Entrepreneur or employee
When you go from being an employee to running your own business, a lot of things change. For example, you are in charge of how much you earn and of making your own pension contributions. Here are the most important changes.
1. An entrepreneur’s wages, holiday pay and overtime
As an employee, you are regularly paid a net salary from which tax and other mandatory payments have already been deducted. As an entrepreneur, you pay yourself as much salary as you decide and as your business’s finances allow. In addition, your business can reimburse expenses and pay dividends to its owners.
When you pay yourself and any employees salary as an entrepreneur, you must meet your obligations as an employer. The following are withheld from both the business owner’s and employees’ gross salary:
- income tax per tax card
- Employer’s sickness insurance contribution
If your business employs people, you also pay
- contribution to employees’ accident insurance
- occupational pension contribution (TyEL; the employee’s share of this is withheld from his or her salary)
- unemployment insurance contribution (the employee’s share of this is withheld from his or her salary)
Employers are also responsible for reporting the salaries and employer contributions they pay to the Incomes Register within five days of paying the salary.
If you are a sole trader, you do not pay yourself a salary; you make private withdrawals from your business’s bank account. As a sole trader, your business activity is taxed as part of your personal taxation. You pay advance tax on your business’s profits in accordance with your profit estimate.
Unless you are skilled at accounting, it is worth finding a competent accounting firm or accountant who can also calculate payroll and mandatory contributions on your behalf.
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2. An entrepreneur’s pension insurance
An employee’s pension contributions are the responsibility of his or her employer: they are deducted directly from salary and paid to a pension fund. As an entrepreneur, you must manage your pension security personally and take out an entrepreneur’s pension insurance policy (YEL) if you meet the requirements for mandatory participation.
YEL insurance guarantees you an income later in life or if you are incapacitated for work. It also determines the level of your family’s survivor’s pension. It is worth noting that allowances paid by Kela are also determined according to your YEL contributions. So it’s not just your pension that’s in question — the level of illness and parental allowance is also affected.
By law, you must take out entrepreneur’s pension insurance (YEL) if
- you are aged between 18 and 67
- you work as an entrepreneur for at least four consecutive months
- The value of your work contribution to your business (known as your “YEL work income”) is at least €8575,45 (as of 2023) and you live in Finland.
You must personally take out a pension insurance policy with a pension fund. The following occupational pension insurers provide YEL policies: Elo, Ilmarinen, Varma and Veritas.
Your YEL contributions are determined in accordance with your work income (as defined above). The size of your contributions is determined by your age, the number of months a year you pay, and the discount for new entrepreneurs, if you are eligible.
You can offset your YEL contributions against taxation or your spouse’s taxation. Your business can also pay your contributions.
3. An entrepreneur’s other liabilities
As an entrepreneur, you are personally responsible for your insurance coverage. Some types of insurance are mandatory, and some are voluntary.
In addition to YEL, there are mandatory forms of insurance in many sectors:
- Patient insurance is mandatory for entrepreneurs in the health care and nursing sectors, such as masseurs and physiotherapists.
- If the sector carries a risk of environment damage, environmental impairment liability insurance is also mandatory.
- Third-party car insurance is also mandatory if your business has vehicles.
- If you employ people, you must contribute to your employees’ statutory insurance. For example, employment pension insurance, occupational accident and occupational disease insurance are mandatory.
Depending on the nature of your business and your work, you may need a wide variety of insurance policies to secure your business’s property and keep it operating. You should at least think about taking out liability insurance and legal expenses coverage. You might also have reason to take out occupational accident insurance, especially if you are in a sector with a high accident risk.
These insurance policies are voluntary, but they can be a very important way of mitigating risk. When you start your business, you will get offers from several insurers. You should think carefully about your business’s risks, ask for quotes and compare them.
4. An entrepreneur’s insurance in case of illness and work incapacity
As an employee, you receive pay or Kela sickness allowance when you are sick and unable to work. As an entrepreneur, you are also entitled to sickness allowance paid by Kela, called YEL sickness allowance. It is paid for nine days in accordance with your YEL work income. After nine days, you can get basic sickness allowance if you need it.
You must show your incapacity for work with a nurse’s note, either from a public health centre or a hospital. The qualifying period when you have a YEL policy is one working day.
5. An entrepreneur’s unemployment security.
When you run our own business, you are entitled to earnings-linked unemployment benefit if you are a member of the Yrittäjäkassa entrepreneurs’ unemployment fund. You must have been a member for at least 15 months to claim unemployment benefit. To receive unemployment benefit, your business must have stopped trading completely or you must be no longer employed by the business at all. As long as you are a full-time entrepreneur, you cannot receive unemployment benefit. To receive unemployment allowance, you need to register as a jobseeker with a TE office, who will investigate whether your business has ceased trading.
If you are not a member of the entrepreneurs’ unemployment fund, you can still receive basic unemployment allowance or labour market subsidy from Kela.
If you are a part-time entrepreneur, your unemployment status is more open to interpretation: if you apply for unemployment benefit, you must submit a clarification of the matter to a TE office. They will inspect whether your business activities are an obstacle to accepting a full-time job. If you run a business on a small scale or for a short time, you may be eligible for adjusted unemployment allowance.
You can also establish a business while still unemployed and receive unemployment benefit in the initial period. More detailed information about starting a business while unemployed in available on the TE centres’ website.
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6. Equipment
As an entrepreneur you acquire your equipment yourself. They are part of the expenses you must consider in your income statement. Some expenses can be offset against tax.
7. An entrepreneur’s occupational healthcare
When you run your own business, it’s important to look after your health, and it can even be worthwhile for single-person businesses to sign an occupational healthcare contract. Both public health centres and private clinics offer occupational healthcare services. Kela covers some of the costs you pay as an entrepreneur who concludes an occupational healthcare contract. In addition, you can offset reasonable occupational healthcare expenses against your business’s taxation. If you have employees, you must at least arrange preventive occupational healthcare for employees on employment contracts. If you wish, you can also offer your employees more extensive occupational healthcare services than this.