Finnish law requires entrepreneurs or self-employed to take out YEL insurance when their income exceeds a certain level.
The YEL insurance is equivalent to the TyEL insurance, which employers hire for their workers and allows them to contribute their work to maintaining the social security system in exchange for a range of services and social benefits.
Therefore, the YEL insurance is the specific instrument for the self-employed to contribute to the Finnish welfare state through quotas adjusted to their income.
The payment of these amounts entitles the entrepreneur person to access to earnings-related compensation provided by the Finnish Social Security Institution (Kela), such as the collection of a retirement pension, unemployment benefits, sickness and parental leave.
Now, many entrepreneurs of foreign origin wonder how to exercise these rights in Finland, and, above all, how the amounts to be received in each of these cases are calculated.
YEL income and social benefits
In this article we will explain in detail the relationship between YEL income - which is the amount that entrepreneurs pay after a certain level of annual premiums - and the main social security benefits paid by Kela.
First of all it is important to know that every year the Finnish Pensions Authority establishes the minimum income threshold that makes it mandatory to take out YEL insurance. In 2021, entrepreneurs or self-employed persons whose income from their business exceeds € 8,063.57 per year or € 672 per month are required by law to hire it.
Social security and pensions
Anton Ropa, from the pension insurance company ELO, which serves a third of Finnish companies and more than 40% of the self-employed, explains that entrepreneurs’ pensions are accrued based on the YEL income reported for the YEL insurance policy.
For this reason, it is important to adapt the YEL income to the development of the business.
If at the beginning, especially young entrepreneurs face many uncertainties and the pension seems a secondary matter, as the turnover improves and the business becomes more solid it may be a good idea to raise the YEL income, to also receive more benefits in the future.
As a general rule, pension accrues for all ages at an annual rate of 1.5 per cent of the YEL income. In Finland, you can start receiving your old-age pension from the beginning of the month following the month in which you reach your minimum retirement age.
YEL income not only affects the amount of the old-age pension, but is also the basis for other pensions and benefits –such as partial retirement, survivors, disability-, which a self-employed person may need to apply for before retiring.
The pension insurance company Elo provides a calculator that allows entrepreneurs to enter a few basic data and find out how any possible change in YEL income would affect their old age pension. With this tool, the self-employed can also estimate the amount of social daily allowances, for example related to unemployment benefits, sickness or parental leave.
In Finland, for entrepreneurs to be entitled to receive a basic unemployment allowance paid by Kela, or an income-related allowance from the unemployment fund for entrepreneurs (Suomen Yrittäjäin Työttömyyskassa SYT), they must meet the following two conditions:
- They must have been involved in entrepreneurial activities for at least 15 months in the two years prior to the performance situation.
- They must have an annual YEL income of a minimum of € 13,247 or € 1,104 per month (amounts that apply to 2021).
The basic allowance paid by Kela is € 33.78 per day, regardless of the amount of YEL earnings, but the amount of earnings-related benefits paid by the fund for entrepreneurs is based on the employer's YEL earnings during the 15-month period prior to unemployment.
Elo provides in its website several examples of estimated earnings-related allowances for members of the unemployment fund:
- For an annual income of € 13,247, the earnings-related allowance amounts to approximately € 869 per month.
- For an annual income of € 24,000, the earnings-related allowance amounts to about € 1,300 per month.
- For an annual income of € 48,000, the earnings-related allowance amounts to approximately € 2,000 per month.
Those entrepreneurs who are not members of the unemployment fund but who meet the 2 conditions of employment history mentioned above can receive a basic allowance paid by Kela of around € 726 per month.
If an entrepreneur falls ill
Entrepreneurs who fall ill also have the right to apply for the sickness allowance paid by Kela to cover the loss of income during the period of illness.
In this case, Kela calculates the amount of sickness benefit based on annual income. And the income confirmed for the YEL insurance policy is the basis for calculating such annual earnings. If the amount of YEL income has changed during the 12-month period in question, the average YEL income during the period will be used.
In the unwanted case that the inability to work is prolonged in time, the self-employed workers covered by the YEL insurance also have the right to request vocational rehabilitation or, ultimately, a disability pension.
Fortunately, not all events that occur in the life of an entrepreneur are negative.
There are also positive events such as parenthood or the decision to start a family, which have little to do with the business but may affect its progress and for which YEL insurance also offers protection.
Many of the self-employed who are considering starting a family wonder how the different family benefits paid by Kela are calculated. Some of them even want to know the security that YEL insurance provides to their families in the event of death.
Again, everything revolves around YEL income. In other words, both parental allowances and survivors' pensions are calculated on the basis of declared and confirmed income from the YEL insurance policy.
As is the case with sickness benefits, Kela determines the amount of maternity, special maternity, paternity, parental and partial parental allowances based on the entrepreneur’s confirmed annual income. And the YEL income is the basis.
In this sense, Elo emphasizes that some self-employed people mistakenly assume that the pay they take from their business is the basis for calculating the family or sickness benefits paid by Kela, but that is not the case.
The key is always YEL income, so it should be calculated based on the needs of the entrepreneur, who must always be up to date with payments.