Personnel funds

A personnel fund is a fund owned and controlled by the personnel, with the purpose of managing the performance bonus or profit bonus items and other assets in accordance with the Act on Personnel Funds, such as the supplement to a personnel fund contribution, paid into the fund by the company. The fund is always linked to the company or group of companies that employs the personnel. 

The personnel fund enables all employees to be rewarded for achieving the company’s goals. In addition, they help to enhance the productivity and competitiveness of a company, government agency or municipality. They also improve interactive cooperation between the employer and employees of a company, government agency or municipality, as well as the employees’ opportunities for financial participation. 

Prerequisites for establishing a personnel fund

A personnel fund can be established when 

  • the undertaking or profit unit regularly employs at least 10 people,
  • the undertaking’s income or equivalent returns at the time of the founda-tion of the fund is at least EUR 200,000.

A personnel fund may also be established in a state-owned company or profit unit, a central government agency or institution or its profit unit, a municipality or joint municipal authority or its profit unit, the Social Insurance Institution of Finland or a university referred to in the Universities Act. 

Established by personnel

The employees of a company may establish a personnel fund after the company has made a decision on the adoption of the bonus system governing the fund. 

The introduction of the bonus system and the establishment of the personnel fund requires a cooperation procedure. The company decides on the introduction of a funded bonus system and the establishment of a personnel fund. Persons in employment in a company or in an agency automatically become members of the personnel fund on the basis of their employment relationship. 

Fund units

A funded bonus, i.e. personnel fund contribution, may consist of performance and profit-based bonuses. The accruing principles of personnel fund contributions must be decided for each year prior to the start of the year. A member may withdraw their personnel fund contribution in cash if the company’s performance or profit bonus structure allows it. The performance and profit contributions received by the personnel fund are distributed as personal fund units. 

Some personal fund units (up to 15%) may be withdrawn annually if the fund rules so provide. All personal fund units can be withdrawn within four months of the next valua-tion date following the end of employment. 

Decision-making authority for the personnel fund is exercised by a shareholder meeting or by representatives appointed by the members of the fund. The personnel fund must have a board which consists of a minimum of three members. 

Supervised by the Cooperation Ombudsman

The legality of the activities of personnel funds is supervised by the Cooperation Om-budsman, who also keeps a register of personnel funds. 

Dissolving a personnel fund is always possible by decision of the members of the fund. A fund must always be dissolved when it no longer fulfils the requirements set by law. 

Personnel funds are exempt from tax as are some of the contributions received by the member

Personnel fund contributions are treated as a tax-deductible expense for the company. They are not subject to the same indirect or other costs as salary. Personnel funds are regulated as entirely exempt from tax for both income and wealth taxation purposes. 80 % of the contributions received by a member of the personnel fund are taxable earned income at the time of receipt and are subject to withholding tax. The balance is tax-exempt income.