YEL/Kela, self employed sick pay/baby care

MC Deli · Post by **MC Deli** » Tue Mar 18, 2014 2:46 pm

Hi, I have TMI, I pay YEL/insurance and am self-employed. I have reduced working hours to look after our new baby and I get the (new?) "lastenhoidon tuki" - which I guess translates as childcare allowance.

My question is about sickness and benefits. It is really annoying being freelance and being ill when there is work you could be doing. I have lost maybe 10 working days already this year - I keep catching "päiväkoti flu" I think! My baby has also chicken pox and I will be at home with her an extra 4-5 days altogether last week and this.

So far I have not bothered getting any "sopimukset" from the doctor for myself - today I got the doctor's letter for my spouse who will take a day from her full time job to look after the sick baby. And I have not tried to claim anything. The question is: should I be claiming some sickness benefit from YEL/Ilmarinen/Kela - is it worth it - and how does it work?

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betelgeuse · Post by **betelgeuse** » Tue Mar 18, 2014 3:52 pm

"sopimukset" do you probably mean "todistukset"? For the main question see Kela web pages:

http://www.kela.fi/web/en/amount_self-employed-persons

MC Deli · Post by **MC Deli** » Fri Mar 21, 2014 2:54 pm

Thanks for the link.

Something not clear to me from the Kela page - are the wage thresholds based on your actual taxable income (i.e. the last available tax data from Vero) OR from the YEL number (the artificial wage level number, which I understand is always much lower than actual taxable income)...?

betelgeuse · Post by **betelgeuse** » Fri Mar 21, 2014 7:15 pm

MC Deli wrote:Thanks for the link.

Something not clear to me from the Kela page - are the wage thresholds based on your actual taxable income (i.e. the last available tax data from Vero) OR from the YEL number (the artificial wage level number, which I understand is always much lower than actual taxable income)...?

The first sentence on the page answers your question: "If you are self-employed or a farmer, the Sickness Allowance due to you is calculated on the basis of your insurable income under the Self-Employed Persons' Pensions Act or the Farmers' Pensions Act." Insurable income == YEL. You are allowed to have your YEL level higher than your taxable income. Taking YEL insurance much lower than actual taxable income is illegal:

http://www.finlex.fi/fi/laki/ajantasa/2 ... 272#L9P112

"Työtulo on se palkka, joka kohtuudella olisi maksettava, jos hänen tässä laissa tarkoitettua yrittäjätoimintaansa suorittamaan olisi palkattava vastaavan ammattitaidon omaava henkilö, tai se korvaus, jonka muutoin voidaan katsoa keskimäärin vastaavan sanottua työtä."

Loosely translated this means that the YEL level must match the salary for a person that you would hire to do your work. The insurance companies just don't seem to be super active in enforcing this.

MC Deli · Post by **MC Deli** » Tue Mar 25, 2014 12:03 am

Well, hang on there. It's much lower because it is the equivalent of the cost of a someone salaried to a company doing similar work - and that means you factor in all the other costs of being self-employed on top of the going rate for a salaried person doing similar work - hence it is always much lower than your taxable income. And it is a guess if you cannot accurately predict your self employed income, which many freelancers cannot. And there are formulae floating about online to help you do it. So your line about "Taking YEL insurance much lower than actual taxable income is illegal" is not true. In my opinion. And to my best knowledge based on the other freelancers and entrepreneurs I know.

MC Deli · Post by **MC Deli** » Tue Mar 25, 2014 12:03 am

But thanks for the clarification that it is the YEL rate and not taxable income that governs the sickness rate

betelgeuse · Post by **betelgeuse** » Tue Mar 25, 2014 1:10 am

MC Deli wrote:Well, hang on there. It's much lower because it is the equivalent of the cost of a someone salaried to a company doing similar work - and that means you factor in all the other costs of being self-employed on top of the going rate for a salaried person doing similar work - hence it is always much lower than your taxable income. And it is a guess if you cannot accurately predict your self employed income, which many freelancers cannot. And there are formulae floating about online to help you do it. So your line about "Taking YEL insurance much lower than actual taxable income is illegal" is not true. In my opinion. And to my best knowledge based on the other freelancers and entrepreneurs I know.

Maybe this scenario with made up numbers will clear things up. TMI charges for cleaning 30 hours an hour + VAT. Costs like chemicals are 5 euros an hour so there's 25 euros to compensate the person doing the work left.

Cleaning done by employee: TMI pays TYEL. The rest can be paid to the cleaner after withholding taxes.

Entrepreneur does the cleaning: TMI pays YEL. The rest ends up being the profit of the TMI and becomes taxable income.

Tell me where is the major difference between the two scenarios? You seem to be thinking YEL in terms of company revenue. However, it refers to taxable income in personal taxation.

Rosamunda · Post by **Rosamunda** » Tue Mar 25, 2014 12:30 pm

I agree, I think a lot of freelancers pay the minimum YEL (you're right, the 'arms length' rule isn't enforced) but it really is a false economy. Not just because of sickness benefits but also when you sit down and calculate your pension.

MC Deli · Post by **MC Deli** » Wed Mar 26, 2014 12:27 am

Agreed, by paying a lower YEL rate you get a smaller pension and sick pay. And you can pay much greater YEL relative to your actual income if you want.

But what betelgeuse is not factoring in are the other costs to a company beyond wages that you should factor when making your wage-equivalent YEL rate calculation e.g. how your self employed holidays work (e.g. someone salaried is payed for 12 plus months in Finland whereas for an entrepreneur it may only be 10, even 9), the unpaid hours for administrating your self employment (e.g. varies but 5-25% of your working time is not unreasonable depending on what you do), costs of company-equivalent facilities (e.g. all those IT/telephony things, phone bill, office space etc.).

These, and more, are all costs above and beyond "matching the salary of a person" doing similar work. And that's why the YEL rate is so much lower than your actual taxable income.

betelgeuse · Post by **betelgeuse** » Wed Mar 26, 2014 1:09 am

MC Deli wrote: But what betelgeuse is not factoring in are the other costs to a company beyond wages that you should factor when making your wage-equivalent YEL rate calculation e.g. how your self employed holidays work (e.g. someone salaried is payed for 12 plus months in Finland whereas for an entrepreneur it may only be 10, even 9), the unpaid hours for administrating your self employment (e.g. varies but 5-25% of your working time is not unreasonable depending on what you do), costs of company-equivalent facilities (e.g. all those IT/telephony things, phone bill, office space etc.).

These, and more, are all costs above and beyond "matching the salary of a person" doing similar work. And that's why the YEL rate is so much lower than your actual taxable income.

Can you define to me what do you mean with taxable income and I will then tell you if it matches the terminology of Finnish law. I know fully well how company taxation works for both limited liability companies (osakeyhtiö) and private trader (yksityinen elinkeinonharjoittaja) as I have been involved in the paper work of both types (as part of the board or my own side business). You basically made the same argument as in in the post I already responded to so I will not repeat my argument besides to say that the law requires you to take the "unpaid" hours into account when calculating YEL. If you have an accountant I suggest, asking which one he/she sides with. Otherwise getting some consultation might not be a bad idea. We all agree here what is the status quo (you are able to pay minimal YEL). However, it might happen that the pension companies do start enforcing the law some day.

MC Deli · Post by **MC Deli** » Wed Apr 02, 2014 12:00 am

Yes, I have an accountant and have had other advice from entrepreneurs.

The link you cited actually spells out the terms "insurable income" as opposed to "earnings you have reported to the tax authorities" (equivalent to my poorly phrased "taxable income").

My understanding is that this idea of insurable income for YEL purposes exists, and is much lower than "taxable earnings", to reflect the costs of being self employed and encourage entrepreneurs.

It would be nice if this "insurable income" was a little less "from the hat" because presumably some entrepreneurs (may) end up with very low pensions, or similar.

betelgeuse · Post by **betelgeuse** » Wed Apr 02, 2014 1:42 pm

MC Deli wrote: My understanding is that this idea of insurable income for YEL purposes exists, and is much lower than "taxable earnings", to reflect the costs of being self employed and encourage entrepreneurs.

Yes it does exist. The definition I also spelled already to this thread. In the case it is much lower than "taxable earnings" it means that the business is very profitable. Then the equivalent salary that would have to be paid to an employee is lower than "taxable earnings". Then again during a year when the business is making a loss the insurable income is much higher than "taxable earnings" (there are no taxable earnings). Basically YEL is built to be similar to what TYEL is for regular employees.

MC Deli wrote: It would be nice if this "insurable income" was a little less "from the hat" because presumably some entrepreneurs (may) end up with very low pensions, or similar.

The target of the Self-Employed Persons' Pensions Act is spelled out in Section 1. It does not include encouraging entrepreneurs by allowing insurable income lower than "taxable earnings". The entrepreneur sets the insurable income and the insurance companies have calculators to see how your pension is likely to be. If you have a good business and accurately report insurable income, you will not do significantly different than an employee in terms of pensions.

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