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Transition security contribution 

The employer may be obliged to pay a transition security contribution if the employer has terminated an employment contract of an employee aged 55 or over on production-related or financial grounds and the employee had been employed by the employer for at least five years. The transition security contributions are used to finance the employee's transition security package. The transition security package consists of two months of transition security training organised by the Employment and Economic Development Office for the employee given notice and one month's transition security allowance paid by an unemployment fund to the employee given notice. 

The transition security contribution applies to employers whose payroll on which the unemployment insurance contribution is based exceeds the annually specified minimum level. The contribution is based on the Act on the Financing of Unemployment Benefits (in Finnish).

The transition security contribution is a new statutory contribution, that has been collected since the beginning of 2023. The transition security contribution may be payable if the employment contract is terminated on or after 1 January 2023.

Grounds for the transition security contribution 

The employer may be liable to pay a transition security contribution if:  

  1. the employer has terminated the employee's employment contract for production-related or financial reasons; 
  2. the employee has reached the age of 55 at the latest on the date of termination, and 
  3. the employee has been employed continuously or for a total of at least five years at the latest on the date of termination by the terminating employer with interruptions lasting no more than 30 days. 

Impact of the payroll on the transition security contribution 

The transition security contribution applies to employers whose payroll on which the unemployment insurance contribution is based exceeds the annually specified minimum level. At the minimum level, the transition security contribution is zero. From the minimum level, the transition security contribution increases linearly to the payroll limit of full transition security contribution. 

The transition security contribution is calculated on the basis of the payroll amount for the year preceding the termination. 

A State employer’s liability transition security contribution is based on the payroll amount serving as the basis for the employee contributions of an accounting unit or unincorporated state enterprise. 

The payroll limits are the same for the employer's liability component and the transition security contribution. 

Impact of mergers on a company's payroll

If the company has undergone a merger prior to the day of termination, during the year of termination, or in the year preceding the termination, the transition security contribution is determined on the basis of the merged companies’ total payrolls that served as the criterion for the unemployment insurance contribution of the year preceding the termination. 

Annual payroll limits for transition security contribution and liability components 

Payroll year Minimum level (EUR) Maximum limit for full transition security contribution (EUR)
2022 2 197 500 35 160 000
2023 2 251 500 36 024 000
2024 2 337 000 37 392 000
2025 2 455 500 39 288 000

The payroll limits are the same for the employer's liability component and the transition security contribution. 

Transition security contribution amount 

Transition security multiplier 

The amount of the transition security contribution is determined on the basis of the employer's transition security multiplier. The transition security contribution multiplier, on the other hand, is determined on the basis of the payroll used as the basis for the unemployment insurance contribution. The transition security multiplier increases linearly on the basis of the employer’s payroll. 

The transition security multiplier at the limit for full transition security contribution is 2.90. The figure may change annually. 

Calculating the transition security multiplier 

  1. If the employer’s payroll is less than the minimum level for the payroll, the transition security multiplier is 0. 
  2. If the employer’s payroll is greater than the level for full transition security contribution, the transition security multiplier is 2.90. 
  3. If the employer’s payroll is greater than the minimum level for the payroll but less than the level for full transition security contribution, the transition security multiplier is calculated using the following formula: 

In the formula above, the minimum level of the payroll amount for the year in question is deducted from the employer's payroll amount. The result is divided by the maximum limit for the full transition security contribution from which the minimum level of the payroll amount for the year in question has been deducted. The result is multiplied by 2.90 (the full transition security multiplier). 

You can also calculate an estimate of the transition security contribution amount and the transition security multiplier using the transition security contribution calculator. 

Calculating the transition security contribution 

In addition to the transition security multiplier, the payable amount is affected by the amount of the transition security allowance paid to the employee by Kela or an unemployment fund. .

The transition security contribution is calculated by using the following formula: 

What is the transition security allowance? 

The transition security allowance is a new benefit calculated and paid by Kela (Social Insurance Institution) or an unemployment fund to the employee given notice. The first transition security allowances will become payable in 2023. It can be obtained by a person who is:  

  • aged 55 or over;
  • dismissed for production-related or financial reasons;
  • employed by the employer for at least five years, and
  • dismissed on or after 1 January 2023.

This is a one-off performance and the amount corresponds to the employee's approx. one (1) month average monthly salary over the past 12 months. 

How to calculate the amount of transition security allowance? 

The grounds for the transition security allowance are the salary under insurance paid by the employer terminating an employment contract and other compensation considered as earnings paid on the basis of the terminated employment relationship during the last 12 calendar months preceding the date of termination. The amount of the transition security allowance is calculated by dividing the aforementioned payroll by twelve (12).

As a rule, the transition security allowance is determined on the basis of earnings payment data obtained from the national income information system (incomes register). Earnings under an unemployment insurance contribution will be considered in the payroll. In addition, incomes like holiday bonuses and performance or production bonuses are also included in the payroll. These different bonuses can raise the transition security allowance above the monthly salary. Only wages paid by the employer terminating an employment contract are considered as grounds for the transition security allowance. If a person has salary earnings paid by another employer, they will not be taken into account.

The transition security allowance is determined on the basis of earnings paid in the last 12 calendar months preceding the date of termination, even if this period includes unpaid absences. The average monthly earnings are calculated on the basis of wages paid over full calendar months. For example, if the termination takes place in June, the last paid wages considered will be those paid in May. The calculations are based on contributions. In other words, the time when the wages are earned does not matter. What matters is the time when the wages have been paid to the employee. This 12 months period is not extended in any situation. Unpaid absences or partial paid periods prior to the termination of employment relationship may therefore reduce the amount of transition security allowance. If the employee has not received any salary from the employer that terminates the employment relationship, the transition security allowance cannot be determined, in which case the transition security contribution is not imposed either.

Normally the amount of the transition security allowance is calculated by the employee’s unemployment fund or Kela and they report the amount to the Employment Fund. However, in some rare situations, the liability to pay a transition security contribution may arise even if the person has not been paid a transition security allowance, if their right to transition security training or allowance has been rejected for a reason arising from the person. In this case, the Employment Fund determines the amount of the transition security allowance on the basis of the data on the person’s wages obtained from the incomes register. 

The amount of transition security allowance is based on the Unemployment Security Act. 

Example of a transition security contribution

Eddie Employee

How the Employment Fund processes the transition security contribution

We are notified by Kela or the unemployment fund of a person who has been entitled to transition security or whose right to transition security has been rejected for a reason arising from the person. If we notice that the requirements have been met, we will send a hearing letter to the employer. In the processing stage, we may ask for further clarification from the Employment and Economic Development Office, Kela or the unemployment fund, among others. 

The employer has 21 days to deliver a response to the hearing letter.

A) The employer does not deliver response or declares that it accepts the contents of the hearing letter:
We issue a written decision on the transition security, obligating the employer to pay the transition security contribution, and we send the employer an invoice for the transition security contribution. 

B) The employer delivers a response:
We examine whether there are grounds for exemption from the transition security contribution. To resolve the matter, we may ask for further clarification from the Employment and Economic Development Office, Kela or the unemployment fund, among others. 

  • If we find that there are no grounds for exemption from the transition security contribution, we issue a decision obligating the employer to pay the transition security contribution. 
  • If the response or the additional investigation indicates that the employer is not liable to pay the transition security contribution, we issue a decision that exempts the employer from the transition security contribution for the person in question. 

If the employer is not satisfied with the decision, they may appeal to the Social Security Appeal Board. The employer can appeal a decision made by the Social Security Appeal Board at the Insurance Court.  

For more detailed instructions see: appeals and refunds of the transition security contribution. 

Advice for employers

We advise employers on matters concerning the transition security contribution. With regard to matters related to transition security training, advice is provided by the Employment and Economic Development Offices. With regard to matters related to transition security allowance, advice is provided by Kela and unemployment funds. 

See contact information here. 

Appeals

If you are dissatisfied with a decision we have made concerning the transition security contribution, you can appeal to the Social Security Appeal Board. You can appeal a decision made by the Social Security Appeal Board at the Insurance Court. Judgments made by the Insurance Court cannot be appealed. 

Submit your appeal to us within 30 days of receiving notification of the decision. We will consider the employer to have received the notice on the seventh (7) day after the date when the decision was sent. We will consider State accounting units, municipalities and wellbeing services counties to have received notice on the day when the decision arrives. You will receive more detailed instructions on the appeal process and how to appeal along with the decision. 

If we accept the demands set out in the appeal in all regards, we will issue a revised decision. If we are unable to adjust the decision that you are appealing in accordance with your demands, we will submit the appeal to the Social Security Appeal Board. 

Note that employers must pay the transition security contribution even if the decision concerning the transition security contribution has been appealed. In such cases, you can petition the Social Security Appeal Board to suspend enforcement, either when you appeal or by submitting a separate application. If your appeal is accepted, we will refund the contribution. 

Refund of the transition security contribution 

You can file for a refund of the transition security contribution if the employer has concluded an employment contract that is valid until further notice with the employee given notice during the period of notice or the re-employment period referred to in Chapter 6, Section 6 of the Employment Contracts Act (55/2001) and the employee has been in said employment for at least one year. 

The employer must apply for a refund of transition security contribution within five years of the earliest date upon which the application could have been submitted. 

Apply for a refund on the application form (only in Finnish or Swedish). Attach a clarification to the application indicating the type of employment and when it has started. To receive the refund, please provide the employer's bank account number in our e-services. The account number you provide will be used for all refunds. 

Expiration of a transition security contribution case 

Transition security contribution cases expire when five years has elapsed since the termination of the employee. After this, we can no longer issue decisions on transition security contributions. 

Page updated: 23/8/2023