Guarantee insurance

What it means

Guarantee insurance is a branch of social insurance carried by the employer alone; nothing is withheld from the employee’s pay for it. It covers employees’ wage claims for the case where the employer ends up insolvent.

It protects the people in the company rather than the company. Out of it the Social Insurance Agency pays unpaid wages, wage compensation, severance, a retirement payment, travel allowances and pay for untaken leave, for a limited number of months and up to a statutory ceiling.

It is not the same as unemployment insurance: that replaces income after a job is lost, while guarantee insurance only makes up what the employee has already worked for and the employer never paid. An employee who leaves when the company becomes insolvent may therefore be entitled to both benefits, each for a different reason and a different period.

How it works in practice

The premium is paid monthly from the same assessment base as the other levies and appears in payroll software as a separate employer line. Employers against whom bankruptcy cannot be declared, state bodies and municipalities among them, are not covered by it at all.

For this purpose insolvency does not begin when bankruptcy is declared but when the petition for bankruptcy reaches the court. From that day the employee claims the benefit at the Social Insurance Agency rather than from the employer, and the agency then pursues what it paid out against the company in the bankruptcy.

To process a claim, the Social Insurance Agency needs the unpaid entitlements confirmed by the employer or by the bankruptcy trustee. When a company in trouble runs its payroll with us, we prepare these figures from the payroll records so that they match what was actually processed and paid over.

What to watch out for

An employee waits for the company to recover and lets the statutory time limit for claiming the benefit run out. What is left is filing the claim in the bankruptcy, where unsecured wage claims are met out of the distribution schedule and usually only in part.

An employee is protected only for what was properly agreed in the contract and processed through payroll. Someone who worked without being registered with the Social Insurance Agency, or received part of the pay off the payslip without contributions, will struggle to prove the claim and gets nothing for the unofficial part. The company also faces a fine for illegal employment.