Unemployment funds
Role, regulation and funding of unemployment funds
Unemployment funds perform a public duty, and their operations are regulated by law. The key acts governing the operations of unemployment funds are the Unemployment Fund Act and the Unemployment Security Act.
Unemployment funds are also governed by many laws regulating the activities of authorities. These include the Administrative Procedure Act and the Act on the Openness of Government Activities.
The Ministry of Social Affairs and Health issues guidelines on the application of the law to unemployment funds. Legislative amendments concerning unemployment security are also mainly prepared in the Ministry of Social Affairs and Health or the Ministry of Economic Affairs and Employment.
The Financial Supervisory Authority supervises the operations of the funds. Supervision covers, among other things, the implementation of unemployment security, the fund’s procedures and financial position as well as management, control, and risk management methods.
Financing of earnings-related benefits
The earnings-related allowance consists of an earnings-related component based on income and a basic component equal to general social security benefit.
The earnings-related component for wage earners is financed by the Employment Fund and unemployment funds. The unemployment funds’ share in financing the benefit is 5.5%.
The earnings-related component for the self-employed is fully financed by the unemployment fund.
The basic component of the earnings-related allowance is financed by the state and the beneficiary’s municipality of residence. Contrary to the general rule, the state does not finance the benefit paid for additional days or for a period of temporary lay-off; instead, the Employment Fund’s share of these expenses is 94.5%.
The state’s and municipality’s financing shares are covered by tax revenue. The Employment Fund’s share is mainly covered by employer’s and employee’s unemployment insurance contributions, and the unemployment fund’s share is mainly covered by membership fees. Consequently, unemployment fund members therefore finance earnings-related security by paying taxes, the wage earner’s unemployment insurance contribution, and the membership fee.
Financing of unemployment funds’ administrative costs
An unemployment fund’s administrative costs are mainly financed by the membership fees paid by the fund’s members. In addition, the Employment Fund and the state contribute to the financing. Financing shares are determined based on the unemployment fund’s number of members, benefit expenditure, and, for wage earners’ funds, the number of benefit decisions made.
Unemployment funds’ membership fees
Unemployment funds’ membership fees are confirmed by the Financial Supervisory Authority. Some unemployment funds charge their members a membership fee that is a specific percentage of wage income, while others charge a fixed monthly or annual fee. Unemployment funds’ membership fees are available on the Membership fees page.
To safeguard financing and liquidity, an unemployment fund must have a countervailing fund, the minimum and maximum amounts of which are confirmed by the Financial Supervisory Authority.
Covering a deficit
If a wage earner fund’s financial statements show that expenses have exceeded income, the difference is drawn from the unemployment fund’s countervailing fund. If its own countervailing fund is not sufficient, the Support Fund of the Unemployment Funds finances the deficit. If even these funds are not sufficient, the state grants an additional share for the unemployment fund. This ensures that unemployment fund members receive the benefits to which they are entitled in all circumstances. However, unemployment funds have managed their finances in such a way that the Support Fund of the Unemployment Funds last had to participate in financing unemployment fund expenses in 1997.