How to avoid the most common payroll mistakes when operating in Finland

Payroll in Finland is exceptionally complex. It's governed by over 20 laws, approximately 160 universally binding collective agreements, and numerous local agreements. This regulatory jungle creates challenges, particularly if you don’t have extensive payroll expertise at your disposal.

Why is payroll so demanding in Finland?

Finnish payroll is governed by a multi-tiered system:

Law forms the foundation by defining minimum requirements for employee rights.

Collective agreements supplement the law and often improve employees' position compared to statutory requirements.

Employment Contracts are the level closest to the employee, and cannot undermine the rights guaranteed by law or collective agreements.

A significant turning point came on 1st January 2025, when local bargaining was extended to cover non-unionised employers as well. Previously, only companies belonging to employer organisations were able to negotiate locally on terms deviating from collective agreements.

The reform brought welcome equality between different companies, but at the same time it added further complexity to payroll.

The significance of universally binding collective agreements is particularly important to understand. They don't only apply to organised employers, but to all companies operating in the sector. The universal validity of collective agreements is confirmed by an independent board operating in connection with the Ministry of Social Affairs and Health.

The most important payroll regulations in Finland

The most important laws affecting payroll include:

• Employment Contracts Act defines employer and employee obligations as well as wage payment obligations
• Working Time Act regulates working hours, overtime compensation, and working time records
• Annual Holidays Act defines annual holiday pay entitlements (but not holiday bonuses)
• Advance Tax Collection Act and Income Tax Act concern taxation - failure to comply with these can result in the employer becoming liable for tax not withheld
• TyEL and Unemployment Security Act determine insurance contributions and benefits
• Act on Income Data System has significantly affected payroll since 2019

Payroll accounting and retention obligations

Payroll accounting

Payroll accounting is sub-accounting within external accounting, regulated by the Accounting Act. Retention periods vary depending on perspective: 6 years according to the Accounting Act, but the Act on Income Data System stipulates a 10-year correction obligation for incomes register data.

Working time records

Working time records are mandatory for everyone subject to the Working Time Act - including monthly salaried employees working regular hours. The retention period is 2 years after the end of the calendar year. As supporting documentation, i. e., as the basis for payroll calculations, it may fall under the 6-year retention period.

Annual holiday records

According to the Annual Holidays Act, records must be kept of holiday accrual, dates taken, and duration. This applies to all employees, including those on monthly salaries.

General Data Protection Regulation (GDPR)

GDPR determines what personal data can be collected and how long it can be retained. In payroll, the basis is fulfilling statutory obligations. Special attention is required for health data and information concerning young persons.

Entrepreneur payroll

Entrepreneur's own salary payments

When an entrepreneur draws salary from a company, it must be reported to the incomes register within 5 days of the payment date. This applies to each withdrawal separately - you cannot collect a month's withdrawals and report once per month.

Benefits in kind

Entrepreneur benefits in kind (except telephone benefit) must be reported monthly to the incomes register using current values. Telephone benefit can exceptionally be reported once annually in advance.

Including family members

When the entrepreneurial family expands into the business:

• Spouse's salary is handled according to the same principles
• Including children is like employing the first employee
• Special regulations must be followed for young workers regarding evening, night, and weekend work

Employing the first employee

When a company employs its first employee, the following must be considered:

• Written employment contract (oral contract suffices, but written is recommended)
• TyEL insurance
• Accident insurance (includes group life insurance)
• Special regulations for young workers

The most common payroll mistakes

Based on practical experience, the following situations often cause problems:

1. Cash withdrawals not reported on time - leads to unnecessary late payment charges and interest
2. Benefits in kind handled incorrectly - particularly car and housing benefits as well as bicycle benefits. Retrospective correction is laborious because the effects extend to employer sickness insurance contributions and accounting
3. Travel expense reimbursements not reported - mileage allowances and daily allowances must be reported to the incomes register within 5 days
4. Working time and annual holiday records not kept - can lead to difficult situations in connection with occupational safety inspections

Summary and most important tips

Payroll in Finland is complex, but with a systematic approach and adherence to proper practices, you can avoid the most common errors and costly sanctions. The most important things are:

• Understand the regulatory hierarchy and your sector's requirements
• Maintain up-to-date records of all statutory obligations
• Report to the incomes register on time - the 5-day rule applies to all payments
• Handle benefits in kind carefully with correct values and timing
• Consider data protection when processing personal data

When these basics are properly established from the start, you'll avoid laborious corrections and late payment fees. Payroll requires precision, but with the right tools and expertise, it's manageable.

Need help with payroll? Contact our specialists before problems accumulate - prevention is always cheaper than correction after the fact.