Starting a Business in Sweden - Employing Staff

By Beyondo, 19. Sep 2023

The “Swedish Model” is a phrase used in different contexts to describe what is typically Swedish in different systems and aspects. Within labor law, it pertains to a system where the legislator has stepped aside to benefit agreements between different trade organizations and unions. This results in a flexible labor market, which makes it relatively straightforward to hire staff in Sweden. At the same time, Sweden has very strong legislation protecting employees from illegal termination and discrimination.

In this article, Rikard Öberg from Athene Group, gives a short presentation on the legal environment in Sweden in regard to employment, as well as a short guide on what is important to consider when employing staff in Sweden. 

The “Swedish Model” Legal Landscape 

Compared to other jurisdictions, Sweden has few legislative acts in the area of employment and for example, there is no statutory minimum pay in Sweden. The most important legislation can be found in the Employee Protection Act (1982:80), the Codetermination Act (1976:580), the Discrimination Act (2008:567) and the Working Hours Act (1982:673). All together they provide a strong framework for protecting employees against unlawful termination and discrimination. 

The main source of national employment law can be found in collective bargaining agreements. The terms and conditions of these agreements are determined by trade unions and employer organizations in each particular business sector. The government does not interfere with them, although it may set the boundaries through labour laws. This model combines flexibility for companies with security and influence for employees. The agreements regulate matters like terms and termination of employment agreements, working time, vacation compensation etc. 

You can read more about the Swedish employment protection act (LAS) here.


Drawing Up an Employment Agreement 

There are two forms of employment – indefinite employment and temporary employment. Indefinite is the same as permanent employment. The main principle is that an employment contract is in effect until further notice, meaning that employment is always indefinite unless otherwise agreed. The agreement will need to be provided within a month of the start of the employment and need to contain the following information:

- personal data, the workplace and the commencement date of the employment 

- description of the employee's duties, occupational designation or title

- a form of employment and period of notice

- pay, employee benefits and the intervals at which the payment will be paid

- length of the paid annual leave and length of the normal working day or week - applicable collective bargaining agreement, where relevant.

For indefinite employment agreements, a probation period can be included in the contract and can be up to six months but can be shorter if agreed upon. During the probation period, the agreement can be terminated without giving any particular reasons for the termination (see more under "Terminating an Employment" below). The employer needs to give notice to the employee at least two weeks before the probation period ends unless they wish to turn the probationary employment into permanent employment. If none of the parties has given such notice by the end of the probation period, the employment is automatically transformed into permanent employment.

Another important aspect to consider is the employee benefits, such as pension. It can be a good idea as an employer to create a smart package, meaning a package that is:

1. Smart from a cost perspective
2. Smart in terms of strengthening employer's branding

For example, instead of offering another 1 000 SEK in salary, the employer could offer the employee health insurance (quicker access to health care through private care providers), a higher sickness benefit, access to mental health coaches, security after a long-term illness, 500 SEK more in pension contribution, investment advice and discounted mortgages.


Registering as an Employer

A Swedish employer, or a foreign employer with a permanent establishment in Sweden, is required to register with Skatteverket (Swedish Tax Agency) in order to fulfill the employer reporting obligations. Also, foreign employers without a permanent establishment have to register for social security contributions if they have employees who belong to the Swedish social security system.

Once registered employers are obliged to file monthly so-called PAYE returns where employer contributions and employees' tax deductions must be paid/reported to the Skatteverket by the 12th of each month. The employer contribution is in reality composed of several different fees which provide basic social security coverage. For 2023 the employer contribution is 31.42 per cent of the gross salary and benefits.

Vacation and Leave Considerations

Swedish employees are covered by Swedish Annual Leave Act which gives them the right to a minimum of 25 days of paid vacation and 4 consecutive weeks of vacation during the period of June, July and August. Employees also have the right to save a number of vacation days each year, makes it possible for employees to take out more vacation days if they have saved from previous years. 

Swedish employees enjoy one of the most generous parental leaves in the world. Parents are entitled to a total of 480 days paid leave per child, with both mothers and fathers entitled and encouraged to share the leave. The leave can be taken at any time until the child reaches the age of seven. In addition, parents receive benefits for staying home to care for a sick child (commonly known as VAB). This compensation can be received from the date the child is 8 months old until the child turns 12. 

If the employee falls ill, employers are obliged to compensate the employee (so-called sick pay) from day 2 and up to day 14 of illness. The first day of illness is a qualifying period for which the employee does not receive any compensation. Employees that are sick for more than 14 days can instead receive compensation from Försäkringskassan (Swedish Social Insurance Agency.)

Terminating an Employment Agreement

The Swedish Employment Protection Act states that the termination of an employee by the employer must be based on “just cause”. Without this, the termination may be declared void and the employer may be ordered to pay damages to the employee. Just (i.e. objective) cause for dismissal can be two categories, personal reasons or shortage of work (redundancy).

In order to terminate an employee for personal reasons (with a notice which by law is 1-6 months) the employer must show that the employee is unfit for the job. The employer has a far-reaching duty to try to correct any misconduct by providing the employee with a chance to remedy the situation. The burden of proof lies with the employer. Just cause will not be established if it is reasonable to require that the employer finds alternative work within the company for the employee. Moreover, a dismissal must not be based solely on circumstances which were known to the employer for more than two months before the notice was given.

Immediate termination without notice is permitted in cases of gross personal misconduct for example, where the employee has committed a criminal offence or breached a non-compete regulation. In these cases, a formal legal procedure must be followed.
A reduction in the workforce due to reasons such as a plant closing, reorganization or other business-related reasons, will generally establish just cause, justifying the termination (with notice) of redundant employees. However, just cause will not be established in situations where it is reasonable to require the employer to provide alternative work for the employee. For example, if there are vacant alternative positions which would be suitable for the employee in question.

In a redundancy situation, the employer is required by law to observe an order of priority between the employees, based on the length of service (last in first out). In order to get priority, the employee in question must also possess sufficient qualifications.



If you are entering the Swedish market,  you might want to read more about Swedish Business Culture

Do you wish to know more about what Beyondo can do for you for your recruitment needs in Sweden and beyond? Do not hesitate to reach out! contact@beyondo.se