Pay subsidy reform simplifies regulation and promotes the employment of people in a vulnerable labour market position

The Government has submitted a proposal to Parliament on a pay subsidy reform with the aim of promoting the employment of people in a vulnerable labour market position and increasing 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 is improving the employment opportunities of people with impaired capacity for work by raising the pay subsidy granted on the basis of disability or illness to 70% (currently 50%. If based on a lack of professional skills, the amount of pay subsidy would be 50% regardless of the duration of the unemployment (currently 30, 40 or 50%).  

“Everyone should have the opportunity to participate in society and work in accordance with their personal capacity and ability to work. Raising the pay subsidy percentages is one of the Government’s measures to increase employment among the most vulnerable. Companies, local government and organisations alike could receive a 70% pay subsidy to employ people with impaired capacity for work and a 50% subsidy based on the lack of professional skills. I encourage employers to make better use of pay subsidies – we have plenty of hidden talent and potential,” says Minister of Employment Tuula Haatainen.

The Government also proposes a new employment subsidy to promote the employment of people aged 55 or over.

In addition, the Government is proposing to make changes to pay subsidies in order to comply with the EU rules on state aid, with a special focus on the use of the 100% pay subsidy. 

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

100% pay subsidy would comply with EU rules on state aid

The national legislation on pay subsidy must be amended to comply with the EU rules on state aid. All existing employers receiving a 100% pay subsidy, in other words, associations, foundations and registered religious communities (organisations), would continue to receive it.

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. 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. For example, if an organisation sold goods and services for EUR 200,000 or more a year, it would be considered to engage in extensive economic activity.

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.

Key changes to the conditions for granting pay subsidy

As a rule, the lack of professional skills would still be the main reason for granting pay subsidy. As before, pay subsidy could also be granted to employ a person who had been without work for less than a year if, based on an assessment, their unemployment would be prolonged without the 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 employer’s re-employment obligation would be specified so that the employer would not be required to employ the same persons but to employ the same number of employees. 

Pay subsidies could no longer be granted to households.

Duration of pay subsidies would be harmonised

Pay subsidy could be granted for five months if the person had been unemployed for less than a year. If the person had been unemployed for at least 12 months during the preceding 14 months, pay subsidy could be granted for ten months. Unlike at present, the subsidy would always be granted for the periods mentioned above, unless the employment relationship was shorter than this. Similarly, longer-term subsidy could be granted to employ a person aged 60 or over who had been unemployed for a long time, or on the grounds of a disability, illness or apprenticeship training.

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. Currently this is not possible.

New type of support for employing people aged 55 or over

The Government also proposes a new employment subsidy for people aged 55 or over. It would be granted without consideration of expediency, as long as the conditions laid down in the Act were met. For example, an employer could hire someone if the regular working hours specified in the employment contract were at least 25 hours a week or at least 65% of the maximum working time in the sector. 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. 

Many of the Government’s measures aim to improve the position of those who have most difficulty accessing employment

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.
For example, the working capacity programme and the state-owned special assignment company Työkanava Oy support the employment of people with impaired capacity for work who are in the most difficult position. 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. 

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

In order to clarify the overall picture of the intermediate labour market, the Ministry of Economic Affairs and Employment is planning to launch an external study to examine the employment opportunities of those who have difficulty accessing employment. The study would take into account both current and future forms of support.

The government proposal on the pay subsidy reform is included in the 2023 budget proposal and will be discussed in that context. The proposed national acts are scheduled to enter into force on 1 January 2023.

Inquiries:
Mikko Heinikoski, Special Adviser to the Minister of Employment, Ministry of Economic Affairs and Employment, tel. +358 295 047 175
Ville Heinonen, Senior Specialist, Ministry of Economic Affairs and Employment, tel. +358 295 047 047