The foreign employer s obligation to take out pension insurance in Finland for the employees

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1 The foreign employer s obligation to take out pension insurance in Finland for the employees These instructions detail the obligation of a foreign employer to insure the employees under the Finnish acts on the earnings-related pension and the possibility of applying for an exemption from the insurance obligation in accordance with section 6 and section 149 of the Employees Pensions Act (työntekijän eläkelaki TyEL). Exemption is applied for with the Finnish Centre for Pensions (Eläketurvakeskus ETK). Mandatory insurance under the Employees Pensions Act and exceptions to this In the acts on the earnings-related pension the basic principle is that work carried out in Finland is insured in Finland. The employer is liable to arrange pension provision under TyEL for the employees. However, TyEL does not concern employees whom the foreign employer sends to Finland on a short assignment which starts after and which continues for at the most two years. The preconditions are that the employee is not covered by the Finnish social security system when the assignment starts the employee is not on the basis of the EU- provisions on social security or of asocial security agreement covered by the Finnish legislation. The EU provisions on social security and the social security agreements determine the country where the employer should arrange social security for the employees when they work in the EU or EEA area or in an agreement country. These provisions take precedence over the national legislation. A Japanese employer sends an employee who is working in Japan to work in Finland at the Finnish subsidiary of the employer company group for 11 months. The employee is not insured under TyEL. Section 149 of TyEL contains provisions on situations where a foreign employer sends an employee to work in Finland for more than two years. The foreign employer may be exempted from the obligation to arrange pension provision under TyEL for this employee. This section of law aims at preventing double insurance for the same work. This possibility of exemption does not concern posted workers whose insurance is determined in the EU provisions on social security or in a social security agreement. Exemption is granted for a maximum of five years from the commencement of the work in Finland. One precondition for exemption is that the employer provides documentation stating that the employer has arranged pension provision for the employee in some other way. If the work in Finland lasts for more than five years, the employee should be insured under TyEL after the period of five years. A Chinese employer sends an employee who is working in China to work in Finland for four years. Pension insurance has been arranged in China for the employee for this period. The employer applies for an exemption from the insurance obligation under TyEL and encloses with the application a certificate stating that the employee is covered by a Chinese pension insurance arrangement. The Finnish Centre for Pensions grants an exemption from the obligation to insure the employee under TyEL for the period of work in Finland.

2 Application The Finnish Centre for Pensions has a separate form for the application. The form is available on the website of the Finnish Centre for Pensions at The application always concerns an individual employee. Exemption cannot be granted for a specific group of employees. As a rule, the employer is required to send the Finnish Centre for Pensions a certificate confirmed by the authorities stating that pension provision has been arranged elsewhere. In the application or enclosed with the application there should be a statement signed by the employee declaring that the employee is aware of the pension provision arranged for him by the employer and that the employer is applying for an exemption from the obligation to take out insurance under TyEL for the employee. If there is no such statement, the Finnish Centre for Pensions hears the employee separately before giving its decision. Decision The Finnish Centre for Pensions gives an appealable decision in the matter. Both the employer and the employee have the right to appeal against the decision of the Finnish Centre for Pensions. Foreign employer Usually the sending employer is a company registered abroad. As a foreign employer is also considered the Finnish or foreign company s branch in another country. In that case the precondition is that there is a permanent place of business or representation in the other country, with continuous operations. The branch should have significant rights and obligations related to the employer s legal status in regard to the posted employee. The question of whether the employer is foreign or whether the Finnish company to which the employee has been sent in effect has the status of employer is determined on the normal grounds of labour law. The definition of both employer and employee is based on the concept of employment contract. The employer and the employee are the parties to the employment contract. In the employment contract the employee undertakes to work for the employer, who undertakes to pay the wage. The Employment Contracts Act determines the rights and obligations of the employer, which are e.g.: being a party to the contract right to profit from the work input right to direct and supervise the work and obligation to pay remuneration for the work. Usually all the employer s rights and obligations clearly belong to a certain party. In some cases the rights connected to the employer s status may be divided between different parties. For instance, as regards hired personnel the employee s employer (the personnel hiring company) sends the employee to the user company for a specified time period in accordance with the hiring contract. The hiring of personnel involves two contract relationships: the contract between the hiring company and the user company on the hiring of personnel and the employment relationship between the hiring company and the employee. The arrangement does not affect the employer status of the hiring company even though the user company has the right to use the concrete right to direct the work and the right to decide matters directly related to the work.

3 The Russian parent company sends the employee to work at the subsidiary in Finland. The work is carried out on the premises of the Finnish subsidiary and the subsidiary also pays the wage. However, the employee reports about the work to the Russian parent company, the Russian company gives instructions and regulations on the work and, for instance, the right to give notice remains with the Russian company. The Russian company may be considered as the employer under labour law. Employee posted to Finland from abroad The employee should be posted from abroad to Finland. This means that when the assignment starts the employee must not be covered by the Finnish social security system on the basis of residence or employment. If the employee is covered by the Finnish social security system, he cannot be considered a posted worker and the Finnish legislation is still applicable to him. A Japanese company hires an employee who is permanently resident in Finland. The employee goes to sign the employment contract and acquaint himself with the work for one month in Japan, after which he is sent back to Finland. The employee cannot be considered as being posted from Japan to Finland, since he has been covered by the Finnish social security system. Assignments which started before As TyEL took effect it required that work carried out in Finland was to be insured in Finland, regardless of whether the employer is Finnish or foreign. A foreign employer may, however, on certain conditions be exempted from the insurance obligation under TyEL, if he posted an employee working for him to work in Finland. To assignments which started during the period the provisions which were in force during that time are applied. According to these provisions, a foreign employer may apply with the Finnish Centre for Pensions for an exemption from the obligation to take out insurance under TyEL for the employee the employer has sent to work in Finland. The exemption may be granted for a maximum period of two years at a time. The prerequisite for the granting of an exemption is that the employer has arranged reasonable pension provision for the employee elsewhere. Exemption from the insurance obligation is not possible under the provisions of TyEL, if the EU provisions on social security or of the social security agreements concluded by Finland become applicable. If the employee working for a foreign employer came to Finland on short business trips, for meetings etc. lasting for at the most one month, this is not considered work carried out in Finland for which the employer is liable to arrange pension provision under TyEL. Thus it is in these cases also not necessary to apply for an exemption.

4 Assessing whether pension provision is reasonable A precondition for exemption is that the employer is liable to arrange pension provision for the employee in some other country for the period of work in Finland and that this pension provision may be considered reasonable. As a rule, this pension provision should be part of the country s statutory earnings-related pension scheme, or then an occupation or industry-specific occupational pension scheme. In exceptional cases the basis for exemption may also be pension provision which the employer in the employment contract has undertaken to arrange. Such arrangements may be, for instance, provided by multinational companies for their international personnel. The other pension provision arranged should include provision for old age and disability as well as survivors pension provision. Furthermore, the maintenance of the value of the accrued pension rights and of the pension must be secured. Enclosed with the application for exemption the employer should, when necessary, present the documentation on the insurance obligation as well as the pension provision arranged for the employee in the other country and its contents which is necessary for the deciding of the application. The documentation should be confirmed by the authorities of the relevant country or some other party which may be considered official. The employer has to provide translations of the documents in Finnish or in Swedish, if necessary. The Finnish Centre for Pensions has information on many countries statutory pension schemes. If the information is sufficient to assess whether the pension provision is reasonable, the employer does not have to provide separate documentation. The employer may, before applying for an exemption, inquire from the Finnish Centre for Pensions whether documentation is needed on the contents of statutory pension provision. The Finnish Centre for Pensions grants an exemption on the basis of the application for a maximum period of two years at a time. If the work in Finland continues after this period, the employer may apply for a continuation of the exemption. In connection with the new application documentation has to be presented proving that the preconditions for exemption are still met. If the employer does not apply for a continuation of the exemption or the preconditions for the granting of an exemption are not met, the employer has to insure the employee under TyEL. Exemption is applied for with the Finnish Centre for Pensions on a separate form. The form is available on the website of the Finnish Centre for Pensions at Before making a decision the Finnish Centre for Pensions also hears the employee. The Finnish Centre for Pensions decides the application for exemption on the basis of the presented documentation and gives an appealable decision in the matter. Both the employer and the employer have the right to appeal against the decision of the Finnish Centre for Pensions regarding the exemption. Application practice up to The Employees Pensions Act (työntekijäin eläkelaki TEL) was in force until According to the established application practice it was not necessary to insure an employee in the employ of a foreign employer who worked only temporarily in Finland under TEL, if the employee and the employer were citizens of the same foreign country or if the employer s domicile was in the country whose citizen the

5 employee was. As temporary work were usually considered assignments lasting for a maximum of two years. The old decisions on exemption under TEL are no longer valid as TyEL has taken effect, since the preconditions for exemption in TyEL are different than when applying TEL. It has been possible to apply for a decision on exemption under TyEL since It is not necessary to apply for an exemption, however, if the work in Finland has not continued after January 2007.