Finland: New type of change security for employees aged 55 or over

As of 1 January 2023, a new change security system for employees aged 55 or over came into force in Finland. The aim of the reform is to improve the re-employment of employees aged 55 and over, instead of such employees retiring on a pension. The new system gradually abolishes the old “early retirement” system where a terminated employee that was close to retirement age gets additional days of earnings-related daily allowance. The new re-employment system consists of a change security allowance, change security training as well as an extended re-employment leave. From the employer’s perspective, the reform includes certain information obligations as well as a new change security fee which replaces the so-called liability component.

Requirements for being entitled to the new change security

Employees are entitled to the new change security if 1) their employment contract has been terminated for financial or production‑related reasons on or after 1 January 2023; 2) they have turned 55 at the latest on the date of dismissal; 3) they have worked for the dismissing employer for at least five years without interruptions or with interruptions not exceeding 30 days in total; and 4) they have registered as a jobseeker with the TE Office (Employment and Economic Development Office) within 60 days of the dismissal.

Employer needs to inform the employee of the change security allowance

The change security allowance is a one-off compensation equal to the employee’s average one month’s salary, applied for either from an unemployment fund or Kela, which is the Social Insurance Institution of Finland. It is important for employers to remember that they are obliged to inform the employees (aged 55 or over) of their right to the change security allowance upon redundancy.

Employer needs to inform the employee of change security training

In case of redundancies, employers are also obliged to inform the employees (aged 55 or over) of their right to change security training.

Participation in change security training is voluntary for the employee being made redundant. The training is provided either through the TE Office or the ELY Centre (the Center for Economic Development, Transport and the Environment), and can last up to six months. The purpose of the change security training is to support the rapid re-employment of employees aged 55 or over covered by the change security system by improving their professional or entrepreneurial skills. The value of the training may not exceed two months' salary of the employee in question.

Extended paid re-employment leave

All employees dismissed on financial or production‑related grounds are entitled to a paid re-employment leave in order to participate in the preparation of an employment plan, training and practical training or on-the-job learning related to the employment plan, to engage in job seeking or attend job interviews or to attend re-assignment coaching during the notice period. The length of the re-employment leave depends on the duration of the applicable notice period and is either 5, 10 or 15 days (please also check your collective agreement for variations, if any).

However, employees aged 55 or over covered by the change security system will now be entitled to an extended re-employment leave which means that their leave is longer, i.e., 5, 15 or up to 25 days. In addition, the re-employment leave may also be used for change security training and skills and work ability inventory in these cases.

New change security fee for employers

The change security described above is financed by the Employment Fund with payments collected from employers. Half of the change security is funded with change security fees payable by employers dismissing staff covered by the change security system. However, small employers (i.e., employers whose total payroll subject to the unemployment insurance contribution is lower than the annually specified minimum level, in 2023 it is 2,251,500 euros) are exempt from the fee. The other half of the change security is funded with an increase in the unemployment insurance contribution levied on all employers.

Extended eligibility for unemployment benefits to be phased out and related employer contributions will change

The eligibility for additional days of unemployment benefits has allowed unemployed persons between ages 61 or 62 to continue collecting earnings-related unemployment allowance past the normal maximum limit until they reach the age of 65. The dismissing employer has had a so-called liability component, i.e. a payment obligation relating to these additional days of unemployment benefits.

In practice these liability components have been quite high. Also, the liability components have sometimes come as a surprise to employers, since they have been invoiced years after the actual dismissals. Due to the reform, this system will gradually be phased out and the so-called liability component payments will be replaced by the change security system. The new change security fees collected from employers are mainly much lower and they are collected much closer to the dismissals, to avoid surprises.

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