Suomen Yrittäjät welcomes YEL amendments proposed by parliamentary committee

Suomen Yrittäjät, the Finnish SME association, welcomes the amendments to the Entrepreneur’s Pension (YEL) Act proposed by Parliament’s social welfare and health committee. “We think the proposals should be passed by Parliament. The committee took the concerns raised by Suomen Yrittäjät in our report seriously,” Janne Makkula, a Vice President at Suomen Yrittäjät, says.

Suomen Yrittäjät Vice President Janne Makkula says that the social welfare and health committee has worked diligently and assiduously.

“The committee decided that the definition of the value of labour input is an overall consideration which should consider not only the business owner’s working hours and level of pay in their sector but also things such as the size of their operations and the information provided by the entrepreneur,” Makkula says.

Parliament’s social welfare and health committee issued its entrepreneurs’ pension (YEL) report on Tuesday 29 November.

The amount of an entrepreneur’s pension contributions and social security level are determined in accordance with the value of the entrepreneur’s labour input. The committee was of the opinion that when this labour input is evaluated, the hours worked by the entrepreneur and the salary level in the sector must be considered, but also the size of business operations and the information provided by the entrepreneur.

From business owners’ perspective, the Bill has improved as it has passed through Parliament, and the changes are in line with the goals of Suomen Yrittäjät.

“Even the original version of the Bill said that a business owner’s own view on the value of their labour input should be considered. Now the committee has clarified that idea even further,” Harri Hellstén, Labour Market Affairs Manager at Suomen Yrittäjät, says.

According to the proposed Bill, a business’s key financial indicators are also significant when assessing the value of a business owner’s labour input. In this regard, the committee stressed that when the value of a new entrepreneur’s labour input is determined, the fact should be considered that the initial phase of business ownership is not always profitable or solvent, even if the owner works in the business full-time.

The current stringent application of the employment income rule by pension providers has led to a higher threshold for starting a business. That is why Suomen Yrittäjät considers it important that the Bill and the amendments to it be enacted.

Median salary no longer the focus

In its report to the committee, Suomen Yrittäjät raised its serious concern that the Government’s proposed wording could lead to excessive focus on and application of median salaries, even though this is not the purpose of the Bill or the grounds for it.

“The committee is proposing clarifying amendments which stress overall assessment and the role of median salary as part of the bigger picture, in which all the available information on a business owner’s professional skill, experience, as well other characteristics and size of the business operations, are considered,” Hellstén says.

“A business owner can naturally provide this information themselves, and the pension provider must take them into account when setting the YEL income. In addition, the pension provider must provide grounds for its decision, which strengthens a business owner’s legal protection,” Hellstén says.

“Extending the transition period from three years to six and reducing the maximum pension contribution hike from €8,000 to €4,000 gives business owners even more time to adapt to the change, as well as providing more security for the future. That is also a welcome change,” Hellstén says.

Big YEL reform necessary

Even if the amendments proposed to the Entrepreneur’s Pension Act are quite moderate, they mark an improvement for business owners on current regulation. Suomen Yrittäjät has proposed broader reform of the YEL system and hopes that the next government will courageously and openly tackle the reform of this key legislation for entrepreneurs.

The goal of Suomen Yrittäjät has now been supported by Parliament’s social welfare and health committee.

“The committee proposes a Parliamentary resolution that the Government will investigate the needs for reform of the Entrepreneur’s Pension Act more broadly. If Parliament adopts the resolution, the Government must take it into account and take the necessary steps.

“In this regard, our proposals on raising the lower level of compulsory pension insurance and increasing business owners’ freedom must be duly considered,” Makkula says.

FACTS

How does the social welfare and health committee’s report amend the Bill?

1. When setting a business owner’s YEL income, a pension provider must consider not only the business owner’s working hours and the salary level in the sector but also the business operations’ financial indicators and information provided by the business owner. All the available information about the business owner’s professional skill, experience and other characteristics and extent of the business operations must be taken into account as a whole.

2. The committee proposes amending the section of the Act on confirmation of YEL income so that median salary is no longer emphasized when setting the value of labour input. The section would change to highlight the demand for overall consideration when setting YEL income, giving the extent of business operations and the information provided by the entrepreneur a significant role, too.

3. The committee highlighted the situations of new entrepreneurs. When evaluating new entrepreneurs’ labour input, the committee stated that special attention should be paid to the circumstance that even though the labour input is large, the business is not always financially profitable or solvent. The committee stated the YEL income should be set at a reasonable level.

4. If a business owner is currently insured at too low a YEL income in light of the statutory level (underinsured), the committee proposes better transition period regulations than originally set out in the Bill. The transition period would double from three years to six. The first review of YEL income could only raise it by €4,000 (€8,000 in the original Bill). This would mean that a monthly pension contribution could only rise by €80 (in the original Bill, €160). In the next review, three years later, the YEL income could only rise, again, by €4,000 (the original Bill set no limits to this).

5. The committee’s report contains a proposal for Parliament to adopt a resolution that the Government further investigate the needs for reforming entrepreneurs’ pension coverage.

The amendments to the Act are due to enter into force on 1 January 2023.

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