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Prepayment model to be discontinued as of 1 January 2021

NEWS 1.10.2020 15.00

A bill to abolish the current system of prepayments towards unemployment insurance contributions was introduced on 1 October 2020. The amendment is due to enter into force on 1 January 2021. The bill still needs to be approved by the Parliament of Finland.

As of next year, all employers would pay unemployment insurance contributions based on the actualised pay information
reported to the Incomes Register. The prepayment model would be discontinued. The 2020 unemployment insurance contributions, refunds and equalisation payments of employers who used the prepayment model in 2020 would be calculated at the beginning of 2021.

Actual earnings model is an easy and up-to-date invoicing method for employers

Unemployment insurance contributions are currently invoiced in one of two ways: In the model based on the actualised pay information, ie the actual earnings model, and in the model based on the prepayments, ie the prepayment model.

Invoicing in the actual earnings model means that the Employment Fund calculates employers’ unemployment insurance contributions four times a year on the basis of the actualised wages they have reported to the Incomes Register.

The amount of contributions is derived directly from payroll records, and employers therefore do not need to declare their employees’ earnings to the Employment Fund separately.  

In the case of the prepayment model, the Employment Fund estimates the amount of employers’ unemployment insurance contributions at the start of each insurance year. Prepayments are collected in four instalments, at the beginning of each quarter. At the end of the insurance year, the Employment Fund calculates what each employer’s unemployment insurance contributions should have been based on the data they have reported to the Incomes Register. Depending on whether the prepaid amount was higher or lower than the actual amount of contributions that the employer should have paid, the employer will either be charged an equalisation payment or paid a refund. 

Employers are invoiced with the actual earnings model unless they specifically opt for the prepayment model. To opt for the prepayment model, the employers needed to sign up for it through the Employment Fund by 15 November of the previous year or before their first earnings declaration to the Incomes Register.

Switching between the two models in the middle of the insurance year is not allowed.  

No action required from the employers to switch to the actual earnings model

The purpose of the proposed change is to simplify the payment and collection of unemployment insurance contributions. Less than one per cent of employers currently use the prepayment model. In other words, the prepayment model has not been particularly popular with the employers. Therefore maintaining the prepayment model is not practical. 

Employers who currently use the prepayment model will be switched tonthe actual earnings model automatically. Assuming that the proposal goes through, all employers will be invoiced with the actual earnings model of the year 2021. Payments will be collected four times a year (in April, July, October and January) based on the earnings data reported to the Incomes Register.

Read more about paying unemployment insurance contributions