Employer s liability component within the unemployment insurance contribution

Employer s liability component within the unemployment insurance contribution

Contents General about the liability component... 4 1 Payment obligation... 4 1.1 Total payroll...4 1.2 The percentage of the liability component...4 1.3 Liability component of a person s continued unemployment allowance costs...5 1.3.1 Continuity of the 500-day maximum for unemployment allowance...6 1.4 Liability component from a person s unemployment allowance costs...6 2 Grounds for exemption... 10 3 Decision on the liability component... 10 3.1 Employer s hearing and investigation of the matter..10 3.2 Acquisition of information...11 3.3 Decision and invoicing the liability component...11 4 Termination of employment... 11 6 Decision not to collect the liability component in full... 12 7 Collection of the liability component... 12 8 Expiration of a liability component issue... 12 9 Appeal... 13 9.1 Appeal bodies...13 9.2 Submitting an appeal...13 9.3 Self-correction...13 10 Refund of the liability component upon application... 13 11 Assistance for employers and estimations of liability components... 14 12 Information about the Unemployment Insurance Fund... 14 5 Liability component avoidance... 12 The Unemployment Insurance Fund The employer s liability component +358 9 6803 7369 (from 9.00 a.m. to 4.15 p.m.) E-mail: omavastuu@tvr.fi www.tvr.fi We recommend that you send any e-mails containing confidential information over a secure connection. You can access our secure e-mail connection via https://secure.tvr.fi. This brochure is also available in Finnish and Swedish and as a PDF version on the Fund s website.

Employer s liability component within the unemployment insurance contribution

General about the liability component Since the beginning of 2009, the Unemployment Insurance Fund (TVR) has collected the employer s liability component within the unemployment insurance contribution. An employer may be obliged to pay the employer s liability component, if he has dismissed or laid off an elderly employee and the employee has been unemployed for a long time. The employer s liability component payments are used to finance incurred unemployment benefits. The employer s obligation to pay the liability component is based on the Act on the Financing of Unemployment Benefits (555/1998). 1 Payment obligation 1.1 Total payroll The employer s liability component applies to employers whose payroll, serving 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 compensation. The liability component is determined by the payroll amount of the year preceding the dismissal, or by the payroll amount of the year preceding the issuing of a notice of temporary layoff. For example, an employer s payroll amount for 2013 and the payroll limits specified for that year are applied for dismissals or layoffs that take place during 2014. If, during the year of dismissal or in the year preceding the dismissal, the company has undergone a merger prior to the day of dismissal, the employer s liability component will be determined on the basis of the merged companies total payrolls, these payrolls having been used as the criterion for unemployment insurance compensation for the year preceding the year of dismissal. What is stated above also applies in situations where companies have been merged with the employer 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 issued. Together, the merged companies form an employer, as referred to in the Act on the Financing of Unemployment Benefits, after the merger has been registered at the Trade Register. 1.2 The percentage of the liability component The liability component will be determined on the basis of the employer s percentage of the liability component. The percentage of the liability component, on the other hand, will be determined on the basis of the employer s payroll amount used as the basis for the payment of unemployment insurance contributions. The amount of the employer s liability component for those born between 1950 1956 is a maximum of 80% of the continued unemployment allowance costs or the unemployment allowance costs actually paid to the person. The amount of employer s liability component for those born in 1957 or later is 0 90% of the continued unemployment allow- 4

ance costs or the unemployment allowance costs actually paid to the person. The percentage of the liability component is calculated using the following formula: (employer s payroll amount minimum level) x 80 or 90 (maximum limit for full liability component minimum level) 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 full percentage of the liability component). 1.3 Liability component of a person s continued unemployment allowance costs The liability component will be collected in situations where the person has been granted entitlement to continued unemployment allowance due to dismissal or a temporary layoff pursuant to the Act on Unemployment Security. The requirements for receiving continued unemployment allowance are that: the person is born in 1950 1954 and turned 59 before the 500-day maximum for unemployment allowance has been reached and the person in question has worked for at least five years over the last 20 years. the person is born in 1955 1956 and turned 60 before the 500-day maximum for unemployment allowance has been reached and the person in question has worked for at least five years over the last 20 years. the person is born in 1957 or later and turned 61 before the 500-day maximum for unemployment allowance has been reached and the person in question has worked for at least five years over the last 20 years. Unemployment funds and the Social Insurance Institution of Finland investigate and grant the right to continued unemployment allowance. The liability component of a person s continued unemployment allowance costs is collected at the commencement of the continued unemployment allowance; in practice, that is two years after the employment has been terminated at the earliest if the person has received continuous unemployment allowance. The basis of the payment is the amount corresponding to the benefit cost which should be paid to the person dismissed or laid off as earnings-related unemployment allowance since the commencement of continued unemployment allowance until the person turns 63. The amount of benefit costs is defined as equal to 5

the amount of earnings-related allowance, regardless of whether or not the employee has actually received unemployment allowance as earnings-related benefit. The benefit costs are calculated by multiplying the number of allowance days by the amount of the daily allowance. The calculated number of allowance days is the number of days between the commencement day of the continued unemployment allowance and the day the employee reaches the age of 63 years. However, if the calculated duration of continued unemployment allowance is less than a year, the benefit costs are calculated on the basis of a minimum of one year s allowance (258 allowance days). The maximum period of entitlement to continued unemployment allowance serving as the basis for the liability component is four years, from the age of 59 to 63 years. 1.3.1 Continuity of the 500-day maximum for unemployment allowance The 500-day maximum for unemployment allowance does not always run continuously but in some cases, it can run in several periods if there are breaks in the unemployment allowance payments. If a person s entitlement to unemployment allowance is interrupted, for example, due to employment, the maximum time for receiving unemployment allowance is postponed, which also results in the postponement of the commencement of continued unemployment allowance. Also, a financial benefit paid by the employer related to the end of employment postpones the commencement of continued unemployment allowance, as an unemployment fund or the Social Insurance Institution of Finland divides the financial benefit into periods and the person does not receive unemployment allowance during the periods in question. (Example1. Liability component of the continued unemployment allowance costs, page 7) (Example 2. Liability component of the continued unemployment allowance costs when a person s entitlement to continued unemployment allowance is based on a temporary layoff, page 8) 1.4 Liability component from a person s unemployment allowance costs The liability component will also be collected when an employee has become entitled to unemployment allowance after reaching the age of 60 years, due to the termination of their employment, and when the entitlement continues so that he/she a) is entitled to unemployment allowance after he/she has reached the age of 63 years or b) has started to receive an old-age pension after reaching the age of 62 years and has continued to receive unemployment allowance until retirement on an old-age pension. Persons born in 1950 1951 may retire on an early retirement pension at the age of 62. 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. 6

Example 1. Liability component of the continued unemployment allowance costs Company Ltd ended Eric Example s employment on 30 June 2014 to be terminated on 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 was EUR 3,500. The total payroll of Company Ltd in 2013 was EUR 25,400,000. 2014 2015 2016 2017 2018 2019 The employment ends on 30 June 2014 The employment is terminated on 31 December 2014 The unemployment allowance of 500 days covers the period between 9 January 2015 and 7 December 2016. Eric turns 60 on 1 June 2016 The calculated days of continued unemployment allowance, 647 days (the period between 8 December 2016 and 31 May 2019). The first day of the continued unemployment allowance is on 8 December 2016 Information to TVR on the commencement of continued unemployment allowance. The processing of the liability component issue begins, and the liability component is collected from the employer Eric turns 63 on 1 June 2019 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). Employer s percentage of the liability component is 62.723269%: (EUR 25,400,000 1,990,500) (EUR 31,848,000 1,990,500) 80 = 62.723269% Employer s liability component= 647 days EUR 88.19/day 62.723269% = EUR 35,789.23 Eric Example turns 60 on 1 June 2016. He is granted the right to 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 between 8 December 2016 and 31 May 2019, a total of 647 days. 7

Example 2. Liability component of the costs of the continued unemployment allowance when a person s entitlement to continued unemployment allowance is based on a temporary layoff Firm Ltd laid off Ted Employee according to a notice of a temporary layoff dated 18 January 2012, so that the first day of the temporary layoff was on 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. The total payroll of Firm Ltd in 2011 was EUR 5,000,000. 2012 2013 2014 2015 2016 2017 The unemployment allowance of 500 days covers the period between 10 February 2012 and 10 January 2014 The calculated days of continued unemployment allowance, 915 days, for the period between 10 January 2014 and 13 July 2017 The notice of a temporary layoff is given on 18 January 2012 The temporary layoff begins on 1 February 2012 Ted turns 59 on 14 July 2013 The first day of the continued unemployment allowance is on 10 January 2014 Ted turns 63 Information to TVR on the commencement of continued on 14 July 2017 unemployment allowance. The processing of the liability component issue begins, and the liability component is collected from the employer 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). Employer s percentage of the liability component is 8.854837%: (EUR 5,000,000 1,879,500) 80 = 8.854837% (EUR 30,072,000 1,879,500) Employer s liability component = 915 days EUR 66.98 per day 8.854837% = EUR 5,426.84 Ted Employee 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 between 10 January 2014 and 14 July 2017, a total of 915 days. 8

Example 3. Liability component from unemployment allowance costs Corporation Ltd ends Tina Employee s employment on 7 January 2016 to be terminated 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. The total payroll of Corporation Ltd in 2015 is EUR 85,000,000. 2016 2017 Allowance days for the period between 18 July 2016 and 9 January 2017 The employment is dismissed on 7 January 2016 The first allowance day on 18 July 2016 The employment is terminated on 8 July 2016, and Tina is 62 years old Information to TVR on the payment of the unemployment allowance when the person turns 63 or afterwards. The processing of the liability component issue begins, and the liability component is collected from the employer Tina turns 63 on 10 January 2017 Employer s liability component = EUR 8,785.98 80% = EUR 7,028.78 The amount of Tina Employee s unemployment allowance is EUR 69.73 per day (at the level in 2014). An unemployment fund will pay her a daily allowance for the period between 18 July 2016 and 9 January 2017 (126 days) totalling EUR 8,785.98. The share of the liability component of Corporation Ltd is 80% of the benefit costs actually paid to the person. 9

In these cases, the liability component is accumulated after the employee has reached the age of 63 years. In this case, the amount of the liability component is determined on the basis of the amount of the benefit costs which have been paid to the person from the date of termination of the employment to the day he/she reaches the age of 63 years, or to the day he/she retires on an oldage pension after having reached the age of 62. The amount of benefit costs is defined as equal to the amount of earnings-related allowance, regardless of whether or not the employee has actually received unemployment allowance as earnings-related benefit. It is possible that a person does not receive unemployment allowance on the very day he/she turns 63. For this reason, the employer is also liable to pay in cases where a person receives unemployment allowance after reaching the age of 63 years and has been entitled to unemployment allowance before reaching the age of 63. (Example 3. Liability component from unemployment allowance costs, page 9) 2 Grounds for exemption The employer is not liable to pay the liability component, if the employment has lasted less than three years or or or or the employment has been terminated before the employee has reached the age of 56 years the employment has been terminated for a personal reason on the part of the employee, apart from medical reasons the employment has been terminated by the employee on 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 employer s influence. Also, in situations in which an employee resigns after a layoff has continued for at least 200 days, it is considered that the employer has influenced the employee s decision to resign. the employee has fully met the employment condition specified in the Unemployment Security Act again, being employed by an employer other than the one originally carrying out the dismissal. 3 Decision on the liability component 3.1 Employer s hearing and investigation of the matter Before making its decision, the Unemployment Insurance Fund sends a hearing letter related to the liability component to the 10

employer. The employer can submit a response to the hearing letter if the employer considers that it is not liable to pay the liability component, or if the information used as the basis for the liability component is insufficient or incorrect. If during the hearing process the employer proposes that the liability component not be imposed, the Fund will investigate whether valid grounds exist for exemption from the liability component. 3.2 Acquisition of information The Fund is entitled to obtain from the employer, on request, all the necessary information on the employment that is required in order to be able to take the decision on the liability component. In addition, the Fund can acquire necessary information that is required to resolve a matter from unemployment funds, the Social Insurance Institution of Finland, and the Finnish Centre for Pensions. The Fund may also provide the employee with an opportunity to give a statement of their own, if the Fund considers this necessary so as to resolve the matter. 3.3 Decision and invoicing the liability component After hearing the employer, the Unemployment Insurance Fund provides a written decision on the liability component. The decision will either impose the liability component on the employer or exempt the employer from liability to pay it as far as the employment in question is concerned. The employer may file an appeal against the decision with the Unemployment Appeal Board and further with the Insurance Court. In connection with the decision on the liability component, the Unemployment Insurance Fund will send an invoice for the payment of the fee to the employer liable for payment. The invoice is sent either as a paper copy or in electronic format, if the employer has requested the invoice to be sent electronically. The terms of payment are 30 days. 4 Termination of employment In addition to dismissal or the temporary layoff of an employee, the employer may be obliged to pay the liability component in situations in which it has influenced the termination of a person s employment in one way or another. For example, if an employer pays a financial benefit related to the termination of employment to an employee, it can be considered as a proof that the employer influenced the termination of employment even though the employee resigned. Also, situations in which employment is terminated with one accord with an agreement, there may be a question of employer s influence. 11

5 Liability component avoidance If the employer has made arrangements in order to evade provisions concerning the liability component, the Unemployment Insurance Fund may impose a fee on the basis of the state of affairs preceding the arrangement. In such a situation, the employer must present a clarification of the fact that the arrangement has not been made in order for the employer to avoid paying the liability component. 6 Decision not to collect the liability component in full In exceptional cases, the Fund may decide not to collect the determined liability component in full. In this case, the employer is always required to provide a reliable account on the considerable deterioration of its financial situation after the dismissal constituting the basis for the liability component, and that collection of liability components in full would endanger the continuation of the employer s operations. 7 Collection of the liability component Fees (706/2007). Where payment of the fee is delayed, annual penal interest for the period of delay shall become payable at the rate specified in the Interest Act. The employer must pay the liability component even if the employer has filed an appeal against a decision on the liability component made by the Unemployment Insurance Fund if the Fund cannot correct the decision under appeal in accordance with the employer s requests. In such a situation, the employer can, however, request the appeal body to interrupt the implementation either in connection with the appeal or with a separate application. 8 Expiration of a liability component issue A decision cannot be issued on a liability component after five years have passed, since the person has started to receive the continued unemployment allowance. In situations in which the employer is obliged to pay the liability component of the unemployment allowance costs actually paid to the person, a decision cannot be issued on the liability component after five years have passed since the person turned 63. The liability component may be collected without a judgment as per the order laid down in the Act on the Execution of Taxes and 12

9 Appeal 9.1 Appeal bodies If an employer is not satisfied with a decision on the liability component made by the Unemployment Insurance Fund, the employer may file an appeal against it with the Unemployment Appeal Board. An appeal can be filed against a decision made by the Unemployment Appeal Board with the Insurance Court. An appeal may not be filed against a decision made by the Insurance Court. 9.2 Submitting an appeal An appeal must be submitted to the Unemployment Insurance Fund within 30 days from when the party in question has received information on the decision. More detailed instructions of the appeal process and submission of an appeal are posted to the employer as an attachment to the decision. 9.3 Self-correction If the Unemployment Insurance Fund accepts all the requirements stated in the appeal submitted to the Fund, it will issue a self-correction decision on the matter. If the Unemployment Insurance Fund cannot correct the decision under appeal in accordance with requests through a new decision, it will refer the appeal to the level for appeals. 10 Refund of the liability component upon application An aggregated liability component can be refunded upon application by the employer in two cases. A refund is possible in the following situations: or The employer re-employs a person, previously dismissed, for whom the employer has paid the liability component. The employment contract must be valid until further notice, and the employee must have been employed for at least a year. The person dismissed has been receiving, for at least one year, 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 said person is not entitled to unemployment benefit or the unemployment benefit is reduced. A refund is made only in cases where the liability component has been paid due to a person s entitlement to continued unemployment allowance. In both cases, that part of the liability component for continued unemployment allowance which has not been used is refunded. A refund of the compensation fee must be applied for within five years of the earliest date upon which the application could have been submitted. 13

A refund can be applied for from the Unemployment Insurance Fund by using an application form. A clarification must be attached to the application stating the type of employment, or a statement of the supplementary pension granted to the employee. Application forms for a refund are available on the Fund s website. 11 Assistance for employers and estimations of liability components The Unemployment Insurance Fund advises employers in matters related to the compensation fee. With regard to matters relating to unemployment benefits, assistance is provided by the unemployment funds and the Social Insurance Institution of Finland. Assistance on matters related to earnings based pensions is provided by the employee s own employment insurance institution. At the employer s request, the Unemployment Insurance Fund may provide a written estimation of the amount of the liability component, based on the information provided by the employer. The information provided by the written estimation calculation is only an indication and not to be regarded as an advance ruling. The required information for an estimation calculation shall be delivered to TVR on an Excel form, which is available on the Fund s website. There are also instructions related to the use of a secure e-mail connection on the website. On the Fund s website at www.tvr.fi, you can find further information and examples under Liability component. On the website you can also find a calculator for determining approximate estimates of the amount of possible liability component and the percentage of the liability component on a case-to-case basis. 12 Information about the Unemployment Insurance Fund The Unemployment Insurance Fund (TVR) launched its operations in 1999. It is an independent institution governed by labour market parties and is supervised by the Ministry of Social Affairs and Health and the Financial Supervisory Authority. The main task of the Unemployment Insurance Fund is to finance unemployment benefits. TVR is in charge of making decisions on unemployment insurance contributions and collecting them. The Fund also steers, develops and monitors the implementation of the collection procedure of unemployment insurance contributions, and determines and collects the employer s liability component within the unemployment insurance contribution. The operations of the Fund are financed by investment profits and unemployment insurance contributions collected from employers and wage earners. 14