Proposed new law on subcontracting work

A tripartite working group, established as part of the latest wage policy agreement, recommends that a new law should be enacted concerning subcontracting services. Such a law would clarify client and contractor responsibility with regard to the use of hired work and outside labour. The aim is to promote the observation of terms of employment and to prevent competitive distortions caused by neglected employer obligations.

Increased responsibility in the use of contract services was one of the three main qualitative goals of the trade union side in the latest round of wage policy negotiations. No agreement was reached in this regard, but the parties appointed a tripartite working group to develop ways to address the issue (FI0501203F). The working group, referred to as Ulteva 2, comprises representatives from the ministries, the central employee organisations and the Federation of Finnish Enterprises (Suomen Yrittäjät).

Clarifying contractual responsibilities

On 10 March, the working group published its proposal, suggesting that a new law should be enacted concerning subcontracting services. The law will clarify client and contractor responsibilities with regard to the use of hired work and external labour. The aim is to promote the observation of terms of employment and to prevent competitive distortions caused by neglected employer obligations. A further aim is to establish tougher preconditions for client enterprises to ensure that their subcontractors are following collective agreements and statutory obligations. The law will also provide for the additional resources needed to supervise terms of employment in situations pertaining to subcontracting and hired work.

The law proposed by the working group will be enforced if the work of temporary agency employees lasts at least 10 working days in total, or if the value of a subcontract agreement exceeds €7,500. A client enterprise that fails to investigate the circumstances of its subcontractor will be liable for a penalty fine of between €1,500 and €15,000. This fine will be determined by the local labour protection authority.

Ensuring tax and employer compliance

Under the proposed client responsibility law, a company that uses external labour will be obliged to confirm whether any subcontractor or temporary work agency it uses is registered in Finland for income tax, employment and value-added tax purposes. In addition, documentation such as an extract from the trade register and a certificate of clearance for tax payments and employment pension contributions will be required. Moreover, the investigation will cover details of the applicable collective agreement or the principal terms and conditions of employment. Comparable information will be required for foreign enterprises.

The new legislation will also include a provision requiring the client business to notify its shop steward and labour protection delegate of any agreement on the use of outside labour. This notification should give details regarding the quantity of labour to be used, the length of the agreement, and the applicable collective agreement or principal terms and conditions of employment.

However, there will be no duty to investigate the operations of established subcontractors and employment bureaux or of national or local public authorities, public limited companies, state commercial institutions or organisations of comparable standing. A partner may be considered established, for example, when it has engaged in substantial business operations for about three years.

Reaction to the proposal

The Finnish Industries (Elinkeinoelämän keskusliitto, EK) described the solution as a reasonable compromise. For the employer side, it was important that a client company was not made responsible for the possible arrears of taxes and payment of a subcontractor. The Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK) expressed its satisfaction that substantial progress had been made in achieving the organisation’s aim of increasing client liability. The Director of the policy development department at SAK, Lauri Lyly, stated that the new legislation means that employees will be paid correctly, that law-abiding employers will enjoy fair competition, and that the government will receive the associated tax revenues and social security contributions.

According to the Minister of Labour, Tarja Filatov, the new legislation is necessary and will ensure greater equality among employees as well as the observation and monitoring of the terms of employment. Ms Filatov believes that the working group proposal will particularly enhance the position of those enterprises that are following the rules. She emphasised that, along with the new legislation, additional sufficient resources must be put in place to provide for the administration of industrial safety. The Ministry of Labour will bring the bill before the parliament as soon as possible, and the legislation is due to be introduced before the end of the year.

Pertti Jokivuori, Statistics Finland, University of Jyväskylä

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