Employer contributions – How well do you know the additional employer costs?
Hiring an employee entails additional employer costs. What are they? How much do they come out to? Read on to get an overview of employer contributions in 2021.
Hiring their first employee is a significant step for any entrepreneur. In addition to the pay, the employer has to take care of withholding tax and other payments required by law. It's the employer’s responsibility to, for example, take out insurance and make payments on behalf of the employee.
How much are the employer’s costs?
Mandatory employer costs make up an estimated 20 per cent of an employee’s wages or salary. An employee whose monthly income is EUR 2,000 costs the employer, including mandatory employer’s costs, around EUR 2,640.20. You can use our payroll calculator to check what the total cost of hiring an employee would be in your situation.
Read on to find out more about the following employer costs
- pension insurance contributions
- accident insurance contributions
- unemployement insurance contributions
- group life insurance
- health insurance contributions.
Earnings-related pension contribution, or TyEL contribution
As the name indicates, pension insurance, i.e. TyEL insurance, accrues an employee’s pension: old-age pension, disability pension and survivors’ pension. Each employee in an employment relationship must be insured under TyEL regardless of
- the number of employees
- whether the employee is a part-time or full-time employee.
TyEL insurance must be taken out for all employees aged between 17 and 67 years.
In 2021, the contribution is 24.8 per cent of gross salary for temporary employers and for contract employers whose payroll is less than EUR 2.1 million. If the company’s payroll exceeded EUR 2,125,500 in 2019, the employer is a so-called large employer, and the TyEL contribution percentage is affected by the disability pensions granted to the company’s employees and other contribution reductions. In our online service, our customers can see an up-to-date estimate of their TyEL contributions and reductions for the whole year.
The employer pays an average of 16.95% of the contribution and the employee pays the rest. The employee’s pension insurance contribution is deducted from the employee’s pay. It is 7.15 per cent for those between 17 and 52 or 63 and 67 years of age. For those aged between 53 and 62, it is 8.65 per cent. For now, persons between 53 and 62 years of age have a higher pension accrual rate (1.7%), so they pay slightly higher pension contributions than other groups.
The employer is obligated to take out pension insurance for an employee if the employee’s pay exceeds EUR 61.37 per month.
Accident insurance contribution
Accident insurance covers benefits in case of an accident or occupational illness and the employer takes care of it in full. The insurance contribution is determined based on the paid wages or salary, the risk involved in the work and the type of insurance. The insurance is taken together with ancillary insurance, i.e. the employees’ group life insurance, from the accident insurance company of the employer’s choice.
The size of the accident insurance contribution varies between 0.1 and 7 per cent based on, among other things, how hazardous the work is. For example, construction work is classed as more dangerous than gardening or home maintenance work. Accident insurance is statutory for all employers who pay altogether EUR 1,300 to their employees during a calendar year.
The obligation to insure applies to all employees in an employment relationship, regardless of the employee’s pay or age. The duration of the employment relationship isn't relevant either. Self-employed persons with the obligation to take out YEL insurance are not obligated to take out statutory accident insurance for themselves, but they can take out voluntary insurance with the same content.
Take a look at our partner Pohjola Insurance’s accident insurance »
Unemployment insurance contribution
The unemployment insurance contribution is used to accrue cover in case of unemployment. It is used to pay for, for example, unemployment allowance and pension paid during unemployment. In 2021, the employee’s unemployment insurance contribution is 1.40 per cent of their wages. The employer’s unemployment insurance contribution is 0.50 per cent of the wages if the payroll is no more than EUR 2,169,000. For the part exceeding this sum, the unemployment insurance contribution is 1.90 per cent of the wages.
The employer is obligated to pay the unemployment insurance contribution to the Employment Fund. The unemployment insurance payment liability applies to employees who have turned 17 and are under the age of 65. As an employer, you are obligated to pay unemployment insurance contributions if you have paid a total of more than EUR 1,300 in wages or salary to your employees during a calendar year.
Visit the Employment Fund’s website to find out when you are obligated to pay unemployment insurance contributions.
Group life insurance
Group life insurance is usually taken out in the same package as accident insurance and is also a statutory insurance. The size of the insurance contribution is 0.07 per cent of the payroll and is paid in its entirety by the employer.
Health insurance contributions
Health insurance compensates the costs of treatment of an illness, the loss of income caused by short-term unemployment and pregnancy and childcare. The employer pays the health insurance contributions directly to the tax authority. The employer’s health insurance contribution in 2021 is 1.53 per cent of the payroll.
The salaries and wages of persons below 16 years and those over 68 are exempt from the contribution. In addition to the employer’s contribution, also the employee has to pay the insured’s health insurance contribution. It is included in the withholding tax rate, so you do not need to deduct it separately from the pay. The daily allowance contribution for employees and self-employed persons is 1.36 per cent of the salary and YEL income, if the annual salary and YEL income is at least EUR 14,766. If the total salary and YEL income remains under EUR 14,766, the daily allowance contribution is 0.00 per cent.
Visit the Tax Administration’s website to read more about the health insurance contribution.
Employer, see your client bonus and contribution reductions online
We have calculated your final client bonuses and other reductions to your contribution. You can see them from March 3rd onward by logging in to our employer’s online service.
What every entrepreneur should know about sickness allowance
We all get sick sometimes – even entrepreneurs. Luckily, when you’ve taken care of your pension insurance, you can receive sickness allowance from Kela during your illness. Read on to find out what every entrepreneur needs to know about YEL insurance and sickness allowance.
How to deduct YEL contributions in taxation
Entrepreneurs can deduct YEL contributions in taxation – either in their own, their spouse’s, or their company’s taxation. Which method should self-employed persons who are sole traders use and when? What about entrepreneurs running a company? Do you know what the best method for you is?
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