Questions and answers about the recruitment subsidy trial for sole traders

The purpose of the recruitment subsidy trial for sole traders is to investigate whether financial support for salary costs affects the hiring of the company’s first employee. The purpose of the subsidy is to lower the recruitment threshold and create new employers, thereby promoting business growth and employment. 

The project will carry out a randomised controlled trial to produce reliable data on the impact of the recruitment subsidy on creating new employers and business growth. Metrics used in the study include the number of employees and net sales, among others.

The new Act on the recruitment subsidy trial will enter into force on 1 March 2022, after which the trial will begin. The trial is set to run until 31 December 2023, with evaluation of the results to begin in spring 2024.
 

The trial is intended for sole traders and other businesses that employ only self-employed persons. The target group for the trial are companies which 

•    have not employed outside labour for a period of 12 months preceding the time of selecting the target group 
•    have net sales of at least 15,000 euros and no more than 1 million euros in 2021 

However, a company is excluded from the trial if it 
•    has tax debts entered in the tax debt register or has neglected the duty to file tax returns, or 
•    has been declared bankrupt or filed for bankruptcy. 

Companies domiciled in Åland are also excluded from the target group.

Companies are selected for the trial from the Tax Administration register. Eligibility to participate in the trial is determined at the time when the selections are made. The selections are made as soon as possible after the trial begins. If a second phase is needed in the trial, a second target group will be selected as soon as possible after the end of the first phase. The Tax Administration will provide the Southeast Finland TE Office with a list of companies included in the target group. 

The Southeast Finland TE Office will then randomly select the trial group and control group. The random selection is carried out in a way that ensures that all companies in the target group have an equal opportunity to be selected in the trial or control groups. To promote transparency, the programming commands used for the random selection are released in advance. 

In order to detect the expected impacts, the number of companies receiving the recruitment subsidy should be at least 900. As the utilisation rate of the subsidy – in other words, the share of companies that will elect to use it – cannot be known in advance, the trial will be carried out in phases. During the first phase, 3,500 companies will be selected for the trial group and 20,000 companies for the control group. 

If the first phase fails to find a sufficient number of companies electing to use the subsidy, a second phase will be launched to supplement the first phase. The size of the trial and control groups for the second phase will be determined in accordance with the utilisation rate of the subsidy among companies during the first phase. A company that is selected for the trial or control group during the first phase cannot participate in either group in the second phase.

The purpose of implementing the trial in phases is to ensure that the number of companies using the subsidy is sufficient as well as prevent a situation where the funds allocated for the subsidy are insufficient for all companies in the trial group wishing to use the subsidy.

The Southeast Finland TE Office will inform companies selected to the trial group about the opportunity to use the recruitment subsidy and provide advice about how the subsidy will be granted. The TE Office will mail a letter to each company selected for the trial group to the address listed in the Tax Administration’s register.
 

In order to be eligible for the recruitment subsidy, the company must hire at least one employee. The recruitment subsidy is granted based on an application. The amount of the subsidy is 10,000 euros. The subsidy is applied from and granted by the Southeast Finland TE Office.

The employment relationship of employees hired by companies in the trial group of the first phase should begin no later than 31 July 2022, and the employment relationship of employees hired by companies in the trial group of the second phase no later than 31 December 2022. The subsidy must also be applied for by the above dates. The application can be submitted before the employee to be hired has been found.

The subsidy is granted if the company meets the conditions for eligibility and sufficient funds are available. The subsidy cannot be granted if the company no longer meets the conditions for eligibility for the target group at the time of granting the subsidy. However, the subsidy may be granted if the company has since hired an employee after the target group has been selected. 

The recruitment subsidy is granted in the form of de minimis aid. Depending on the line of business, the aid may be subject to the EU Regulation on general de minimis aid or the Regulations on de minimis aid for the agricultural or fisheries and aquaculture sectors.  The subsidy cannot be granted to a company if this would exceed the quota for de minimis aid. Under the Regulation on general de minimis aid, a company may receive up to 200,000 euros in aid from various sources over a period of three tax years. The maximum amount of aid is 20,000 euros for companies in the agricultural sector and 30,000 euros for companies in the fisheries and aquaculture sector over a period of three tax years. In the case of de minimis aid for companies in the agricultural or fisheries sectors, a further condition is that the total national upper limit of aid granted to the company is not exceeded.

Nor can the subsidy be granted if the company or the company’s representative has received a non-appealable judgment on the unauthorised use of foreign labour during the year of granting the aid in 2022 or the preceding two years. 

In addition, the subsidy is conditional on the company agreeing to pay the employee a salary or wages in line with the collective agreement at minimum. If no applicable collective agreement exists, the company must pay a salary or wages that is standard and reasonable for the work.

The amount of recruitment subsidy is 50% of employees' salaries for a maximum of 12 months from the start of the first employee's employment relationship, but no earlier than the date of applying for the subsidy. The subsidy is not tied to the salary or wages of any individual employee, but can be used to pay the salaries of several employees up to the maximum months and amount.

The subsidy cannot be used to pay the salary or wages of self-employed persons. Nor can the subsidy be used to pay the salary or wages of an employee for whose salary costs the company has received a pay subsidy or other public funding under the Act on public employment and business services. Ineligible salary costs also include the salary or wages of an employee whose work output is in an industry for which aid cannot be granted under the de minimis regulation on the basis of which the subsidy is granted.
 

The KEHA Centre pays recruitment subsidies based on salary information received monthly from the Incomes Register. The company does not need to request payment of the subsidy separately. If the subsidy cannot be paid based solely on information from the Incomes Register, the KEHA Centre will ask the company for the necessary information. Certain information, such as other received salary subsidies, must be reported by the company to the KEHA Centre on its own initiative.
 

If the amount of recruitment subsidy paid is too much or the subsidy has been paid incorrectly or without a clear basis, the recipient company is required to repay the subsidy. The recipient is obligated to repay the subsidy if, for example, the conditions for eligibility were not met, or the subsidy has been used to pay non-eligible salaries or wages.

If the recipient does not voluntarily repay a subsidy to which it is not entitled, the KEHA Centre will order the subsidy to be clawed back. In this case, the subsidy can also be deducted from any future recruitment subsidies paid to the recipient.

It is expected that the number of employees hired by companies in the trial group will be higher than in the control group as the result of the recruitment subsidy. If the difference between the trial and control groups is large enough, the recruitment subsidy can be seen as having an impact on companies’ behaviour. As the companies are divided randomly into trial and control groups, any difference between the groups is explained by the recruitment subsidy, as the groups should be similar in all other respects. In a randomised controlled trial, differences between the groups can also be due to chance. The risk of this happening is lower when the difference between the groups is larger and more companies participate in the trial.

The Tax Administration provides the Southeast Finland TE Office with information about the target group. The information disclosed includes identifying information of the target group, in other words the names and business IDs of companies. In addition, the Tax Administration discloses companies’ contact information reported for tax purposes and information about the companies’ line of business, domicile, self-employed persons and their personal identity codes, as well as net sales reported for VAT purposes in 2021. The Tax Administration has the right to disclose the information, notwithstanding any non-disclosure provisions.

The trial uses salary information received from the Incomes Register. The Legal Register Centre may disclose information about sanctions for the unauthorised use of foreign labour, as this disqualifies the company from receiving the subsidy. Information in the TE Office’s customer database may also be used when granting and paying the subsidy.

The data processed for the trial form a trial database, the joint controllers of which will be the Southeast Finland TE Office and KEHA Centre. The database will contain personal data, the processing of which will comply with the EU General Data Protection Regulation (Regulation (EU) 2016/679 of the European Parliament and of the Council), and the Data Protection Act (1050/2018). Data collected in the trial database are processed for the purposes of granting, paying and clawing back the recruitment subsidy and for evaluating the results of the trial.

The number of new jobs created is at least equal to the number of companies choosing to use the subsidy. The aim of the trial is for at least 900 companies to use the subsidy. The subsidy may be granted to 1,165 companies at most. Since the recruitment subsidy is not tied to the salary costs of any individual employee, companies are free to use the subsidy to pay the salaries or wages of several employees. As such, it is impossible to estimate the number of employees hired with the help of the recruitment subsidy. In the longer term, it is also possible to assess whether companies will retain the newly created jobs.
 

The purpose of the recruitment subsidy is to lower companies’ threshold for hiring employees. The subsidy lowers the labour costs of recipient companies, which is expected to have a direct effect on the number of employees hired during the subsidy period. The magnitude of this impact depends on the elasticity of demand of the company’s labour force. In the case of sole traders, no reliable research data on this topic is available, making it difficult to estimate the anticipated magnitude of the impact.

If the recruitment subsidy is effective, companies that receive the subsidy will grow faster than those in the control group. Because the subsidy is offered only to companies selected for the trial group, the trial may result in a distortion of competition that affects various companies randomly and favours certain companies over others. However, this is essential for the implementation of the trial. In addition, the potential distortion of competition is estimated to be minor due to the subsidy’s small size. 

The trial is designed to minimise the amount of administrative work required from companies applying for and receiving the subsidy. Administrative work relates mainly to matters that need to be reported when applying for the subsidy. Because the subsidy is paid on the basis of information reported in the Incomes Register, receiving the subsidy generally requires no other action from the company. After the subsidy has been granted, some amount of administrative work may be required in the form of responding to requests for information or reporting obligations. The trial will not result in any administrative work for companies that choose not to apply for the subsidy.
 

About 60 per cent of sole traders are men. Because the trial group is selected randomly, the gender distribution of companies in the trial group is expected to follow the gender distribution of sole traders as a whole. The purpose of the recruitment subsidy is to encourage and help companies hire new employees. Although men outnumber women in sole traders, it is not possible to estimate whether the employees hired using the recruitment subsidy will be disproportionately men or women.

The Southeast Finland TE Office will monitor the trial during its implementation. During the trial period, this mostly involves monitoring the granting and payment of the subsidy and its utilisation rate. The Southeast Finland TE Office reports monitoring data to the Ministry of Economic Affairs and Employment, but no data is published or disclosed to outsiders during the trial, in order to avoid interference with the results. 

Evaluation of the results will begin after the trial has ended. The Ministry of Economic Affairs and Employment purchases the evaluation from third-party researchers. The purpose of the evaluation is to use data to determine, in a scientifically reliable manner, the impacts of the recruitment subsidy on lowering the threshold of companies for hiring employees. 

At minimum, the evaluation will examine the impact of the subsidy on the decision of companies to hire their first employee, the total number of employees, and the amount of salaries and wages paid, as well as net sales and net profit. Within the limits of available data, the evaluation may also examine the types of employment relationships formed in the trial group companies and the types of employee groups hired using the subsidy.

The results of the evaluation can be used to support future decision-making.