Pay subsidy is granted for employing unemployed persons

Pay subsidy is a discretionary subsidy aimed at promoting the employment of unemployed jobseekers.

Through the pay subsidy reform that entered into force at the beginning of July 2023, an employer hiring an unemployed jobseeker may receive financial assistance in the form of a pay subsidy covering 50% of payroll costs. A 70% subsidy may be received for employing those with reduced capacity for work. In some situations, an association, foundation or registered religious community may receive a pay subsidy of 100% of payroll costs. An employment subsidy of 70% may be received for the employment of those aged 55 or over. In this case, pay subsidy is granted without consideration of expediency.

The purpose of pay-subsidised work is to promote the employment of jobseekers on the open labour market. Pay subsidy may be granted to employ unemployed persons who have gaps in their professional skills or have a permanent disability or illness, or one of a permanent nature, that reduces their opportunities to obtain a suitable job, or persons aged 60 or over who are long-term unemployed.

Although the pay subsidy is granted and paid to the employer, it is always dependent on the service needs of the unemployed jobseeker. The purpose of the subsidy is to compensate for the employee’s lower productivity. The pay subsidy is also compensation for the fact that the employer uses more time for guiding the employee.

Which employers are eligible for pay subsidy?

All employers, except for households and central government agencies, are eligible for pay subsidy. The employment relationship may only start after the decision on granting the subsidy has been made. The requirements are that:

  • the pay subsidy does not distort competition;
  • the employer is committed to paying a wage laid down in collective agreements; 
  • the employer has performed its statutory obligations.

How can an employer apply for pay subsidy?

Apply for the pay subsidy via TE Services E-services for employers (in Finnish and Swedish).

Pay subsidy for the wage costs of an employee | JobMarket Finland

Number of people employed with pay subsidy and assessment of impacts

The number of pay subsidy periods initiated annually has varied between 28,000 and 35,000 in 2015–2021. On average, during a year, the number of people employed with pay subsidy has varied between 17,400 and 22,700. Annually, around EUR 200–250 million is paid in pay subsidy.

According to a research project on the impact of pay subsidies, conducted by the Research Institute of the Finnish Economy ETLA and undertaken within the framework of the joint analysis, assessment and research activities coordinated by the government (VN TEAS), pay subsidies granted to companies improve earnings, increase employment months while simultaneously decreasing unemployment months. Pay subsidies granted to other private sector actors or the public sector do not affect incomes or employment. The length of the pay subsidy period or the duration of the preceding unemployment period have no significant effect; the effects are similar for pay subsidy periods of less than or more than six months and after an unemployment period of less than and more than one year. 

According to a VN Teas research project on the overall costs of unemployment for the national economy (January 2019), conducted by Pellervo Economic Research PTT, pay subsidies granted to the private sector (companies) are, alongside apprenticeship training, the most effective tool affecting employment. The effects of vocational employment training come with a delay and are relatively expensive.

The above-mentioned studies have taken into account, using the propensity score method (PSM), the fact that those employed on pay subsidy differ as a group from the entire mass of unemployed people. A control group, which is not employed with pay subsidy, is formed in the studies by making the group as similar as possible in terms of observable characteristics to the group employed with pay subsidy in order to assess the impact of pay subsidies. 

The employment statistics maintained by the Ministry of Economic Affairs and Employment monitor the situation of those employed with pay subsidy three months after the end of the pay subsidy period. The most reliable information is the proportion of unemployed jobseekers, so this, as a rule, is the indicator monitored. The proportion of unemployed people should naturally be as small as possible. Between 2015 and 2021, the proportion of those who were unemployed three months after the pay subsidy period varied between 48% and  55%. In the corporate sector, the proportion has varied between 30% and 38%, in the municipal sector between 59% and 68%, and in the third sector between 53% and 60%.

Pay subsidy reform

Prime Minister Sanna Marin’s Government Programme included a number of policies concerning the development of pay subsidies. The aim was to implement an overall reform that takes into account the objectives included in the Government Programme.

The Government proposal regarding the pay subsidy reform was submitted to Parliament on 19 September 2022 and Parliament approved the Act on 17 February 2023. The President of the Republic ratified the Act on 23 March 2023, and the Act entered into force on 1 July 2023.

Read more about the pay subsidy reform

Ville Heinonen, Senior Specialist, tel. +358 295 047 047, [email protected]