Rivermate | Finland flag


Freelancing and Independent Contracting

Understand the distinctions and regulations for freelancers in Finland

Difference employees and contractors

In Finland, understanding the legal differences between employees and independent contractors is crucial as it impacts worker rights, tax obligations, and social security contributions.

Direction and Control

According to the Finnish Employment Contracts Act (55/2001), an employer has the right to direct and control an employee's work. This includes dictating how, where, and when work is performed, providing specific tools and equipment, and setting deadlines and performance expectations. On the other hand, independent contractors operate with greater autonomy, determining their work methods, schedules, and tools used.

Integration into the Business

Employees are typically integrated into the functioning of the company. They may wear uniforms, use company email addresses, and work exclusively for the employer. Independent contractors, however, operate as separate businesses. They may serve multiple clients, have their own branding, and invest in their own equipment.

Financial Dependence

Employees receive a regular salary or wages, often with benefits like paid time off and sick leave. The employer withholds taxes and social security contributions from their income. Independent contractors, on the other hand, invoice for their services and are responsible for their own taxes and social security payments.

Classification Challenges

The lines between employee and independent contractor can sometimes blur. Finnish tax authorities consider several factors to make a definitive classification, including those mentioned above. In unclear cases, the overall nature of the working relationship is evaluated.

Additional Considerations

The presence of a formal employment contract usually indicates an employee relationship. Also, employers must follow specific procedures for terminating an employee contract, while independent contractor agreements can be terminated with notice.

Independent contracting

Independent contracting is a flexible work arrangement that is beneficial for both businesses and skilled individuals in Finland. It's important to understand the nuances of this category to navigate the legalities and maximize benefits effectively.

Contract Structures

The foundation of the working relationship in independent contracting is the independent contractor agreements. These contracts should clearly define the scope of work, deliverables, payment terms, and termination clauses.

Common contract structures used in Finland include:

  • Fixed-price contracts: These contracts define a specific project or task with a predetermined fee.
  • Time-based contracts: These contracts set an hourly or daily rate for the contractor's services.
  • Performance-based contracts: These contracts tie compensation to achieving specific milestones or outcomes.

Choosing the structure that best suits the project's needs and ensures fair compensation for both parties is crucial.

Negotiation Practices

Negotiating a contractor agreement requires careful consideration of several factors. These include:

  • Scope of work: Clearly define deliverables, timelines, and revision processes to avoid misunderstandings.
  • Payment terms: Negotiate payment schedules, milestones for payment releases, and late payment penalties.
  • Termination clauses: Outline the conditions and notice period for terminating the agreement.

Open communication and a willingness to compromise are key to reaching a mutually beneficial agreement.

Common Industries for Independent Contracting

Independent contracting is prevalent in various sectors of the Finnish economy. Industries with a high concentration of independent contractors include:

  • Information technology (IT): Programmers, developers, and IT consultants often work as independent contractors.
  • Marketing and communications: Writers, editors, graphic designers, and social media specialists frequently operate as independent contractors.
  • Construction: Contractors specializing in carpentry, plumbing, electrical work, and other trades often work independently.
  • Management consulting: Many consultants offer their expertise on a project basis.

These are just a few examples, and independent contracting opportunities exist across various fields in Finland.

Intellectual property rights

Working as a freelancer or independent contractor in Finland provides a significant amount of flexibility and independence. However, understanding how intellectual property (IP) rights are managed in these situations is crucial. Owning the rights to your creations safeguards your work and enables you to control its usage.

Default Ownership Rules

If there is no written agreement, Finnish law applies default rules to determine IP ownership:

  • Copyright - Typically, the creator of an original work automatically holds the copyright. This applies to literary works, software, artistic creations, and more.
  • Patents - The inventor owns the rights to a patentable invention.
  • Trademarks - The party that first registers a trademark owns the exclusive right to use it.

These default rules provide a baseline, but they can be overridden by a contract.

Importance of Contracts

For freelancers and independent contractors in Finland, a well-drafted contract is crucial. The contract should explicitly address IP ownership for all work created during the project. This includes:

  • Specifying Ownership: Clearly state who owns the IP rights – the freelancer or the client.
  • Work Made for Hire: If the work is considered "work made for hire" under specific criteria, the client may automatically own the IP. The contract should clarify this point.
  • License Grants: If the freelancer retains ownership, the contract can define the scope of any license granted to the client for using the IP.
  • Confidentiality: A non-disclosure agreement (NDA) can be included to protect the client's confidential information used during the project.

A clear and written agreement protects both parties and prevents future disputes.

Recommendations for Freelancers

Here are some suggestions for freelancers and independent contractors in Finland:

  • Always Use Contracts: Don't rely on verbal agreements. A written contract protects your rights and sets clear expectations.
  • Retain Ownership by Default: Unless there's a specific reason to transfer ownership, negotiate to retain the copyright and other IP rights.

Tax and insurance

As a freelancer or independent contractor in Finland, you're responsible for managing your own taxes. The main taxes you'll encounter include national progressive income tax, municipal progressive income tax, church tax (optional), value-added tax (VAT), pension contributions, and unemployment insurance.

Income Taxes

National progressive income tax is applied to your taxable income according to the Income Tax Act (Tuloverolaki, 1552/1992). The rate ranges from 0% to 31.25%, with the exact rate depending on your income level.

Municipal progressive income tax is levied by your municipality on top of the national income tax. Rates vary between municipalities, typically ranging from 16.5% to 23.5% for residents and a flat 35% for non-residents.

Church Tax is optional. You can choose to pay church tax to a religious community you belong to. The rate varies depending on the community, typically ranging from 1% to 2.10%.

Other Taxes

If your annual turnover exceeds a certain threshold (currently €10,000), you may need to register for VAT and collect it on your services.

If your annual income exceeds €8,261.71, you'll need to pay pension contributions under the Self-Employed Persons' Pensions Act. The rate depends on your age, ranging from 24.1% to 25.6%.

Unemployment insurance is optional for freelancers, but it can provide financial security in case of unemployment.

Insurance Options for Freelancers and Independent Contractors

As a freelancer, you're not covered by the same social security system as employees. Here are some insurance options to consider:

Health insurance: While basic healthcare is available in Finland, private health insurance can offer faster access to specialists and shorter waiting times.

Accident insurance can provide financial compensation if you're injured or become disabled due to an accident while working.

Liability insurance protects you from financial losses if your work causes damage to a client's property or if a client sues you.

Pension insurance: While mandatory contributions only apply if your income exceeds a certain threshold, you can take out private pension plans to supplement your retirement income.

Rivermate | A 3d rendering of earth

Hire your employees globally with confidence

We're here to help you on your global hiring journey.