Liability component

An employer may be obliged to pay the employer’s liability component if it has dismissed or laid off an elderly employee and the employee has been unemployed or laid off for a long period. Liability component payments are used to finance unemployment benefit expenses incurred by terminations and layoffs.

The employer's liability component applies to employers whose payroll, which serves as the basis for the calculation of the unemployment insurance contribution, exceeds the annually specified minimum level. The payment is based on the Act on the Financing of Unemployment Benefits.

Grounds for exemption from the liability component

The employer will not be obliged to pay the liability component if any of the following conditions are met:

  • The employment lasted less than three years.
  • The employment was terminated before the employee has reached the age of 56.
  • The employment was terminated or rescinded for reasons attributable to the employee. The reasons must not be health-related.
  • The employee resigned at his/her own initiative, without the employer's influence.
    • Various support packages granted to an employee, golden handshakes and redundancy payments may be regarded as the employer contributing to the employee’s resignation.
    • If an employee resigns when a period of temporary layoff has lasted for 200 days more, the Employment Fund will consider the employer to have contributed to the employee's decision to resign.
  • The employee has satisfied the employment condition specified in the Unemployment Security Act again in full by working for an employer other than the one that originally dismissed the employee.

Impact of employer’s payroll on the liability component

The employer's liability component applies to employers whose payroll, which serves as the basis for the calculation of the unemployment insurance contribution, exceeds the annually specified minimum level. At the minimum level, the liability component is zero. From the minimum level, the liability component increases linearly to the maximum limit for full liability.

The liability component is calculated on the basis of the payroll amount for the year preceding the dismissal, or the payroll amount for the year before notice of a temporary layoff was given.

A State employer’s liability component is based on the payroll amount serving as the basis for the employee contributions of an accounting unit or state-owned company.

Impact of mergers on a company’s payroll

If the company has undergone a merger prior to the day of dismissal, during the year of dismissal, or in the year preceding the dismissal, the employer’s liability component is determined on the basis of the merged companies’ total payrolls that served as the criterion for the unemployment insurance contribution of the year preceding the dismissal.

This also applies in situations where other businesses have been merged with the company during the year when notice of a temporary layoff was given and prior to the date of such notice, or in the year preceding the year in which the notice of temporary layoff was given.

Annual payroll limits for liability components

Payroll year Minimum level (euro) Maximum limit for full liability (euro)
2013 1 990 500 31 848 000
2014 1 990 500 31 848 000
2015 2 025 000 32 400 000
2016 2 044 500 32 712 000
2017 2 059 500 32 952 000
2018 2 083 500 33 336 000
2019 2 086 500 33 384 000

Liability component from an employee’s continued unemployment allowance

We charge the employer a liability component if an employee who was born in or after 1950 is entitled to continued unemployment allowance, as specified in the Act on Unemployment Security, as a result of dismissal or layoff and the other requirements for payment liability are met.

We charge a liability component at the start of the entitlement to continued unemployment allowance, which is approximately two years from the end of the employment relationship if the person has received an unemployment allowance for the maximum period of 500 days. The 500-day maximum is reached in just under two years if the person receives an unemployment allowance continuously for the entire period.

Requirements for receiving continued unemployment allowance

The requirements for receiving continued unemployment allowance are:

  • The person was born in 1950–1954 and turned 59 before the 500-day maximum period for unemployment allowance was reached, and has worked for at least five years during the last 20 years.
  • The person was born in 1955–1956 and turned 60 before the 500-day maximum period for unemployment allowance was reached, and has worked for at least five years during the last 20 years.
  • The person was born in 1957 or later and turned 61 before the 500-day maximum period for unemployment allowance was reached, and has worked for at least five years during the last 20 years.

Unemployment funds and the Social Insurance Institution of Finland (Kela) investigate and grant the entitlement to continued unemployment allowance.

Liability component from an employee’s unemployment allowance

The employer may also be obliged to pay the liability component if an employee has become entitled to the unemployment allowance due to the termination of their employment after reaching the age of 60, and the entitlement continues so that the person:

  • is entitled to the unemployment allowance after having reached the age of 63 or
  • has started to receive an old-age pension after reaching the age of 62 and has continued to receive an unemployment allowance until retirement on an old-age pension.

The liability component from unemployment allowance costs applies to those persons who have not yet transferred to the continued unemployment allowance before the age of 63.
In the foregoing cases, we will charge the liability component when the dismissed employee reaches the age of 63. In such cases, the benefit costs equivalent to the unemployment allowance actually paid to the person after the termination of employment serve as the basis for the liability component, and there is no minimum level for the benefit costs. 

Contributing to the cessation of employment

In addition to the dismissal or temporary layoff of an employee, the employer may be obliged to pay the liability component in situations in which it has contributed to the termination of a person's employment in one way or another.

If an employer pays an employee a financial benefit related to the termination of employment, this can indicate that they employer has contributed to the cessation of employment, even if the employee himself/herself resigns the position. The employer may also contribute to situations in which the employment relationship is terminated by mutual agreement.

If the reason for the cessation of employment is unclear, we may ask the employer and also the employee to clarify the reason for the cessation of employment.

Impact of the start date of the entitlement to unemployment allowance

Passage of the 500-day maximum for unemployment allowance

In addition to the employer’s payroll, the liability component is affected by the unemployment allowance paid to the dismissed employee and the period of time for which the unemployment allowances are covered by the employer.

The 500-day maximum for unemployment allowance is reached in approximately two years if the dismissed employee receives an unemployment allowance continuously for the entire period. If there are breaks in the payment of the unemployment allowance, during which no unemployment allowance is paid to the dismissed employee, the 500-day maximum period is postponed. This, in turn, postpones the commencement of the person’s continued unemployment allowance.

Examples of situations in which no unemployment allowance is paid to a dismissed employee:

  • A financial benefit that must be divided into periods in accordance with the Act on Unemployment Security has been paid to the person
  • The person is on sick leave and has received a sickness allowance or other benefit based on disability for the duration of the sick leave
  • The person finds a new job
  • The person has been in training and has received a training subsidy for the duration of the training

Financial benefit related to the termination of an employment relationship

If an employee is paid a financial benefit in relation to the termination of employment and the benefit must be divided into periods in accordance with the Act on Unemployment Security, this will prevent the payment of unemployment allowance for the duration of the period of division. Therefore, the payment of a financial benefit affects the date on which the dismissed employee begins receiving a continued unemployment allowance. Consequently, it also affects the employer’s liability component, if the liability component is collected from continued unemployment allowance costs.

It is possible that, without the financial benefit, the dismissed employee would not become entitled to continued unemployment allowance before reaching the age specified in the Act on Unemployment Security, but, as a result of the payment of the financial benefit and its division into periods, the age specified in the Act is reached, and the person becomes entitled to continued unemployment allowance.

According to the Act on Unemployment Security, a benefit that is divided into periods postpones the start of a person’s entitlement to unemployment allowance and, consequently, also affects the amount of the liability component in situations in which the liability component is collected from unemployment allowance costs.

Calculating the liability component

Percentage of the liability component

The amount of the liability component is determined on the basis of the employer’s percentage of the liability component. The percentage of the liability component is determined on the basis of the payroll sum on which the unemployment insurance contributions are based.
The percentage of the liability component increases linearly on the basis of the employer’s payroll. The liability component percentage is 0–80% for persons born between 1950 and 1956. The liability component percentage for those born in 1957 or later is 90%.

Calculating the percentage of the liability component

1) If the employer’s payroll is less than the minimum level for the payroll, the liability component percentage is 0.
2) If the employer’s payroll is greater than the level for full liability, the percentage of the liability component is 80 or 90.
3) If the employer’s payroll is greater than the minimum level for the payroll but less than the level for full liability, the percentage of the liability component is calculated using the following formula:

In the formula above, the minimum level of the payroll amount for the year in question is deducted from the employer's payroll amount. The result is divided by the maximum limit for the full liability component from which the minimum level of the payroll amount for the year in question has been deducted. The result is multiplied by 80 or 90 (the maximum limit for the full percentage of the liability component).

You can also calculate an estimate of the liability component amount and the percentage of the liability component using the liability component calculator.

In addition to the percentage of the liability component, the payable amount is affected by the period of time for which the unemployment allowance paid to the dismissed employee is covered by the employer, as well as the amount of unemployment allowance paid to the employee.

The liability component is calculated by using the following formula:

If the liability component is collected from continued unemployment allowance costs, the number of payment liability days is the number of weekdays (Mon–Fri) from the first day of continued unemployment allowance up to the person’s 63rd birthday, but at least 258 days (21.5 days per month).

If the liability component is collected from unemployment allowance costs, the liability component is determined on the basis of the benefit actually paid to the person from the end of the employment to the person’s 63rd birthday, or up to the date on which the person retires after having reached the age of 62.

You can calculate an estimate of a person’s earnings-related unemployment allowance using the calculator on the website of the Federation of Unemployment Funds in Finland (TYJ).

When calculating the liability component, a benefit equal to the earnings-related unemplo yment allowance is always used, regardless of whether the person has received an allowance that is earnings-related.

Examples of liability components

Liability component from continued unemployment allowance costs

Company Ltd gave Eric Example notice of dismissal on 30 June 2014 with effect as of 31 December 2014. Eric was born on 1 June 1956 and his employment at Company Ltd began on 15 January 1990. Eric's average monthly earnings were EUR 3,500. Company Ltd’s total payroll in 2013 was EUR 25,400,000.

Eric Example turns 60 on 1 June 2016. He is granted the right to a continued unemployment allowance beginning on 8 December 2016. Eric turns 63 on 1 June 2019, so the employer must pay for the calculated days of continued unemployment allowance for the period from 8 December 2016 to 31 May 2019, a total of 647 days.

Liability component calculation

The amount of unemployment allowance with monthly earnings of EUR 3,500 is EUR 88.19 per day (at the 2014 level)

The employer's percentage of the liability component is 62.723269 %

(EUR 25,400,000 - EUR 1,990,500) / (EUR 31,848,000 - EUR 1,990,500) x 80 = 62.723269 %

The employer’s liability component = 647 days x EUR 88.19 per day x 62.723269 % = EUR 35,789.23

Liability component from the continued unemployment allowance costs when a person’s entitlement to continued unemployment allowance is based on a temporary layoff

Firm Ltd gave Ted Employee notice of a temporary layoff on 18 January 2012 and the first day of layoff was 1 February 2012. Ted was born on 14 July 1954 and his employment at Firm Ltd began on 16 August 1997. Ted's average monthly earnings were EUR 2,443. Firm Ltd’s total payroll in 2011 was EUR 5,000,000.

Ted turns 59 on 14 July 2013. He is granted the right to continued unemployment allowance beginning on 10 January 2014. Ted turns 63 on 14 July 2017, so the employer must pay for the calculated days of continued unemployment allowance for the period from 10 January 2014 to 14 July 2017.

Liability component calculation

The amount of unemployment allowance with monthly earnings of EUR 2,443 is EUR 66.98 per day (at the 2014 level).

The employer's percentage of the liability component is 8.854837 %

(EUR 5,000,000 - EUR 1,879,500) / (EUR 30,072,000 - EUR 1,879,500) x 80 = 8.854837 %

The employer’s liability component = 915 days x EUR 66.98 per day x 8.854837 % = EUR 5,426.84.

 

Liability component from unemployment allowance costs

Big Business Plc gave Tina Employee's notice of dismissal on 7 January 2016 and the employment relationship ended on 8 July 2016. Tina was born on 10 January 1954. Her average monthly earnings are EUR 2,580 and the employment began on 2 February 2005. Big Business Plc’s total payroll in 2015 is EUR 85,000,000.

The amount of Tina's unemployment allowance is EUR 69.30 per day (at the level in 2014). An unemployment fund will pay her a daily allowance for the period from 18 July 2016 to 9 January 2017 (126 days) totalling EUR 8,785.98. The share of the liability component of Big Business Plc is 80% of the benefit costs actually paid to the person.

Liability component calculation

Employer's liability component = EUR 8,785.98 x 80 % = EUR 7,028.78

 

How the Employment Fund processes the liability component

1. Processing
We are notified by the unemployment fund or Kela when a person’s employment has ended. During processing, if we notice that the requirements have been met to obligate the employer to pay the liability component, we send a hearing letter to the employer. In the processing stage, we may ask for further clarification from the employer, employee, unemployment fund, or Kela, among others.

2. Hearing and decision
The employer has 21 days to deliver a response to the hearing letter.

A) The employer does not deliver a response
We issue a written decision on the liability component, obligating the employer to pay the liability component, and we send the employer an invoice for the liability component.

B) The employer delivers a response
We examine whether there are grounds for exemption from the liability component. To resolve the matter, we may request additional information from parties such as the employee, unemployment fund or Kela.

  • If we find that there are no grounds for exemption from the liability component, we issue a decision obligating the employer to pay the liability component.
  • If the response or the additional investigation indicates that the employer is not liable to pay the liability component, we issue a decision that exempts the employer from the liability component for the person in question.

3. Appeals
If the employer is not satisfied with the decision, he/she may appeal to the Social Security Appeals Board. The employer can appeal a decision made by the Social Security Appeals Board at the Insurance Court.

For more detailed instructions see: appeals and refunds of the liability component

Advice for employers and estimation calculation

We advise employers on matters concerning the liability component. With regard to matters related to unemployment benefits and security, advice is provided by the unemployment funds and Kela. Advice on matters related to earnings-based pensions is provided by the employer's own employment insurance institution.

At your request, we will provide a written liability component estimate based on the information you provide. The estimation calculation is only an indication and is not to be regarded as an advance ruling.

Please provide the information required for the estimation calculation on a form in Excel format. Save the form on your computer and complete it in accordance with the instructions. Send the form by encrypted email.  Address the e-mail to omavastuu@tyollisyysrahasto.fi. 

We will respond to estimation calculation requests within one week. We always send estimation calculations using the encrypted email connection referred to above. For security reasons, you can only read, save and print the message on a single computer for no more than 14 days.

Appeals

If you are dissatisfied with a decision we have made concerning the liability component, you can appeal to the Social Security Appeals Board. You can appeal a decision made by the Social Security Appeals Board at the Insurance Court. Judgments made by the Insurance Court cannot be appealed.

Submit your appeal to us within 30 days of receiving notification of the decision. We will consider the employer to have received the notice on the seventh day after the date when the decision was sent. We will consider State accounting units and municipalities to have received notice on the day when the decision arrives. You will receive more detailed instructions on the appeal process and how to appeal along with the decision.

If we accept the demands set out in the appeal in all regards, we will issue a revised decision. If we are unable to adjust the decision that you are appealing in accordance with your demands, we will submit the appeal to the Social Security Appeals Board.

Note that employers must pay the liability component even if the decision concerning the liability component has been appealed. In such cases, you can petition the Social Security Appeals Board to suspend enforcement, either when you appeal or by submitting a separate application.

Refund of the liability component

You can file for a refund of the liability component in two situations:

  • Your company has re-employed a previously dismissed employee or called a temporarily laid off employee back to work. The employment contract must be valid indefinitely, and the employee must have been employed for at least a year.
  • For at least one year, the dismissed or temporarily laid-off employee has been receiving a supplementary pension arranged and financed by the employer, or some other comparable voluntary benefit, or a pension to be taken into account in pension adjustment for the supplementary pension, and, therefore, the person is not entitled to unemployment benefit or the unemployment benefit is reduced.

We will only issue a refund of the liability component in cases in which the liability component has been paid due to a dismissed employee’s entitlement to continued unemployment allowance. In both cases, we will refund the proportion of the liability component for continued unemployment allowance that has not been used. The employer must apply for a refund of the liability component within five years of the earliest date upon which the application could have been submitted. Apply for a refund on the application form (only in Finnish and in Swedish). Attach a clarification to the application indicating the type of employment, or a statement of the supplementary pension granted to the employee. 

Form for a refund of the liability component (re-employed person) (in Finnish)

Form for a refund of the liability component (laid off person taken back to work) (in Finnish)

Form for a refund of the liability component (supplementary pension) (in Finnish)

Decision not to collect the liability component in full

We may decide not to collect the liability component in full if the employer’s financial position has substantially deteriorated since the dismissal that constituted the basis for the liability component and if collecting the liability component in full would jeopardise the continuity of the employer's operations. In such cases, the employer must provide a reliable account of its financial position.

Expiration of a liability component case

Liability component cases expire when five years has elapsed since the dismissed employee transferred to continued unemployment allowance or when the dismissed employee reaches the age of 63. After this, we can no longer issue decisions on liability component cases.

Page updated: 2/1/2019