Large employers finance disability pensions through the so-called contribution category model. The model has been applied since 2006. The goal of the reformed contribution category model, which took effect at the start of this year, is to encourage employers to promptly and effectively prevent disability and rehabilitate those affected.
The reform in a nutshell
- Decreased risk related to hiring a new employee
If a person aged 55 or older who was hired as a new employee after 1 January 2024 becomes disabled, their disability will not affect the contribution category.
For a new employee who started their employment in a work trial or apprenticeship as part of vocational rehabilitation after 1 January 2024, the employer’s contribution category will not be affected if the employee becomes disabled within five years of the start of their employment.
If an employee was paid wages amounting to less than EUR 10,000 during the two calendar years preceding the disability, there will be no impact on the contribution category in a situation where the employee becomes disabled. - Prolonged cash rehabilitation benefits now also affect the contribution category
The cash rehabilitation benefit valid on the last day of the year will affect the contribution category if more than two years have elapsed from the start of the first cash rehabilitation benefit (starting year + 2 calendar years). The first time that the contribution category may be affected is on 31 December 2026.
Simultaneously ongoing vocational rehabilitation will delay the impact of the contribution category or it may prevent it altogether. There will be no impact on the contribution category if more than 5 years have elapsed from the pension contingency. - Employer’s liability for disability pensions decreases
The liabilities of all employers will be gradually decreased from the previous level to 60%. The liabilities will be decreased by 10% every year from 2025 to 2028.
Contribution reductions (contribution category less than 4) and increases (contribution category more than 4) will decrease. A larger share of the contribution will be determined by the average contribution level.
Questions and answers
Decreased risk related to hiring a new employee
If a new employee who is at least 55 and was hired by the company after 1 January 2024 becomes unable to work, there is no impact on the contribution category. Is the date when a person’s employment started also available from the pension insurance company if the company is unable to enter this information in its HR system?
If an employee who meets the conditions is later granted a disability pension, in order to remove the impact of the contribution category the pension insurance company requires the employer to provide proof that the employee was at least 55 and was hired as a new employee. The employer should therefore already now ensure that this information can be entered in the company’s own HR systems. Maintaining the information in the HR system makes it easier to fulfil the obligation to provide proof, as the information will be readily available.
When is an employee considered a “new employee”?
A person is considered a new employee if they have not worked for the same employer or in a company belonging to the same group of companies as the employer within the current or three preceding calendar years.
For example, if the employer hires an employee in 2024 and that person has not worked for the same employer or for an employer belonging to the same group of companies in 2021–2024, the person is a new employee.
An employee who transfers to the company as part of a merger or acquisition is not considered a new employee.
How are new employees that are at least 55 years old or in vocational rehabilitation taken into account in mergers and acquisitions?
An employee who transfers to the company as part of a merger or acquisition is not considered a new employee. However, if the employee was hired as a new employee over 55 or a vocational rehabilitant after 1 January 2024 by the transferring employer in a merger or acquisition, the contribution category protection also transfers to the transferee employer. The employer is then required to present proof that the transferring employee met the criteria with their previous employer.
A company hires someone undergoing vocational rehabilitation for a work trial or apprenticeship as a new employee. If that person becomes unable to work within five years of the start of their vocational rehabilitation, there will be no impact on the contribution category. Can this, however, affect the contribution category of the employer the person left to start vocational rehabilitation?
Protection from the impact of the contribution category only applies to the employer that the employee was working for when they started vocational rehabilitation. The impact of the contribution category could thus still arise for a previous employer.
By what criteria is a person considered a new employee hired as a vocational rehabilitant?
Vocational rehabilitation is considered to be work trials and apprenticeships arranged by an earnings-related pension insurance company, Kela, motor liability insurance institution or accident insurance institution and carried out as vocational rehabilitation with an employer.
In order to meet the criteria of a new employee, the person must not have previously worked for the same employer or for an employer belonging to the same group of companies as the employer within the current or three preceding calendar years.
Cash rehabilitation benefits included in the contribution category model
How does the reform of the contribution category model affect companies’ contribution categories? Will their contribution category increase or decrease?
A company’s contribution category is determined by comparing the company’s disability pension expenditure for its employees with the average disability pension expenditure. Following the reform, disability pension costs are taken into account more broadly in the contribution categories, particularly because prolonged cash rehabilitation benefits are now covered by the contribution category model.
If the disability pension costs that are taken into account in a company’s contribution category grow proportionately to the average, the contribution category will neither increase nor decrease.
What effect does the partial cash rehabilitation benefit have on the contribution category? Does it follow the same logic as the partial disability pension?
The impact of the partial cash rehabilitation benefit on the contribution category is half of the impact of the full cash rehabilitation benefit, just like partial disability pension.
The contribution category impact is determined according to the benefit valid at the time. It makes no difference whether the first cash rehabilitation benefit that marks the start of the monitoring period was the full cash rehabilitation benefit or the partial cash rehabilitation benefit.
If an employee who has returned to work after having collected the cash rehabilitation benefit for a long period becomes unable to work again, can this lead to a new contribution category impact?
If a new disability begins before two years have passed since the end of the previous disability pension or rehabilitation allowance period, or if a new pension is granted on the basis of the same illness, disability or injury as the previous disability pension, it cannot cause a new contribution category impact. Otherwise, a new contribution category impact may arise.
What does pension contingency mean and how is it determined?
In connection with disability pensions, the term “pension contingency” refers to the start of a consecutive period of disability. The start of a period of disability is mainly based on medical factors. If a period of disability continues without interruption, the time of the pension contingency is often the first day of a continuous absence due to illness.
If disability pension is granted on the basis of the same group of illnesses as before, the pension contingency is the start date of the previous disability period, which means the person may have worked on and off, but later became unable to work again.
How does it benefit the employer to keep an employment relationship valid if the contribution category has already been affected by a prolonged period of the cash rehabilitation benefit?
Employees can sometimes recover their work ability through treatment and rehabilitation, even after a long period of being on the cash rehabilitation benefit. The employer can then put the employee’s skills back to use for the company. A motivated employee’s tacit knowledge and skills are human capital, which then stays in the company.
However, in some situations, the company and occupational health care may agree that an employee will not recover their work ability for the tasks offered by the workplace. In such cases, vocational rehabilitation in order to switch to new tasks is the best solution for everyone.
If a person is in vocational rehabilitation when the cash rehabilitation benefit’s impact on the contribution category is being determined, there is no impact on the contribution category. How is it determined that a person is in vocational rehabilitation while at the same time collecting the cash rehabilitation benefit?
Ongoing active vocational rehabilitation may prevent the contribution category impact that would otherwise arise in the case of a prolonged cash rehabilitation benefit. In such situations, the person has been granted the cash rehabilitation benefit, but alongside that, they also receive a rehabilitation allowance or a rehabilitation increment. If a person is in vocational rehabilitation when the cash rehabilitation benefit would be taken into account as a pension affecting the contribution category, there is no impact on the contribution category. In this case, it is enough that the rehabilitation increment or rehabilitation allowance starting in the first half of the next year has already been granted. The vocational rehabilitation must, however, be effective, because if the cash rehabilitation benefit continues when the rehabilitation ends, the contribution category could still be affected.
When does the two-year monitoring period for the cash rehabilitation benefit start?
The rule of thumb is that monitoring begins as of the start date of the first cash rehabilitation benefit. Monitoring can begin, however, at the earliest on the day when the decision concerning the cash rehabilitation benefit was issued. This is especially important, for example, in cases where the cash rehabilitation benefit has been granted through an appeal process, in which case the start date of the benefit may be considerably before the date when the decision was issued.