There are several alternative methods for obtaining personnel, including the following:
hiring a new employee
training the current employees
purchasing competence as subcontracting from outside the company
agreeing on on-the-job learning
When you are considering obtaining additional labour as an employer, you should assess and compare the costs of the various alternatives of employing. The costs depend on, for example whether the employee is the company’s own employee who is paid wages, or an external employee, who is paid compensation for labour.
Tax must be withheld from wages, and in most cases the employer’s social security contribution must be paid. The employer’s social security contribution need not be paid for compensation for labour, but labour purchased from outside the company may be associated with other risks, such as if the task is poorly defined. Subcontracting and leasing of personnel and outsourced services often also carry additional costs from which the supplying company generates its profit margin.
The acquisition of external personnel is usually best suited when individual employees and the need for personnel is fixed-term or project-like. Utilising external competence can also be profitable when an activity that is not within the company’s core competence should be taken care of more efficiently.
When calculating the wage costs of a new employee, it should be noticed that part of the wage can be compensated for to the employee as fringe benefits that have monetary value and are advantageous in terms of taxation. It should also be reviewed whether financial aid is available from the state for hiring an employee or procuring competence as an outsourced service. Employee costs and fringe benefits are described in more detail under Employer’s wage costs. The wage calculator on the Palkka.fi site can be used in assessing the costs arising from an in-house employee.
Contractor’s obligations and liability
In accordance with the Act on the Contractor's Obligations and Liability when Work is Contracted Out, if a company (customer) decides to use external personnel, it must ensure that the company offering personnel is registered in the prepayment, employer and VAT registers. The customer must also ensure, among other things, whether the company that offers personnel has paid its taxes and taken out pension insurance policies. Furthermore, it must be found out which kind of collective labour agreement is applied to the work, or what the key terms of employment are. The information must also be obtained with regard to foreign companies.
The purpose of the Act on the Contractor's Obligations and Liability when Work is Contracted Out is to promote equal competition between companies and compliance with the terms and conditions of employment. The Act applies to customers that use leased personnel or have entered into a subcontracting agreement on personnel. The Act on the Contractor's Obligations and Liability when Work is Contracted Out is not mandatory with regard to small-scale (less than EUR 9,000) subcontracting agreements or short-term use of leased personnel (totalling a maximum of 10 working days). Also, entrepreneurs operating in agriculture and fishing and households are not included within the scope of application of the Act.
For further information on the Act, see the Ministry of Economic Affairs and Employment website.