New service recommends appropriate level of YEL income

In September, occupational pension providers launched a new service that recommends a certain YEL income to business owners.

Now, a business owner who is uncertain about the level at which to set his or her YEL income can get guidance from a calculator which pension providers began to pilot in September. The new service follows in the footsteps of the current pension providers’ YEL income guidance.

When a business owner applies for YEL pension insurance from a pension provider, a common calculator gives the business owner and the pension provider a recommended YEL income that matches the entrepreneur’s situation. The calculator base the recommendation on the salary data for employees in the business owner’s sector and consider the extent of the business operations.

The calculation service replaces the YEL income guides from the Finnish Centre for Pensions, which have previously been used as the basis for evaluating YEL incomes for business owners in different sectors. At the same time, the service expands YEL income guidance to sectors that previously had none.

The calculator gives a YEL recommendation based on the business owner’s turnover as well as information about the sector’s salary and turnover data. The recommendations have room for manoeuvre of 30%, as the calculator considers business owner-specific differences. If the room for manoeuvre in the YEL income recommendation does not match the business owner’s labour input, exceptions may be made from it.

Only an aid

The Finnish Centre for Pensions says that the new calculation service is only an aid for evaluating the value of the business owner’s labour input, as confirming the YEL income is always the responsibility of the pension provider. When it confirms the YEL income, the pension provider also considers other available information about the amount of labour put in by the business owner, the extent of entrepreneurial operations, the business owner’s professional skills and the value of the labour input.

The calculation service is first being tested on new entrepreneurs, who have numbered 20,000 on average in recent years. The service is intended to be developed on the basis of experience and the outcome of the legislative amendments proposed to the Entrepreneur’s Pension Act. The service may also be of use later when reviewing YEL incomes. Under the new proposed amendments to the Act, business owners’ YEL incomes would be reviewed every three years. The amended Entrepreneur’s Pension Act is intended to enter into force at the start of 2023.

Do you know how YEL income is determined?

YEL income serves as the basis for YEL pension insurance and other social security. Business owners pay pension contributions based on their YEL incomes. By law, a YEL income must match the business owner’s labour input and the salary that would reasonably have to be paid if a person with equivalent entrepreneurial skill had to be hired to run the business. See the materials Suomen Yrittäjät has gathered about YEL here!

Mikko Kautto, CEO of the Finnish Centre for Pensions, says that the calculator will transform the traditional YEL income guides into a digital service. It is intended to give business owners a sense of the requirements of the Entrepreneur’s Pension Act.

“A common background service helps determine YEL income in a harmonized fashion and, in turn, means business owners are insured more correctly. YEL incomes that match the labour put into the business will also raise business owners’ social security and pension levels in the future,” Kautto says.

Pension providers will use the calculation service to help determine YEL incomes on a harmonized basis for business owners of a similar size operating in similar sectors.