thirds of the targets of these inspections were selected based on official information acquired with the authorities’ right to obtain information. Imposing a negligence fee was most often considered in the case of foreign contractors and during construction business inspections. (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 the inspections conducted in 2021, a negligence fee was considered in nine 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 under-pricing.

It was also observed in the inspections that in subcontracting chains, the number of foreign self-employed persons has continued to increase. Supervising 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 carrying out work may not always know that they are a self-employed person. 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 2021 and 2020 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 2021, the Finnish Centre for Pensions took a closer look at how 6,240 employers met their insurance obligation. Around 1,100 employers (affecting about 6,160 workers) showed shortcomings in meeting their insurance obligation.

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

As shown in Figure 3, about 4,000 self-employed persons were placed under enhanced supervision and 850 new insurance policies were taken out in 2021. The pension insurance supervision figures for self-employed persons have remained at the same level for several years now. The year 2020 was an exception since supervision was conducted based on two tax years (2018 and 2019). As a result, the number of supervised self-employed persons was higher. New insurance includes the policies that self-employed persons took out voluntarily during supervision, and the policies that ETK took out on behalf of self-employed persons, i.e. “compulsory insurance”.

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. This data is compared with YEL insurance data.

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.

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.

Unemployment insurance contributions finance unemployment security

Source: Employment Fund

The Employment Fund finances unemployment security, imposes and collects unemployment insurance contributions, and grants adult education benefits.

Both employers and employees have a statutory obligation to pay unemployment insurance contributions. Employers withhold the wage earner’s component from every salary paid to employees and report wages paid to the Incomes Register. On the basis of earnings payment data reported to the Incomes Register, the Employment Fund imposes unemployment insurance contributions for payment by employers. The Incomes Register’s earnings payment data has been used as the basis of determining unemployment insurance contributions since 1 January 2019.

The Employment Fund monitors that employers have fulfilled their unemployment insurance contribution obligations and reported the correct wage information to serve as the basis of payments. For example, data received from the Incomes Register and other authorities, such as the Finnish Tax Administration, is used for monitoring purposes and compared with data reported by employers.

The Employment Fund will contact an employer if, based on information obtained through monitoring, it seems that wages reported as the basis of unemployment insurance contributions are incorrect or that the employer has neglected its payment obligation altogether. Hearing the employer may lead to an additional payment or a refund.

The Employment Fund seeks to prevent erroneous reporting by providing guidance and advice for employers in matters related to the payment obligation and the preparation of the Incomes Register’s earnings payment reports.

Page last updated 4/11/2022