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Pay security1


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Pay security1

  1. 1. Pay security The Pay Security Act ensures payment of employee's claims arising from an employment relationship in the event of the employer’s insolvency. All claims the employer would have been obligated to pay to the employee can be paid as pay security. Pay security is based on the Pay Security Act (866/1998) and the Pay Security Decree (868/1998). For seamen, pay security is based on the Seamen’s Pay Security Act (1108/2000) and the Council of State’s Decree on seamen’s pay security (1295/2000) Conditions for receiving pay security Employment contracts Pay security is paid only to employees in an employment relationship. An employment relationship is in question when an employee renders services to the employer under the employer’s direction and supervision in exchange for payment or other forms of compensation. Pay security excludes the managing director of a corporation, accountable partner of a limiter partnership, partners in a general partnership and sole proprietors. Additionally, other persons who have exercised authority in the enterprise may be ineligible for pay security. Employer insolvency The employer’s insolvency is a prerequisite for pay security. The employer shall be considered insolvent if he has been declared bankrupt if it is established at distraint that he is unable to pay his debts if he has neglected to remit the statutory withholding taxes or employer contributions on time if the employer’s insolvency can be established by the pay security authorities clearly and beyond dispute. The pay security applicant need not present an account of the employer’s insolvency, rather, it is established by pay security authorities. Period of application An application for payment of the claim in the form of pay security shall be submitted within three (3) months of its falling due. Claims resulting from an employment relationship usually fall due monthly, and the final settlement at the end of the employment relationship. In the case of an indemnity or compensation based on the law or a contract, but without a specific due date, the application for payment in the form of pay security shall be submitted within three months of the date when court ruling acquired legal force or of making a contract according to established labour market practice.
  2. 2. Should the application for pay security not be submitted by the deadline, claims can not be remitted as pay security. No application period for seamen's pay security application submissions has been set. The application for claims shall, however, be submitted during the time the lien under maritime law of the Maritime Act (674/1994) is in force. As a result, the seaman's application for pay security should be submitted within one year of the emersion of the outstanding balance. Clear and indisputable claims Only clear and indisputable claims for pay security will be paid. If the employer has disputed the claim for pay security and it has not been possible to establish its validity in the pay security procedure, the claims cannot be paid as pay security until its grounds and amount have been determined in the district court. Claims remitted as pay security The following claims can be paid as pay security: salary (monthly, hourly, contract or incentive pays) holiday pay and reimbursement end-of-holiday pay and holiday compensation working hours restriction compensation salary for period of notice waiting period salary equipment and travel compensation daily allowances indemnity having to do with the employment relationship working-time account claims Restrictions for pay security The maximum amount of pay security for one employee for work done for one employer is 15 200 EUR. There is no maximum pay security for seamen, however, with the exception of claims pertaining to indemnification. Pay security for working-time account claims is, at maximum, the equivalent of the employee’s six month salary for work done for the same employer. This pertains to seamen as well. The maximum amount of pay security on pay for waiting time is equal to the amount which is paid as pay security to cover other claims arising from the employment relationship. This restriction applies to seamen as well. For the purpose of preventing abuses, the restrictions have been set to the employee’s right to pay security.
  3. 3. Application for pay security and the processing of applications Applications for pay security may be submitted by an employee an employee organisation to which the employee has transferred his claim for collection the administrator of the bankrupt’s estate when the employer has been declared bankrupt. Pay security applications are available at employment offices. They can also be received by writing to the following address: It is recommended that copies of a possible employment contract, employment references and a payslip be submitted with the application for determining pay security claims. Employment offices and employment and economic development centres accept pay security application submissions and provide advice in pay security related issues. Additionally, an application for pay security based on work abroad can be filed with a Finnish diplomatic mission abroad. Pay security applications are processed by, and decisions pertaining to them are made by the employment and development centre in whose area the employer is domiciled. Seamen’s pay security matters are handled at the Uusimaa employment and development centre. The employment and economic development centre will send the submitted application for pay security to the employer or the administrator of the bankrupt's estate and provide them with the opportunity to be heard with regard to the application. The employer’s insolvency will be verified via the distraint authorities, tax authorities and the Suomen Asiakastieto Oy business and credit information company. Payment of pay security Pay security is paid within a week of the decision to the employee’s bank account. Pay security can also be paid by postal order to the address specified by the employee. Pay security is subject to a tax withholding of 30 per cent up to 5 000 euros, and 50 per cent for claims remitted exceeding this amount. Additionally, the employee’s pension and unemployment insurance payments will be deducted from the pay security before payment. The pay security administrator informs the tax authorities of all remitted pay securities, except for pay security paid through a bankrupt estate. Employer repayment liability The employer or the bankrupt's estate shall repay to the State all claims paid as pay security, including annual interest on the said claims. The pay security decision is enforceable with regards to the employer immediately as of the date of the decision. The claims will be recovered through means of collection or in the bankruptcy proceedings
  4. 4. Appeals The employee’s appeal to the Unemployment Security Appeal Board An employee may appeal a pay security decision to the Unemployment Security Appeal Board and further to the Supreme Administrate Court in the following cases, for example: the application has been rejected because it was filed too late the application has been rejected because of a lack of verification of the employer’s insolvency the application has been rejected because the claims do not arise from an employment relationship the application has been rejected due to suspected abuse of pay security. Court proceedings against the employer If an application that a claim be paid in the form of pay security has been rejected because the employer has disputed the claim, the employee shall, in order to retain his entitlement to pay security, institute court proceedings against the employer in a district court. If an application has been rejected because the pay security authorities have been un able to establish its grounds and amount in the pay security procedure, but the employer has not disputed the claim, the employee must institute a declaratory action against the State in a district court. In case of the employer’s bankruptcy, no action can be instituted and disputes concerning the claim shall be settled in the bankruptcy proceedings. A new pay security application must be filed within three months of the date on which the court decision acquires legal force. Seamen must submit a new application for pay security within six months of the date on which the court decision, or the distrait officer’s decision in the case of a compulsory auction of a ship, acquires legal force. The employer's recovery claim An employer liable for payment may submit a recovery claim against the State concerning a pay security decision. In the case of an employer’s bankruptcy, payment liability disputes can be settled in the bankruptcy proceedings. Funding The Unemployment Insurance Funds reimburse each year retroactively to the State the difference between the amounts paid to the employees as pay security and the principal collected from employers. The funds needed for these payments are collected from employers as unemployment insurance premiums. Remember to file for pay security within three months! 1.2.2007/JUT