Security for a startup entrepreneur in changes in working life

The unpredictability of the world has become perhaps more apparent than ever in recent years. Change is a theme that dominates society and working life, and it also affects the life of a startup entrepreneur. Many things might be a worry when starting a business: How to keep up with the changing world and meet future demands? What if something goes wrong?

Fortunately, meaningful work helps keep some of the worries at bay. When aiming for business growth, genuine enthusiasm and passion for entrepreneurship are needed. According to Elo's survey Menesty yrittäjänä (“Successful Entrepreneurship”) (2020) up to 90 per cent of entrepreneurs feel enthusiastic about their work every week, most of them daily. However, life can take surprising turns even without a global pandemic, and then the entrepreneur's livelihood must also be secured.

The statutory YEL insurance is an important factor in safeguarding an entrepreneur's livelihood. However, there are a lot of beliefs about YEL, and not all of them are true. Jasmin Varis from Elo's MyElo sales team answers common questions and persistent beliefs about YEL insurance, so you can focus on growing your business.

How do salary, financial year and calendar year affect the assessment of YEL income?

"The start date of YEL insurance and the definition of YEL income may seem challenging. As YEL insurance is a statutory insurance, it is important that the entrepreneur has the right knowledge to assess their YEL insurance obligations," says Jasmin.

But how does the salary payment affect the amount of YEL insurance? Does an entrepreneur have to obtain YEL insurance, even if they do not take a straight salary?

"By far, the biggest myth has to do with YEL income and whether YEL insurance should only be taken out when an entrepreneur starts paying themselves a salary. When employed, the earnings-related pension insurance contribution (TyEL) is always a pre-determined percentage of a salary. For an entrepreneur, however, the YEL insurance premium and the YEL obligation are not tied to the salary of the entrepreneur," Jasmin replies.

"The YEL insurance obligation is based on working as an entrepreneur and the value of the entrepreneur's work input. Thus, the YEL insurance obligation may be imposed on the entrepreneur even before paying themselves an actual salary. Exceeding the insurance limit is assessed one year from the start of working as an entrepreneur. Contrary to popular belief, the financial year or calendar year plays no role."

However, determining the value of their own work input can be problematic for many entrepreneurs, especially at the beginning of an entrepreneurial career.

"The instructions given in the legislation are of help: compare your work as an entrepreneur with working in an employment relationship. The value of the entrepreneur's work input and YEL income should correspond to the salary that would be paid to an equally skilled person hired in their place. When the number of working hours is proportional to the value of the work, the result is the annual YEL income," says Jasmin.

When setting up a company, there is a six-month arrangement period for the entry into force of the YEL insurance. What does the arrangement period actually mean?

"There are two kinds of beliefs about the arrangement period. It is often thought that YEL insurance must be taken out six months after starting a business, whether or not you are actually working as an entrepreneur. On the other hand, sometimes it is believed that you do not need to take out YEL insurance until six months have passed since the company was founded, even if full-time entrepreneurship starts immediately after starting a company," says Jasmin.

"However, the arrangement period means that the entrepreneur must take out YEL insurance within six months of the start of the YEL insurance obligation. When the annual income limit (EUR 8063.57) is divided per month, it adds up to about 670 euros. When your monthly work input regularly exceeds this level, it is the right time to take out YEL insurance."

Pension accrued from entrepreneurial activities and social security

One common belief concerns the pension security of the entrepreneur. Many people think that the entrepreneur's pension will be small. Does an employee earn a better pension for the same job than an entrepreneur?

"In YEL and TyEL insurances, the accrued pension is exactly the same," Jasmin says. "The pension accrues 1.5 per cent of the employee's annual earned income and the entrepreneur's annual income (1.7 per cent per year for those aged 53–62 during the transition period 2017–2025). If an entrepreneur underestimates their earned income, meaning that the earnings do not correspond to the value of their input, an employee’s accrued pension will be larger, even if the entrepreneur and the employee do the same job."

But what if something unexpected happens – can the entrepreneur afford to get sick? How does YEL insurance affect this?

"In addition to pension security, YEL insurance is the basis of social security for an entrepreneur, and therefore it is important to be aware of the effects of YEL insurance. After starting a business, the entrepreneur's time and energy are almost always allocated to the company itself, and taking care of one's own security may be overlooked. However, the entrepreneurs themselves are often the most important resource of the company. In unexpected life situations, YEL insurance provides security. It ensures a livelihood in case of illness or unemployment, and also during family leave," Jasmin says.

"It is important to take YEL insurance at the right time. For example, in the event of illness, Kela calculates the amount of daily allowances according to the entrepreneur's annual income. If the YEL insurance is not valid, the amount of sickness allowance can come as a nasty surprise."

Thus, in addition to pension, YEL insurance protects you and your family in the ups and downs of life. An entrepreneur who starts a business for the first time will get a 22% discount off the insurance premium for the first 4 years. We at Elo help you focus on your business when you're looking for statutory pension insurance for yourself or your employees – or busting other pension myths!