Abuse of foreign labour

Finland competes for foreign labour and international experts with the rest of the world. A large part of the foreign workforce is employed in labour-intensive sectors or seasonal work, such as the service sector or the construction sector. Workers in these sectors are usually not highly educated, and their professional skills may vary greatly.

The EU upholds the free movement of workers, and an increasing number of people are coming to work in Finland from neighbouring countries such as Estonia. Companies use leased employees and subcontracting alongside their own employees. In addition, foreign labour comes to Finland from countries outside the EU, or so-called third countries, to work for foreign and Finnish companies. In order to work in Finland, self-employed persons and employees from third countries must have a residence permit for an entrepreneur or an employed person.

Foreign labour is associated with an increased risk of abuse. It may involve illegal employment, such as working without having the right to work. An employer might violate the minimum terms of employment by paying wages that are below the level set by the collective agreement. Employers may be motivated to use foreign labour to avoid taxes, other statutory payments and binding terms of employment in order to obtain financial benefits. The avoidance of employer’s contributions may also be manifested in paying unfounded tax-exempt expense allowances.

Foreign labour abuses typically occur in the subcontracting chains of foreign companies on construction sites. Illegal foreign labour has also been observed in other fields of business with a high risk of the grey economy, such as the restaurant, cleaning and transportation sectors; other observed examples include horticultural farms, berry farms and shipbuilding industry. Both Finnish and foreign companies are culpable of such abuses – the persons responsible may be Finnish or foreign.

Foreign labour abuses are linked to financial crime

Foreign labour abuses often involve payment of wages under the table, employment without a work permit, failure to pay pension contributions, identity misuse, and abuse of social benefits and other types of support. The employer may have agreed that part of the wages will be paid in the form of Finnish social benefits. An employer that uses foreign labour in violation of the rules may be guilty of a number of different crimes at the same time. For instance, their actions may fulfil the constituent elements of tax fraud and social insurance fraud and one or more elements of employment offenses.

Movement of workers introduces an international dimension

The number of foreign companies and employees has been growing in Finland in recent years. The number of employees coming from third countries has increased substantially. In particular, large construction projects, such as the Turku shipyard, have led to a significant increase in the demand for foreign labour.

Authorities have observed a growing trend where foreigners coming to work in Finland work in several countries at the same time. This phenomenon is evident in all of the EU. Certificates (A1 certificate of coverage) that indicate which country’s social security legislation will be applied to the person in question are increasingly often granted based on work in two or more countries. Immigration control operations have observed situations where a citizen of a third country is sent to work in Finland as a posted employee of a company registered in another EU country. This employee’s right to work has been granted on incorrect grounds in the posting country if the employee has never worked there as an employee of the posting employer.

Suspected abuse related to entrepreneurs’ residence permit applications handled by the Centre for Economic Development, Transport and the Environment has uncovered seemingly professional organised operations, particularly in applications from citizens of Russia, China and Middle Eastern countries. When collaborating with other authorities, the occupational safety and health authority has also observed cases where a work permit has been applied for on the basis of fictitious employment contracts or information from an incorrect employer company. In some cases, the work was completely fictious, or there was not enough work for everyone for whom a work permit was applied. In addition to fraud-related crime, there have been signs of labour exploitation. In the construction sector, citizens of Uzbekistan and Kyrgyzstan have been heavily featured in such cases. In the cleaning and shipyard sectors, cases have featured individuals from Tunisia and Morocco.

Low-cost labour distorts competition and erodes tax morale

Abuse of foreign labour disrupts the market and undermines fair competition due to some actors illegally exploiting cheaper labour. Using undeclared labour causes losses of taxes and social security contributions. There is also indirect harm when appropriate wages are not paid in accordance with Finnish legislation and collective agreements. In addition, claiming various social benefits, such as unemployment benefits, causes additional expenses for society. Unskilled labour may pose a danger to occupational safety on sites, and incorrectly performed work may harm the client.

Labour abuse often has a detrimental effect on the workers as well – for instance, they do not accrue an occupational pension from undeclared wages. Third-country citizens are in a vulnerable position and at higher risk of being exploited on the labour market. Lack of language skills combined with an unfamiliar culture and dependence on the employer increase the risk of exploitation. Authorities have observed that individuals whose asylum application has been rejected and those working without a residence permit are at particular risk of becoming victims of human trafficking.

Co-operation to prevent foreign labour abuses

The Action plan against labour exploitation [.fi]› was prepared jointly by ministries and implemented in co-operation with public authorities. The programme aims to use advance measures that actively address abuses in the labour market and to ensure a safe working environment for all employees.

Co-operation between the authorities plays a key role in preventing illegal foreign labour. Co-operation is carried out nationally and at the international level, especially with the other Nordic and Baltic countries. Guidance, advice and development of electronic services are important in preventing abuse. Authorities carry out joint inspections of sites and other supervised workplaces.

In its efforts, the Finnish Tax Administration uses risk analysis and makes extensive use of data, some of which is reported to the Tax Administration as statutory data and some of it is obtained through control measures. The Tax Administration aims appropriate controls at high-risk targets.

For instance, the occupational safety and health authority monitors the right to work of foreign labour and compliance with the minimum terms and conditions of employment contracts. The expansion of the occupational safety and health authority’s right of access to data has enabled more risk-based supervision in recent years.

The Finnish Immigration Service prevents abuses of work-based residence permits through active supervision – both in advance and after the fact. The Finnish Immigration Service also cooperates closely with other supervisory authorities.

The authorities also engage in co-operation with employees’ and employers’ associations to prevent foreign labour abuses. There is a long tradition of effective co-operation with the construction industry.

In the EU, the European Labour Authority (ELA) aims to promote fair movement of labour in the internal market.