What Severance Pay Rules Must Employers Follow in Finland?

Which Employees Qualify for Severance Pay?

• Employees whose employment is terminated by the employer for economic or production-related reasons, where a collective agreement grants severance-type redundancy pay.
• Employees covered by sectoral collective agreements that specify lump-sum severance, extended notice pay, or redundancy compensation.
• Employees with individual employment contracts that promise severance or enhanced termination benefits beyond statutory notice pay.
• Employees whose dismissal is found unlawful, who may be awarded compensation that in practice functions like severance.
• Long-serving employees or those in senior roles, where market practice and negotiation often lead to severance packages on termination.
• Employees affected by large-scale redundancies, where social plans or company policies provide additional severance-style payments.

What Are the Legal Timelines for Paying Severance?

In Finland, you must always pay all final wages, accrued but unused holiday compensation, and any agreed severance or redundancy pay without undue delay after the employment relationship ends. Many collective agreements and company policies require payment on the normal payday following termination, or at the latest by the next regular payroll cycle. If you agree a severance package in a settlement, the payment date should be clearly written into the agreement and followed precisely. Interest and potential damages can accrue if you delay payment beyond the agreed or customary date. To stay safe, your company should aim to process all termination-related payments on or before the final regular payday after the last working day.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay agreed or collectively mandated severance-type compensation correctly, you risk financial and legal consequences under Finnish law. Courts can also award compensation for unlawful dismissal, which may be substantial compared with regular wages.

• Employees can claim unpaid amounts plus statutory interest for late payment.
• Trade unions may support claims, initiate disputes, or pursue collective bargaining pressure.
• Courts can order compensation for unjustified dismissal, which can reach up to many months of pay.
• Non-compliance can trigger inspections or scrutiny from Finnish authorities and damage your employer brand.
• Disputes may force your company into costly settlements to avoid litigation.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) like the service described at https://www.playroll.com/employer-of-record does not remove the need to follow Finnish termination and compensation rules. In a compliant EOR model, the EOR is the legal employer in Finland and is responsible for applying the Employment Contracts Act, collective agreements, and local practice when ending employment. However, your company usually directs the decision to terminate and will bear the commercial and contractual responsibility for severance-type costs under the EOR agreement. If the EOR mishandles notice, documentation, or payments, both the EOR and your company can face reputational and financial exposure. Clear allocation of who funds redundancy or settlement packages in the EOR contract is essential to avoid surprises.

Be 100 Percent Compliant in Offering Severance with Playroll

With Playroll, your team can structure Finnish terminations so that notice, holiday compensation, and any severance-style payments are calculated and documented correctly. We help you map which collective agreement applies, what it says about redundancy compensation, and how market practice influences severance negotiations for different seniority levels.

Playroll also builds compliant workflows around timing, approvals, and documentation, so you can prove that payments were made on time and in line with Finnish law. Whether you employ directly or via an Employer of Record, we help you design templates for settlement agreements, termination letters, and internal approval steps that keep your company aligned with local expectations.