Frequently asked questions about the pay subsidy reform

A pay subsidy is an economic benefit granted by the Employment and Economic Development Office (TE Office) or a local government pilot on employment for promoting the employment of unemployed jobseekers, granted to employers for covering payroll costs. The employer can only receive a pay subsidy for hiring a person who has registered as an unemployed jobseeker.

With the help of the pay subsidy, a jobseeker can also get the kind of work for which their professional skills are not sufficient, or they have a disability or illness that affects the performance of tasks.

The purpose is to support unemployed jobseeker’s access to the labour market and help employers find a suitable employee.

The Government’s proposal aims to promote the employment of people in a vulnerable labour market position and increase the use of pay subsidies, especially by businesses.

The regulation on pay subsidies will be simplified. After the reform, employers should be in a better position to anticipate the terms and amount of employment subsidies they would be entitled to. The reform also seeks to accelerate the granting and payment process. As a result, pay subsidies should encourage employers, especially businesses, to hire more unemployed jobseekers than at present.

The Government also proposes that the amount of pay subsidy granted on the basis of disability or illness be raised to 70% from the current 50%. The amount of pay subsidy granted based on the lack of professional skills would increase to 50% regardless of the duration of the unemployment (currently 30, 40 or 50%). For example, the pay subsidy granted based on the lack of professional skills for those who have been unemployed for less than a year is currently 30%. In future, it would be 50%. All employers are entitled to the above-mentioned subsidies.

If the conditions were met, pay subsidy could be granted to another employer immediately after the employee’s previous maximum period of pay subsidy had ended.

All employers receiving a 100% pay subsidy now would continue to receive a 100% subsidy in future too. However, the subsidy would be subject to changes required by the EU state aid rules. With regard to the 100% pay subsidy for organisations engaged in extensive economic activity, the reform would limit the amount to a maximum of EUR 200,000 over three tax years. On the other hand, more organisations would be eligible for the 100% pay subsidy after the reform.

In addition, the Government proposes a new employment subsidy to promote the employment of people aged 55 or over.

The long-term employment impact of the reform is estimated at 500–1,000 people.

The pay subsidy reform is part of the Government’s employment measures aimed at providing everyone with the opportunity to work in accordance with their capacity and ability to work. Employment measures form a broad, multi-sectoral package.  Some of the measures will make a difference quickly, while others will have an impact on a longer term.

The projects of the working capacity programme will integrate working capacity support services into the activities of the wellbeing services counties.  The objective is to increase the use of services, in particular among those who are the most difficult to employ. Työkanava Ltd is a state-owned special assignment company, which aims to employ people with impaired capacity to work who are in the most difficult position. The company will become operational in stages during 2022.

In the Nordic labour market service model, jobseekers receive individual and intensive support for their job search at an earlier stage. The purpose of early support and individual services is to prevent prolonged unemployment. Experts in TE Offices and local government pilots on employment provide advice on job search, identify jobseekers’ skills and offer support services, such as training to meet the jobseeker’s individual needs. If necessary, jobseekers can also be referred to other services, such as health and social services.

Read more about the Government’s employment measures (in Finnish)
 

Summary of subsidised work in different situations based on the reform’s key proposals:
 

*employer must always meet the conditions for pay subsidy concerning the employer
**duration of the support is at most the duration of the employment relationship

The government proposal was submitted to Parliament on 19 September 2022. Parliament is still debating the reform of pay subsidy and the Employment and Equality Committee has decided to continue considering the matter in January 2023, after which it will issue its report. Because the reform is still under consideration, it will not enter into force as initially planned on 1 January 2023. The preliminary date when the reform may enter into force is not yet known. Decisions on pay subsidy at the start of 2023 will be taken based on the current legislation.

More information on the reading of Government proposal HE 175/2022 vp on Parliament website

The regulation would be simplified by limiting the pay subsidy mainly to unemployed jobseekers who are disadvantaged or have reduced working capacity to promote their employment. 

In future, pay subsidy could be granted to

• those aged 15 to 24 years 
• those aged 50 years or over 
• those with just a basic education 
• immigrants 
• those who have not been gainfully employed for at least six months, as well as 
• those with reduced capacity for work. 

These restrictions are based on EU state aid regulation.

Pay subsidy could also be granted for the payroll costs of unemployed jobseekers who are in apprenticeship training.

As a rule, the granting of pay subsidies would be based on the lack of professional skills, as before. In order for a person who has been without work for less than a year to be employed with pay subsidy would still require that, based on an assessment, unemployment would be prolonged without pay subsidy.

When pay subsidy is granted for the first time on the basis of a disability or illness, the employee’s productivity in the new role would not be assessed. However, the continuation of the subsidy in the same employment relationship would be assessed on the basis of the role, as now.

The conditions for granting a pay subsidy to an employer would be amended so that there would be no impediment to granting a pay subsidy if the employer has hired an equivalent number of employees to replace the employees they have made redundant for production-related or financial reasons in the previous 12 months. In other words, the employer would not be required to recruit the same persons, but the same number of employees. 

The wellbeing services counties would be eligible for pay subsidies (no change to the current situation because, in municipalities, it has been possible to recruit employees to the same tasks).

In future, pay subsidies would no longer be granted to households.

The amount of pay subsidy will be increased and harmonised. In the future, the amount of pay subsidy granted on the basis of the lack of professional skills would always be 50% of the payroll costs. Currently, the amount of the subsidy varies depending on the duration of the unemployment of the person to be employed, being either 30%, 40% or 50% of the payroll costs. 

The pay subsidy granted on the basis of an injury or illness would increase from 50% to 70%.

Non-wage labour costs or holiday bonuses payable by the employer could no longer be covered by pay subsidy. In addition, other changes would be made to the eligible costs so that the national income register could be used more efficiently in the payment of pay subsidies.

The definition of eligible costs would be specified in such a way that as eligible costs would be considered the wage paid to the employee on the basis of working hours or performance of the contract before the withholding of statutory insurance premiums and taxes. The pay supplements related to regular working hours and working conditions would also be included.

Eligible costs would not include

• non-wage labour costs payable by the employer
• holiday bonuses
• employee benefits
• tax-free or taxable compensations
• additional work or overtime pay or cash compensation from the working time account
• the percentage of the pay that is determined on the basis of the work performance of the person employed on the subsidy or is based on the employer's result
• pay for the period during which the employer is entitled to sickness allowance or some other benefits

Depending on the duration of the unemployment preceding the pay subsidy, the pay subsidy would be granted for five or ten months. 

• Going forward, pay subsidy could be granted for five months if the person had been unemployed for less than a year. Currently, the maximum duration of pay subsidy is six months. The party granting the subsidy would have the discretion to consider its duration. On average, the support periods have lasted about 5.1 months. 
• If the person had been unemployed for at least 12 months during the preceding 14 months, pay subsidy could be granted for ten months. Currently, the maximum duration of pay subsidy is 12 months. The party granting the subsidy would have the discretion to consider its duration. On average, the support periods have lasted slightly less than seven months.
• If pay subsidy is granted on the basis of a disability or illness, it could be granted for 10 months for the first time, and be extended for a maximum of 24 months at a time in the same employment relationship. Currently, pay subsidy can be granted for the first time for a maximum of 24 months, but the conditions for granting the subsidy are stricter than in the proposed model. 

However, pay subsidy is currently granted and will continue to be granted for the duration of the employment relationship at most.

If a disability or illness significantly lowers the employee’s productivity permanently or in a permanent manner, after 10 months, the pay subsidy period could be extended by a maximum of 24 months at a time. 

Even in future, a new pay subsidy could be granted for long-term unemployed persons over 60 years for the same employment relationship in periods of up to 24 months.

Similarly, the subsidy for apprenticeship training could be granted for the entire duration of the training, in the same way as now. 

At present, after the maximum duration of the pay subsidy period, the person must be unemployed for at least 10 months before they can be re-employed with a pay subsidy. If the conditions were met, pay subsidy could be granted to another employer immediately after the employee’s previous maximum period of pay subsidy had ended.

The Act on Social Enterprises would be repealed and, consequently, also the relevant exceptions related to the amount and duration of a pay subsidy.

The employer could transfer an employee employed with the subsidy to perform work tasks for another employer (user company). Instead of the current notification procedure, the employer would have to apply for the transfer at the TE Office or the local government pilot on employment. During the transfer, the maximum amount of pay subsidy would be the amount that the user company could be granted if it applied for the subsidy itself. However, the amount of subsidy could not exceed the amount granted to the actual employer. The amount of pay subsidy would be reduced for the duration of the transfer if the user company were entitled to a lower pay subsidy than the actual employer.

The objective is to prevent distortions of competition and ensure that the tasks in the user company are appropriate from the perspective of paying the pay subsidy. The proposal would also prevent distortion of competition by requiring the user company to pay compensation for the transferred person. The compensation paid by the user company could be an amount that equals at least the user company’s cost of labour if it applied for the pay subsidy itself. It is not possible to set a precise ceiling for the compensation.

A 100% pay subsidy could be granted to an association, foundation or registered religious
community (hereinafter, the organisation), if:

• the person has been unemployed for at least 24 months in the last 28 months and
• the person works no more than 65% of the maximum working time in the sector. 

In these respects, the proposed model corresponds to the current situation. However, the national legislation on pay subsidy must be amended to comply with the EU rules on state aid in the following way:

• A 100% pay subsidy could be granted to an organisation whose activities do not affect trade between the EU Member States according to an assessment made by the TE Office or the municipality participating in the local government pilot on employment (trade effect). 
• If the organisation’s activities have an effect on trade between the EU Member States, it could receive a 100% pay subsidy for a maximum of EUR 200,000 over three tax years. Under the EU rules on state aid, this would be considered a small amount, in other words, de minimis aid (link to a page in Finnish). Annually, the 100% subsidy could be used to employ five people on average.

All employers receiving a 100% pay subsidy now would continue to receive a 100% subsidy in future too. The reform would limit the use of the 100% pay subsidy for organisations engaging in extensive economic activity. However, the change would also enable organisations to make more extensive use of the 100% subsidy, as organisations that have not previously received the 100% pay subsidy could receive it as de minimis aid.

Currently, almost 20% of all those employed with pay subsidy have been employed with a 100% pay subsidy.

In the future, a 100% pay subsidy could be granted to an organisation whose activities do not affect trade between the EU Member States according to an assessment made by the TE Office or the municipality participating in the local government pilot on employment (trade effect). 

If the organisation’s activities have an effect on trade between the EU Member States, it could receive a 100% pay subsidy for a maximum of EUR 200,000 over three tax years. 

The following criteria would apply to the assessment of trade effect:

• The value of goods and services sold is less than EUR 200,000 per year;
• It is not possible to order goods and services online or use them online, excluding situations where marketing takes place online, but the goods must be picked up from a specific location or the service consumed in a specific location;
• All or almost all customers are persons living in Finland or organisations registered in Finland; and
• The provision of goods and services takes place only in the area of one or a few municipalities bordering on each other. A precondition for this is that more than 90% of the customers who are natural persons live in the aforementioned area of operation.

The criteria for assessment are based on the European Commission’s decisions on the assessment of trade effect.

Organisations refer to associations, foundations and religious communities.
 

*Chart updated on 21 October 2022  

The reform proposes to introduce an employment subsidy for those aged 55 or over. The aid would be granted without consideration of expediency as long as the conditions laid down in the Act were met. 

The subsidy would be granted if:

• the person to be employed has reached the age of 55 and been unemployed for at least 24 months in the last 28 months; and
• the person hired on the subsidy works for the beneficiary under an employment contract for at least 25 hours per week or at least 65% of the maximum working time in the sector; and
• other conditions for granting the subsidy are met.

The subsidy would cover 70% of the eligible payroll costs for 10 months, but no longer than for the duration of the employment relationship. The same rules on eligible payroll costs as for pay subsidy would apply for this form of support.

It is estimated that, somewhat more than before, the focus of employment measures would be on people with partial work ability, integrating immigrants, young people, the elderly and those who have only completed basic education. In addition, a higher number of employers would be entitled to pay subsidies.

Changes related to the target group and discretion may affect the number of people employed on the subsidy, but, for the most part, it is impossible to assess this in numerical terms.

The proposed changes to the eligible costs reduce the amount of support paid to municipalities for fulfilling their employment obligation. Observations on the combined effect of the subsidy rate and eligible costs as regards other pay subsidies:

• The amount of pay subsidy would increase from the current level in slightly less than half of the pay subsidy periods.
• It is estimated that the amount of support would remain roughly the same in approximately one quarter of the pay subsidy periods.
• In less than one third of the periods, the amount of support is estimated to be lower than it currently is.
• Higher support increases the demand for work supported by a pay subsidy and lower support reduces the demand. 

The simplification of the conditions of support and changes in payment are aimed at making the pay subsidy more attractive for employers and thus increase the number of people employed with a pay subsidy. It is not possible to assess any numerical impacts of this.

The reform consists of several different elements, the combined effects of which are uncertain. Some of the changes are likely to reduce the number of people employed on a pay subsidy and others to increase it. The elements that increase the number of people employed are particularly targeted to companies where, according to studies, work supported by a pay subsidy has the greatest positive employment impact. As a result, in the long term, the number of those employed after the support period is expected to increase by some 500–1,000 people.

Changes in the duration of support periods may lead to a reduction or increase in the number of persons employed on average. It is estimated that the number of people employed on pay subsidy may decrease by approximately 1,000 person-years or increase by approximately 3,500 person-years at most. It is unlikely that either of the extremes would be realised. It is estimated that the impacts are likely to settle somewhere halfway between the two extremes, which would result in a moderate increase in the number of people employed on the subsidy.

The estimated number of people employed on a 100% pay subsidy would be approximately 60–70% of the current number of those employed on a 100% subsidy.

Some employers would probably also employ people at lower subsidy rates, so the change
in the total number may not be this big. It is estimated that the number of people in 100% pay subsidy would fall by 900 people and about 500 people would be employed at lower subsidy rates.

All current employers receiving 100% support could receive 100% support in future as well.
In addition, there would be a slight increase in the number of eligible employers. In most situations, the change would not have impact on employers employing fewer than five employees per year. The change would affect employers bigger than this with extensive economic activities in such a way that, on average, it would limit the number of people employed with 100% support to approximately five persons per year. However, if the economic activity is limited, this restriction would not apply. The change will not affect the possibility of providing employment at lower subsidy rates.