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 for Southern Finland

In 2020, the foreign labour inspection unit of the Regional State Administrative Agency for Southern Finland conducted a total of 343 inspections in Southern Finland. The coronavirus pandemic that started in the spring of 2020 affected the number of inspections. The foreign labour inspection unit focused on verifying that foreign employees had the right to work legally in Finland and that the terms and conditions of their employment agreements complied with the statutory minimum requirements of Finnish labour law.

Foreign labour inspections were carried out despite the coronavirus both as unannounced visits and as preannounced company visits. 170 inspections were conducted as document-based inspections, which is nearly half of all inspections. Compared to previous years, the share of document-based inspections was relatively larger in 2020 due to the coronavirus pandemic. The largest share of the inspections in Southern Finland were carried out in the hotel and restaurant sector (30%) and in construction sector (27%). Inspections were also carried out in the cleaning industry (9%) and several other industries, such as agriculture and social welfare and healthcare (Figure 1).

In 2020, the number of tips related to foreign labour in Southern Finland increased by 15 per cent compared to 2019. A total of 508 tips useful for inspection purposes were received in 2020, while in 2019 the corresponding figure was around 440. Most of the tips came from other authorities working with the employment of foreigners in Finland. Sector-wise, construction sector was the one that received tips the most.

The inspections uncovered large numbers of foreign employees with no right to work in Finland

In the foreign labour inspections in Southern Finland examining foreign employees’ right to work, 37 per cent of workplaces had at least one foreign employee with no right to work in their current role in Finland. In 2019, this figure was 20 per cent (Figure 2).

Nearly 70 per cent of the sites subject to foreign labour inspections in Finland where foreign employees with no right to work were encountered were located in Southern Finland. In 2020, 41 per cent of all foreign labour inspections were carried out in Southern Finland, which partly explains the large number of observations.

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

One in two foreign labour inspections in the construction industry brought to light foreign employees with no right to work in Finland. At least one foreign employee with no right to work was found in more than a quarter of the foreign labour inspections conducted in the cleaning sector. In the hotel and restaurant sector, foreign employees with no right to work in Finland were found in every fifth inspection.

The percentage of foreign employees with no right to work in Finland found in the inspections grew slightly compared to 2019. In last few years, inspections have mainly been targeted at workplaces where employers have not fully complied with employment legislation and have failed to verify their employees’ right to work in Finland. 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. On the other hand however, a larger number of foreign employees with no right to work in Finland are working in the construction sector, for example, 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 minimum terms and conditions of foreign employees

Another key issue that foreign labour inspections in Southern Finland focus on is the supervision of compliance with minimum terms and conditions in the employment of foreign employees. In these inspections, the employer’s compliance with the Finnish labour law on the wages of the employees is assessed. In 2020, attention was also paid to whether employers observed the principle of non-discrimination. In foreign labour inspections, the principle of non-discrimination mostly refers to ensuring no one is discriminated against due to their origin or nationality. The most deficiencies in non-discrimination were found in the restaurant industry, where deficiencies were found in 27 per cent of inspections.

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 generally binding collective agreements on wages. The constructions and restaurant industries had the largest share of deficiencies. In the construction industry, problems in complying with the provisions of collective agreements on wages were found in 65 per cent of the inspections, and in the restaurant industry, deficiencies in the payment of wages were found in 86 per cent of the inspections. In the cleaning industry, deficiencies in the payment of wages were found in 30 per cent of the inspections in which the payment of wages was evaluated (Figure 3). A large share of the deficiencies were related to the payment of wage supplements based on generally binding collective agreements.

The major deficiencies in compliance with the provisions on wages in the collective 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 generally binding collective 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 foreign labour inspections is the verification of employees’ actual working hours. In 2020, many inspections 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 the employer not keeping a record of their employees’ working hours as required by the Working Hours Act were found in the restaurant industry, with deficiencies found in nearly 80 per cent of inspections.

Deficiencies related to work schedules were prominent in the restaurant industry as well. These were found in 77 per cent of inspections. Deficiencies related to work schedules were found in other sectors as well. In the construction industry, deficiencies related to keeping a record of working hours were found in 58 per cent of the inspections and in the cleaning industry, the figure was 15 per cent.

Inspectors also came across situations in which they were told that the person working on the site was not in an employment relation with employer. In these cases, the inspector may, based on their observations, 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 legal rights of occupational safety and health authorities to access information 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 2020, written advises on the characteristics of employment were issued in nine inspections.

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

Foreign labour inspections unit in Southern Finland carried out 26 inspections in companies posting employees in Finland in 2020. Most of these inspections targeted the construction sector. The inspections uncovered many deficiencies. For example, wages were found to comply with legal requirements of Finnish compulsory labour law in only about every third inspection.

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.

Fewer asylum seekers were encountered

Many asylum seekers were encountered during the 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 more than 260 asylum seekers at over 110 workplaces. In 2019, the number decreased to 219 asylum seekers at 65 workplaces, and in 2020, the number decreased even more – only 45 asylum seekers at 19 workplaces were encountered. The change has been significant. It is explained by the fact that the number of asylum seekers arriving in Finland has been decreasing, and the applications made in the previous years have been processed. In 2020, the highest number of asylum seekers was found in the cleaning industry.

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 2020, supervising activities were targeted at the construction sector, industries, logistics, and the cleaning and real estate sector. Nearly 800 contractor liability inspections were conducted in 2020, of which 744 were completed on 1 March 2021. The contractor liability inspections served to supervise the compliance of roughly 2,700 contractual partners with the obligation to provide information in agreements on the use of leased employees or work based on subcontracting. (Figure 1)

In 2020, 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.

Due to the rapidly changed situation after March 2020, contractor liability monitoring focused not only on inspections, but also on other influencing methods. 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 2020 supervising results

In the inspections completed during the year, the contractor’s obligation to provide information had been followed as required by law in 130 inspections, 88 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 1,200 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 52 inspections, of which 36 were selected on the basis of public-sector 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 2020, negligence fee was considered in four cases on the grounds that the contractor must have known 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.

Supervising activities also revealed that the number of foreign self-employed individuals has slightly increased in subcontracting chains. 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

As a rule, employers meet their pension insurance obligations. The results of the supervision of earnings-related pension insurance have been quite consistent in recent years (Figure 1). However, the payroll sum missing from insurance decreased in 2020 from the previous years as expected. During 2020, supervision focused more on self-employed persons, and more small enterprises were selected for supervision than before.

Figure 2 presents numbers relating to the supervision of how well employers meet their earnings-related pension insurance obligation. In 2020, the Finnish Centre for Pensions took a closer look at how 7,400 employers met their insurance obligation. Around 1,278 employers (affecting about 8,000 workers) showed shortcomings in meeting their insurance obligation.

There are no major changes in these supervision figures.

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

Figure 3 shows that a total of 8,430 self-employed persons were examined in more detail. In 2020, supervision was exceptionally conducted based on data from two tax years (2018 and 2019). As a result, more self-employed persons were supervised than normal, and more new insurance policies were, therefore, taken out than before. 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 175,000 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.

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. 

In 2020, the Workers’ Compensation Center started to use the Incomes Register as a data source, and earnings payment data was received monthly instead of the previous annual data. This and system development helped to target control activities at an increasing number of employers.

Control activities revealed flaws in Incomes Register reports. For example, YEL data was not always reported. A considerably large group of employers who had submitted incomplete reports was investigated and informed. This explains the large number of investigated cases relative to the number of cases involving neglect.

The insurance register maintained by the Workers’ Compensation Center also included errors, which partly explains the number of investigated cases (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 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 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. 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 authorities, such as the Tax Administration, can be used for monitoring purposes and compared with information reported by employers. As a result of the deployment of the Incomes Register, monitoring is primarily based on data reported to the Incomes Register.

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.

Most cases of neglect and errors in reports are due to human error. Errors occur especially when reporting wages of self-employed persons and part-owners, and in other situations concerning the preconditions of the payment obligation. 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 reports.

In 2020, the Employment Fund was able to carry out its monitoring activities fairly well considering the prevailing conditions, despite the coronavirus situation. Monitoring activities focused on previous insurance years. It is still too early to exhaustively assess the impact of the coronavirus situation on neglected unemployment insurance contributions and erroneous reporting.