Sweden’s legal system is one of civil law with Nordic influences that also give weight to case law. The most important legislation concerning labor law in the country includes the Swedish Constitution, the Employment Act, Working Hours Act, Employment Protection Act, and Annual Leave Act, among others. Your PEO partner will create contracts in line with this legal framework, but you should be aware of the following regulations that inform your employees’ entitlements:
1. Employment Contracts
Contracts in Sweden can be oral, but if they are, employers still need to provide employees with written particulars, making written contracts easier and more preferable. Fixed-term contracts are allowed for seasonal work, replacing employees on leave, and for projects with limited durations. These contracts can last up to two years, including unlimited renewals, after which, workers must be given permanent contracts if they continue to be employed.
2. Working Hours and Overtime
In Sweden, the regular workweek is 40 hours long. While this can be exceeded in some weeks, employees shouldn’t work more than an average of 40 regular hours in a four-week period. Employees can work overtime for a maximum of 48 hours in four weeks or 50 hours a month, and 200 hours a year. Overtime wages are not set by national legislation, but are instead set by collective agreements or individual contracts.
3. Minimum Wage
Sweden does not have an officially mandated minimum wage. Instead, minimum compensation levels are set by collective agreements or agreed upon in individual contracts.
4. Employee Benefits
In Sweden, employees are entitled to several mandatory benefits that include maternity, paternity, parental, and sick leaves; paid public holidays; and annual paid leave. They must receive rest breaks after five hours of work, at least 11 hours of rest between workdays, and one uninterrupted period of 36 hours of rest each week.
5. Payroll Tax or Social Contributions
Swedish employers must calculate and withhold income taxes from their employees’ salaries according to a pay-as-you-earn (PAYE) system. Employees pay 32% in municipal income tax on annual earnings up to 625,800 SEK (Swedish Krona – around 66,300 USD), and an additional 20% national income tax on earnings over this level.
The social security system in Sweden provides employees with parental, sickness, disability, family, housing, and old-age benefits. Employers pay 31.42% of each employee’s salary to the SSIA for these benefits. Employees are deducted 7% of their gross earnings towards their pensions as well, but these payments are tax-deductible on their income tax returns. Many employers offer additional pension contributions, though these are taxed at 24%.
6. Termination and Severance Pay
Employment is not at-will in Sweden, meaning that employers must provide just cause to terminate their employees. Aside from gross misconduct, employees are generally entitled to notice in writing when they are dismissed, ranging in length from two weeks during probation to six months’ notice after ten years of service to the employer. Severance pay is not mandated, but may be included in employment agreements. Redundancy pay is provided by the unemployment insurance fund of the SSI, and represents 70% of the worker’s salary for 6-18 months.
7. Foreign Workers
It’s possible to bring foreign workers into Sweden to work, as long as the employer first advertises their vacancy to all EU and Swedish citizens for at least ten days. If no appropriate applications are received, the employer may look outside the country for candidates. EU citizens can work in Sweden without requiring work permits, but other foreign nationals need to obtain work permits that can last up to two years, or EU Blue Cards if they are highly skilled.