Unemployment insurance

What it means

Unemployment insurance is one of the branches run by the Social Insurance Agency. Both the employee and the employer pay it from wages, and it is what builds the entitlement to an unemployment benefit once a job is lost.

It is not a labour-office grant and not severance from the company. The Agency pays the benefit out of the contributions collected, it is calculated from the assessment base rather than the last net wage, and the support period runs for six months.

It is not to be confused with guarantee insurance, which the employer also pays to the Social Insurance Agency. Guarantee insurance protects employees’ claims when the employer cannot pay wages, for example in bankruptcy. Unemployment insurance deals with income only after the job has ended and says nothing about the employer’s solvency.

How it works in practice

The insurance is not paid on every kind of income. On a work activity agreement what decides is whether the pay is a regular monthly one: agreements with a regular monthly income do carry unemployment insurance, while irregular-income agreements and student agreements using the levy exemption carry none. A sole trader may insure voluntarily, but signing up just before closing the business earns nothing.

After the employment ends the employer deregisters the person with the Agency and issues an employment confirmation. The person registers with the labour office, yet claims the benefit from the Agency, and each filing has its own deadline.

A person drawing an old-age pension is not covered by unemployment insurance and no contribution is paid for them. At onboarding we therefore check in payroll whether the employee draws a pension from old-age insurance and set the contributions accordingly. A pension discovered late means correcting the reports to the Agency retrospectively for several months.

What to watch out for

Two years on an irregular-income agreement look like two years of work, but no unemployment insurance was ever paid on them. After losing the job the person finds out that six months bring nothing, and the firm that offered the cheaper form never said so in advance.

Pay handed over off the books backfires here too. The benefit is calculated from the assessment base, so an employee registered on the minimum wage receives a benefit based on the minimum after losing the job, whatever they really earned, and the company pays the missing contributions with penalties after an audit.