Entrepreneurship and entrepreneurial work have clearly been on the rise in recent years. It is great to see how, due to entrepreneurial education, attitudes towards entrepreneurship are brave and positive. A 2018 survey by the Taloudellinen tiedotustoimisto (now: Talous ja Nuoret TAT) found that 42% of high school students would like to continue an existing business and about a third could imagine starting a completely new business. Even at the university level, 34% of students would like to become an entrepreneur immediately after graduation.
People’s backgrounds before entrepreneurship can be very diverse. Thinking traditionally, the business can have been passed from a parent to the child, or entrepreneurship has been seen as the only option. Today project-based work, the productization of one’s know-how and therefore also self-employment are on the rise.
The entrepreneur bears the great responsibility for the business and official paperwork
Becoming an entrepreneur requires an individual to take responsibility at many different levels. Suddenly, marketing, sales, and customer relationship management become daily tasks. Besides those, the responsibility of taking care of the finances and legal responsibilities lies also on the shoulders of the entrepreneur.
We have noticed that entrepreneurs have a particularly strong passion for their area of expertise, but sometimes it is difficult for them to understand all the responsibilities that entrepreneurship brings along.
Together with my team, we have noticed that entrepreneurs have a particularly strong passion for their area of expertise, but sometimes it is difficult for them to understand all the responsibilities that entrepreneurship brings along and how they fit into the system in which we all live in Finland. It is the most foreign for those entrepreneurs who have moved to Finland and are used to a different domestic system. There are insurance policies, pension issues, there is taxation, business names, limited liability companies, and then one should still understand the responsibilities of an employing entrepreneur.
Fortunately, however, you don’t have to know all this by yourself. So, if you get confused by just the thought, don’t worry! It’s possible to focus on the essential, your own business, and leave, for example, a deeper understanding of social security and pensions to us.
Costs can be compromised at first – but do not forget to strengthen your safety net
Entrepreneurship differs from paid work and forms of support, because the basis of an entrepreneur’s social security is no longer the salary they receive or pay themselves for their work. Another difference is that no one no longer handles basic statutory security for future pensions and social security.
In the starting phase of your business, costs are often compromised. And sometimes, entrepreneurs are also forced to compromise their own safety. Sometimes it is necessary, but it should never happen without understanding the implications for social and pension security.
Take Maija, for example. Maija has worked as an employee and received an annual salary of €20,000. Her pension accumulation and social security have been based on that salary and the employer has been responsible for statutory payments on behalf of Maija.
Maija becomes an entrepreneur in the same field. As an entrepreneur, Maija herself determines the income for her YEL insurance, based on which the amounts of pension contributions are determined. These payments, in turn, determine both the old-age pension and, for example, sickness benefit.
As it is difficult to estimate the cash flow of your new business at first, Maija decides to only pay the minimum pension contributions to save money. What does that really mean? The minimum means an annual income of just under €8,000 which means that the level of security drops to less than half compared to paid work. Due to this, Maija’s safety net weakens, for example, in the event of unemployment or incapacity for work.
The accumulation in terms of pension is thus the same for both the employee and the entrepreneur, but the difference between salary and earned income is noteworthy. They should be on the same level so that social benefits and pension accumulation remain unchanged. Financial risk management is very understandable but as soon as the business starts, the entrepreneur should also think about the risk management for their own safety and health.
Are you feeling lost? Ask for help!
While an entrepreneur must multitask, there is no need to be the master of everything. By turning to someone else in any matter, things will get easier.
Maria Ihalainen
Sales Manager
Elo Mutual Pension Insurance Company