New Act on personnel Funds enters into force on 1 April 2023

Key changes

According to the Act on personnel Funds, a personnel fund can be established if there are at least five employees and the turnover or equivalent return of the company is at least EUR 100,000. In the past, the establishing of the personnel fund was that the company employs at least ten employees and that the company’s turnover or equivalent return exceeded EUR 200,000.

The personnel of a company may establish a personnel fund after the company meeting the criteria has made a decision on the introduction of the bonus scheme.

A personnel fund may be established even if the number of personnel or turnover of the company to be established does not initially meet the requirements. This would apply to situations where, considering the circumstances, it can be deemed obvious that the requirements will be met during the first three full financial years of the personnel fund. The exception would only apply to new companies established in the previous year.

It will also be possible to establish joint personnel funds for several companies.

Personal characteristics of a unit

The fund bonus, i.e. the personnel fund contribution, may consist of profit and profit bonuses. The criteria for determining personnel fund contributions shall be decided in advance before the period for determining the performance bonus and profit bonuses. A Member may, if it so wishes, take its personnel fund contribution in cash if the company’s performance or profit bonus scheme allows it. The performance and profit bonus items received by the personnel fund are divided into personal units.

Some of the personal fund units (up to 15% at most) may be withdrawn annually if so provided in the fund rules. The entire personal fund share can be withdrawn within four months of the next valuation date following the termination of the employment relationship.

The personnel fund contribution is a deductible expense for the company. It does not involve any benefit or other expenses related to the salary. The personnel fund has been made entirely taxfree in both income and wealth taxation. Of the contributions received by personnel fund members, 80% are taxable earned income at the time of receipt, and a tax is withheld on them. The balance is tax-free income.

The new Act enables the transfer of a unit to another fund if the employee changes jobs. The condition is that both the surrender and the receiving fund consent to this and that the employee himself/herself proposes it. The transfer does not involve tax consequences.

Decisionmaking powers in the personnel fund are exercised by meetings of the members of the fund or by the representatives of the fund appointed by the members. The fund shall have a Board of Directors consisting of at least three members.

The number of personnel funds in Finland is on the rise. (Figures for 2021 are presented in parentheses). In 2022, there were 319 (264) personnel funds in Finland. The funds had 154,651 (130,210) members and their total capital was approximately EUR 684 (616) million.

Read more (in Finnish):

Government proposal to Parliament for acts amending the Act on personnel Funds and section 65 of the income tax Act (HE 265/2022)

Act amending the Act on personnel Funds