Application of the act on the contractor’s obligations and liability when work is contracted out

Application of the act on the contractor’s obligations and liability when work is contracted out -alasivu

The obligation to check pertains to subcontracting and to the use of temporary agency workers 

The obligation to check applies to a contractor using temporary agency work in Finland. With regard to the subcontracting agreements, the Act on the Contractor’s Obligations and Liability when Work is Contracted Out is applied, if the following conditions are met:

1. Subcontractor’s employee is working in the contractor’s premises or work site in Finland.

In construction, however, the obligation to check is also applied in cases of entrepreneur’s work.  The contractor needs to be aware of the status (entrepreneur or employee) of the person conducting the work in order to obtain the clarifications concerning the contractor’s obligation to check in an appropriate scale. 

2. Subcontracting work is related to the contractor’s ordinary operations. 

In addition to the core business operations, cleaning and the service and maintenance of equipment and facilities are always also considered ordinary duties in the contractor’s operations. The obligation to check applies to transport services if those form an essential part of the contractor’s normal operations. In contracts regarding construction operations, the obligation to check applies also to a contractor whose ordinary operations do not include construction.

3. The contractor and contracting partner have concluded a contract on a certain work outcome against compensation. The contract can be in writing or an oral agreement.

Clarifications concerning the contractor’s obligation to check in different situations (pdf)

A contractor is a trader as referred to in section 3 of the Trade Register Act that is required to submit a basic notification as specified in the Trade Register Act. The central government, a local authority, a joint municipal authority, the Province of Åland, a local authority or joint municipal authority in Åland, a parish, a parish union, another religious community or any other legal person governed by public law may also be a contractor. A similar foreign company can also be contractor.

Limit values

Agreements of a minor significance, however, are exempt from the contractor’s obligation to check. The limits for ‘minor significance’ are defined differently for temporary agency work and subcontracting. For temporary agency work, clarifications concerning the contractor’s obligation to check must be obtained if the duration of the work of the hired employee(s) lasts for more than ten working days altogether. In subcontracting agreements, the obligation to check is required, if the value of the contract is at least EUR 9,000 (excluding VAT).

The clarifications concerning the contractor’s obligation to check must be obtained prior to concluding the contract, if it is evident that the limit value will be exceeded. 

The obligation to check may be required, even if the value of an individual subcontracting agreement or the number of working days of hired employees based on an individual agreement would not exceed the limit value. The limits described above are calculated by taking into account the cumulative working time or value of consecutive agreements in the case of agreements that run back-to-back or with only brief interruptions. In such a case, the clarifications must be obtained at the latest when it becomes evident that the limit value will be exceeded. 

The limits are not assessed, for example, by calendar year or financial year.

Exemptions from the obligation to check

The clarifications concerning the contractor’s obligation to check do not need to be obtained if the contractor has justifiable cause to trust the partner to comply with their statutory obligations. This exemption applies if the partner is a body governed by public law listed in the Act (e.g. the central government, a local authority or a parish) or a public limited liability company. A reason for trust can also be based on earlier contractual relationships between the contractor and the contracting partner, or on the fact that the operations of the contracting partner are established.

There is no obligation to obtain the clarifications concerning the contractor’s obligation to check for a contracting partner who has been in business for several years without any problems. For example, the business operations of a dormant company are not well-established.

The contractor must always consider whether the operations of the contracting partner are well-established before the contract is concluded, and the contractor must present documents to show that such consideration has been performed. Even if the company has been in existence for a long time, the contractor is required to obtain the reports described above if any changes have occurred in the company’s operations or if there is reason to believe that the company intends to default on its statutory obligations. The contractor is required to obtain the relevant clarifications, for instance, if the ownership of the company has changed or if public records show that the company has neglected its statutory obligations, or if the contracting partner has, for example, been eliminated from the Prepayment Register.

The contractor may have a justified reason to trust the contracting partner also on the basis of previous cooperation. A contractual relationship can be considered as being established after approximately two years, if contracts pursuant to the Act on the Contractor’s Obligations and Liabilities when Work is Contracted Out have been concluded during that time.

Construction is an exception to the above: in agreements concerning construction, the contractor is never exempt from the obligation to check on the basis of an established contractual relationship, well-established operations of the partner or any other comparable reason.

Obligation to check related to construction

Construction operations mean all construction work, including repairs, maintenance and upkeep. In addition to new construction and renovation construction, civil engineering is also considered construction work.

In construction, the obligation to check is broader than in other contracts:

  1. In the construction industry, the obligation to check applies to all contractors even if construction is not part of the contractor’s normal operations. For this reason, the obligation to check applies to, for example, an industrial company when it commissions an expansion to its facilities, or when a restaurant commissions renovation work. 
  2. The clarifications must be obtained, even if the entrepreneur him-/herself would perform the work. Sufficient clarifications in such a case would include information on tax register entries, an extract from the Trade Register and a report on tax payment status. If an employee is performing the work, all relevant clarifications concerning the contractor’s obligation to check must be obtained.  The contractor must also ensure that the presented clarifications correspond with the actual situation. 
  3. In addition to the other clarifications concerning the contractor’s obligation to check, the contractor must obtain a certificate showing that their contracting partner has taken out insurance pursuant to the Finnish Workers’ Compensation Act, if an employee of the contracting partner is conducting the work. In the case of other contracts than those relating to construction activities, contractors do not have an obligation to check the taking out of accident insurance.
  4. In contracts associated with construction operations, the contractor is not exempt from the obligation to check on the grounds of trust based on earlier contractual relationships between the contractor and the contracting partner, or on the fact that the operations of the contracting partner are established, or on the grounds of any equivalent reason. This exemption applies only if the partner is a body governed by public law listed in the Act (e.g. the central government, a local authority or a parish) or a public limited liability company.
  5. A contractor using a foreign contracting partner must throughout the validity of the contract continuously check that all posted workers of the contracting partner have valid certificates stating how the social security of the workers in question is determined, which here refers to evidence of the workers’ pension and accident insurance cover.  

Light entrepreneurs as a contracting partner

A light entrepreneur usually refers to a person who sells their work performance in their own name and invoices using an invoicing service company. If the contracting partner is a light entrepreneur, the contractor must obtain clarification stating that the light entrepreneur has performed their obligations. The invoicing service company cannot provide clarifications on behalf of the light entrepreneur.

In most cases, the light entrepreneur does not have a business ID, and is not registered in the Prepayment Register, the Employer Register or the Trade Register or registered as VAT-liable in the Value Added Tax Register. In this case, the contractor must request an informal account from the contracting partner on the fact that it has not been registered in the Tax Administration’s registers or the Trade Register. If the light entrepreneur does not have a business ID, it will not be registered in the public tax debt register. The contractor must request a certificate concerning the tax payment status directly from the contracting partner. 

If the contractor’s work is performed by a light entrepreneur’s employee, the contractor must, in addition to the clarifications indicated above, obtain accounts of the workers’ pension insurance, the applicable collective agreement or the principal terms of employment, provision of occupational health care services and, in construction operations, also a certificate on accident insurance.