Who is considered an employee and who is self-employed?
Many people are unclear about how employment should be insured. The situation is clear from the point of view of earnings-related pension law: people who carry out work for pay are insured either as employees or as self-employed.
To ensure that pension insurance is handled correctly, it is essential to know whether the work is carried out or assigned as an employee or as a self-employed person.
In practice, it can sometimes be difficult to determine whether a worker is an employee or self-employed and how their work should be insured. Fortunately, you don’t have to figure this out on your own; you can contact a pension insurance company or the Finnish Centre for Pensions for help.
An employee is a person who performs work in an employment relationship
The law defines who is an employee. Essentially, an employee is a person who works in an employment relationship.
The law also defines what is considered an employment relationship. According to the Employee Pensions Act (TyEL), an employment relationship is the same as defined in the Employment Contracts Act. An employment relationship exists if, based on an agreement, an employee undertakes to perform work for an employer in person, under the employer’s direction and supervision, in return for a salary.
It is characteristic of an employment relationship that the employer decides what work is to be done, when, where and how it is to be done. The employer also has the right to supervise and control the work being done. In an employment relationship, the employer pays the employee a salary for work done on the employer’s behalf.
A self-employed person works for pay without being in an employment relationship
Pension legislation defines who is considered to be self-employed. According to the Self-employed Persons Pension Act (YEL), a self-employed person is defined as someone who works for an income without being in an employment relationship or in a public service position. The reason for this definition is that a self-employed person does not work as an employee.
A self-employed person differs from an employee in that they work essentially on their own behalf. The direct benefit and economic value of the work is received by the self-employed person.
Unlike an employee, a self-employed person usually decides which jobs to take on and with whom they do business. A self-employed person usually sets their own prices based on entrepreneurial pricing and is paid according to the agreements made with their clients. Payment may not be received until the work has been completed or the client has approved the work. In practice, self-employment often involves investment, financial responsibility for the quality of the work and so-called entrepreneurial risk.
The term “self-employed person” in YEL is general in that regard that it includes all self-employed persons covered by YEL. YEL does not have specific provisions for insuring so-called “light entrepreneurs”.
Work performed as an employee and work done as a self-employed person are insured under different pension laws
If you are an employee or self-employed, different pension laws apply and the responsibility for statutory pension insurance differs.
The general principle is that employees are covered by TyEL, while the self-employed are covered by YEL. Employers are obliged to arrange TyEL pension insurance for their employees, while self-employed persons are responsible for arranging their own YEL pension insurance.
Normally, how a person should be insured for an earnings-related pension is determined by examining whether the characteristics of an employment relationship are met. In ambiguous situations, the matter is resolved through a comprehensive assessment. Written agreements and the mutual understanding of the parties involved can help clarify the situation. However, it is not just a matter of agreement, as insuring for a pension is a legal requirement.
What if I use an invoicing service company?
The pension insurance of people who use invoicing services depends on whether they are employees or self-employed. Using an invoicing service doesn’t automatically mean that a person is self-employed, and the work invoiced may not always qualify as self-employment.
Typically, those who use invoicing services and are self-employed are considered to be self-employed for pension purposes.
Persons who use an invoicing service company may have an employment relationship with the client for whom they perform the work and from whom they receive payment. This payment is processed through the invoicing service company.
If the arrangement between the worker and the client meets the criteria for an employment relationship, it is considered an employment relationship. In this case, the client is the employer, who must take out pension insurance for the employee. This remains true even if the invoicing and payment are handled through an invoicing service company.
Typically, there is no employment contract between an invoicing service company and the worker registered with it, only an invoicing agreement. Therefore, the invoicing service company is not considered an employer and is not obliged to provide earnings-related pension insurance.
For example, the Finnish Pension Centre made a decision concerning a lorry driver who was paid through an invoicing service company. It was found that the driver was neither employed by the invoicing service company nor self-employed. The driver was found to have worked as an employee of the company whose vehicle he was driving.
You can work either as an employee or as a self-employed person. If you are unsure about your own situation, do not hesitate to ask. Pension experts at pension institutions and the Finnish Pension Centre are available to help you.
More information:
- Booking an appointment with the Finnish Pension Centre’s customer service (contact information at Etk.fi)
- What a light entrepreneur should know about pension insurance (Työeläke.fi)
Hello,
Kindly I would like to ask You when I should pay YEL. I’m 48 years old, originally from EU, Poland and have resident permit in Finland.
I have checked and already (having invoice EUR3000 -minus UKKO fees) earned 2 760,00 € this year so if 3x 2 760,00 € = 8280EUR total per year then I will not exceed the minimum amount….
Bu I have also normal monthly salary as an employee and I pay TyEl (not entreprenual activities) and not connected to the invoicing or customers I have invoiced so this will affect the YEL or we can exclude?
So in year I have monthly salary income EUR3000 (x12 month) 36000EUR/ year 2025 where I pay TyEl and additionally, randomly few times per year I work as freelancer using UKKO.fi with the number incomes mentioned above which, in my opinion, not exceeding the YEL criteria.
I think the full time employment income should not affect my freelance activities I work by invoicing. Whats your opinion?
Thank You for information in advance.
Terveisin/ Best regards,
Damian