In this blog post, we talk about light entrepreneurship in Finland and explain what it means.
When it comes to different modes of working, Finnish legislation recognizes only two different ones. You can work as an employee or as an entrepreneur. In a previously published blog, we explained how you can tell the difference between the two.
So, legally speaking, no such thing as ‘light entrepreneurship’ exists. This doesn’t mean that light entrepreneurship is somehow illegal. Rather, not having a clear legal definition means that the status of light entrepreneurs is ambivalent. At times, different officials may legally consider them employees and at times entrepreneurs. And this interpretation can work against the financial interests of the person in question.
In this blog, we explain this problem further. We also talk about the positive sides of this arrangement. But before we do that, we’ll go through some basic information about this rather new phenomenon.
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The rise of light entrepreneurship in Finland
Light entrepreneurship, kevytyrittäjyys, is actually a term that was coined by companies offering invoicing services. Its invention is attributed to ukko.fi, one of the first companies in Finland offering these types of services. Ukko.fi was founded in 2012. According to Statistics Finland, there are over 30 companies in Finland today that offer these types of invoicing services.
Being a light entrepreneur, kevytyrittäjä, means that you use the services of such an invoicing company to invoice your client for your work. Your client pays the invoice to the invoicing company. Then, depending on your agreement with the invoicing company, it pays you wages or a fee based on that invoice. You are in charge of marketing your services, setting your prices, and other conditions of your services. The invoicing company, in turn, handles all the legal requirements such as the necessary income tax withholdings and social insurance payments. Naturally, the invoicing company takes a fee for its services.
Statistics Finland recently released statistics relating to the use of light entrepreneurship in Finland. Thanks to them, we also now know more about the demographics of light entrepreneurs.
Numbers and demographics
Statistics Finland tells us that the use of light entrepreneurship has increased rapidly in recent years. Since 2019, the number of light entrepreneurs has increased by 60 %. In 2022, about 60 600 individuals were active light entrepreneurs. Active here means that they had received wages or a fee payment through an invoicing service at least once that year. Their numbers grew by nearly 20 % from 2021.
â…— of these active light entrepreneurs are men and â…“ are between 25 and 34 in age. Nearly half live in Uusimaa. Most active light entrepreneurs had another source of employment income in 2022. Thus light entrepreneurship provided them with a side income.
In 2022, about half of them had been active also the year before. But only every 7th of them had been active in the previous three years. This again shows the rapid growth of light entrepreneurship.
The majority of light entrepreneurs are Finnish citizens but slightly less than 20 % are foreign nationals. The most common countries besides Finland are Estonia, Russia, Bangladesh, and Iraq.
The activities of light entrepreneurs tend to be occasional. The median annual income of light entrepreneurs was 1 400 euros in Finland. The average was 5 300 €. The difference between the median and the average, however, is that there is a large variation in income. However, almost 80 % earned less than 5 000 € a year.
The pros and cons of light entrepreneurship in Finland
Invoicing services market light entrepreneurship as an easy way to try out entrepreneurship before setting up as a private entrepreneur (sole proprietorship) or a limited liability company. You can find more about the legal forms of business here. NewCo Helsinki also has great info on entrepreneurship and running your own business in Finland here.
Light entrepreneurship can also work as a way to invoice for your side hustle without having to worry about bureaucracy.
There are, however, things you should consider before choosing light entrepreneurship.
The cons of light entrepreneurship
One of the problems with light entrepreneurship is, as we mentioned earlier, the fact that it’s not a legally recognized form of business or mode of work.
For example, in employment and social insurance legislation, light entrepreneurs are under certain circumstances treated as entrepreneurs. This means that they are responsible for organizing their own pension insurance should their annual income go over a certain amount. You can find more information about this here.
Simultaneously, however, tax legislation may treat their income as that of an employee. This means that they are unable to claim certain deductions entrepreneurs are able to. The Finnish tax officials have published rather detailed instructions about taxation for light entrepreneurs. You can find them here.
Also, unemployment officials may interpret light entrepreneurs as being full-time entrepreneurs thus denying them access to unemployment benefits. If you are unemployed and considering light entrepreneurship, please consult your case worker before you start doing it. Ask what are the conditions under which you can engage in light entrepreneurship without losing your unemployment benefits. Ask for the instructions in writing. Here’s, however, a bit more information about unemployment benefits and self-employment.
Another thing to consider with light entrepreneurship is the costs involved. You obviously have to pay the invoicing services a fee for their services. Also, as a light entrepreneur, you are not entitled to the same tax deductions as, for example, sole proprietors.
These are the various complications that arise from the fact that light entrepreneurship is not a legally recognized form of work. There is, however, an even darker side to light entrepreneurship. We’ll discuss that next.
Light entrepreneurship as exploitation
A couple of weeks ago, Finnish officials combating the shadow economy in Finland reported that they increasingly often run into situations where employers disguise the employment relationship of their foreign employees as entrepreneurship. Apparently, this phenomenon is increasingly common in the cleaning and construction industries.
By asking or requiring their workers to become light entrepreneurs, employers transfer their legal obligations to the workers. This relates to, for example, the social insurance obligations we mentioned above. Also, having workers work as light entrepreneurs also means that their contracts can be terminated swiftly. As employees, they would be subjected to the termination protocol defined in employment law.
Officials also found cases where an employee’s residence permit was applied for but in practice, the employee was soon made to work as a self-employed person or a light entrepreneur. The employment relationship might have been very short or might not have materialized at all.
So, while light entrepreneurship might offer an easy way to supplement your income, make sure you know what you are getting yourself into. Its non-existent legal definition can create problems for you if you are or become unemployed. If a potential employer suggests light entrepreneurship as an alternative for an employment relationship, try to make sure they are not trying to take advantage of you. You can read more about the Finnish definition of employment in one of our previous blog posts. Or if you really want to play it safe with your employment relationships in Finland, enroll in our Working in Finland online course.
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