Improvements in social security entitlements and tax cuts for employees

The initiatives of tripartite working groups in 2006 have resulted in the introduction of several legislative changes in Finnish employees’ social security and taxation levels. The majority of these changes are a direct result of the proposals of the tripartite working groups. Some of the changes were introduced in 2006, while the remaining changes came into effect on 1 January 2007. The changes include an increase in maternity allowance, better access to paternity leave for fathers, availability of a part-time sickness allowance, an increase in benefits to promote labour mobility, improvements in relation to contractor responsibilities and reductions in taxation.

The incomes policy agreement for 2005–2007 provided for a total of 23 bipartite or tripartite working groups, including some new groups and some continuing the work of earlier groups (FI0501203F). The tripartite initiatives during 2006 have resulted in the introduction of several legislative changes in employees’ social security and taxation levels, some of which came into effect towards the end of 2006 while the remaining changes came into effect at the start of 2007.

The changes have included increasing the maternity allowance and improving opportunities to avail of paternity leave, improving flexibility for fathers of small children. Returning to work after a long period of sick leave has been made easier by implementing a part-time sickness allowance. The benefits that promote labour mobility have also been increased, while employee pension insurances are merged in the private sector. Other legislative changes have been introduced in the area of contractor responsibility. Moreover, the rates of taxation will be somewhat lower for employees in 2007.

Measures to improve work–life balance

At the end of 2006, the government issued measures to strengthen legislation on parental leave on the basis of a proposal put forward by the tripartite working groups (FI0603059I). This includes more flexible use of the month-long entitlement to paternity leave, as well as adjustments to maternity and parental allowances. The aim of the reform is to facilitate a better work–life balance for employees with families.

From the start of 2007, employees can apply for part-time sickness benefit from the Social Insurance Institution of Finland (Elämässä mukana - muutoksissa tukena, Kela), following receipt of a minimum period of 60 consecutive days of sickness benefit. This measure aims to aid employee rehabilitation and the return to work after a period of absence due to illness. Following a period of prolonged sick leave, employees have the chance to return to work on a part-time basis and will receive part-time sickness benefit in addition to their main earnings. Part-time sickness benefit is paid for 12–72 working days.

Earnings-related pension system and taxation

A total of three employee earnings-related pension acts in the private sector (TEL, LEL and TaEL) have been repealed to form a single Employees’ Pensions Act (TyEL), according to which employers will insure all of their employees. TyEL came into force on 1 January 2007. As a result of the new act, the possibilities for employees to control their pension will be improved.

As part of the current incomes policy agreement, the government decided that tax cuts worth €1.7 billion will be implemented over the period 2005–2007. A total of €1.3 billion of such cuts will be in the form of income tax reductions. Moreover, 2007 brings a small reduction in tax rates across all tax bands and simultaneously gross income levels will increase by 2% for all bands in order to keep pace with inflation. Income tax for employees in all tax bands will be reduced by 0.7–1.2 percentage points in 2007. The income tax rate for workers earning €2,600 per month was expected to decline by one percentage point in January 2007, saving workers €26 compared with December 2006.

Promoting labour mobility

The mobility allowance will increase from the current rate of €0.15 per kilometre to €0.21 per kilometre. The mobility allowance is paid to unemployed persons or jobseekers threatened with unemployment who travel to a job interview or to negotiate an employment contract, or who travel to a new job outside their commuting area. A travel allowance of €23.50 per working day is paid to recipients of a labour market subsidy who accept full-time work lasting at least two months in a location outside their own commuting area. Payment is conditional upon the employment office giving a favourable decision on the travel allowance. This payment would in effect extend the current allowance, which can be paid for a maximum of two months only.

An employment office can give relocation support to workers up to a maximum of €700 in connection with redundancy protection. Moreover, the maximum amount of the tax deduction for commuting expenses has increased from €4,700 to €7,000. These reforms are based on the joint employment plan drawn up by the social partners (FI0608019I).

Clarifying contractor responsibility

A new law concerning the responsibility of contractors and using hired work and external labour came into force on 1 January 2007. The purpose of the new law is partly to create better preconditions for subscriber enterprises to ensure that their subcontractors are adhering to collective agreements and employer statutory obligations. Additional resources, in the form of 12 new posts in industrial safety districts, to monitor adherence to employment terms are ensured in the areas of subcontracting and hired work. The law improves the possibilities of shop stewards to access information related to the use of external labour (FI0603039I).

Revised Cooperation Act to be passed

The revised Act on Cooperation within Undertakings (the so-called Cooperation Act) is still in parliamentary proceedings, and it will most likely come into operation before the parliamentary elections in March 2007. The new Cooperation Act would be applied to companies with a minimum of 20 employees. This would bring some 2,800 new companies and about 66,000 employees within the scope of the cooperation procedures. The government’s proposal is based on the report of the tripartite working group set up by the Ministry of Labour in 2003 to formulate proposals to reform the current Cooperation Act. The report was completed in June 2006 (FI0607019I).

Pertti Jokivuori, Statistics Finland