Entrepreneurship as a Secondary Occupation

Who is deemed to be a secondary-occupation entrepreneur? How will it affect your taxation and unemployment benefits?

If you are considering setting up an enterprise for the purpose of practising a secondary occupation, you should find out in advance how this will impact on matters such as your taxation, certain social benefits and unemployment benefits. And do you need to inform your employer that you are planning to set up such an enterprise?

WHO IS DEEMED TO BE A SECONDARY-OCCUPATION ENTREPRENEUR?

A secondary-occupation entrepreneur is a person, who earns his/her livelihood in a manner other than an independent entrepreneur. He/she can be a salary/wage earner, a pensioner or a student. Even a person receiving unemployment benefits can, under certain conditions, act as a secondary-occupation entrepreneur. Entrepreneurship based on the practising of a secondary occupation can be part-time or seasonal by nature.

Characteristics of a secondary-occupation entrepreneur:

  • he/she owns the enterprise or is a part-owner of the enterprise
  • he/she can serve as an employee or as an entrepreneur in the enterprise (depending on his/her ownership share)
  • he/she holds a full-time position in the employ of some other enterprise or organisation

The clearest characteristics of a secondary-occupation entrepreneur is that he/she retains his/her principal employee position in the employ of some other enterprise or organisation and that the bulk of his/her work hours are spent in working for this other enterprise or organisation.

Is the employer's consent required or does one need to inform the employer of one's secondary-occupation entrepreneurship?

According to the Finnish Työsopimuslaki (transl. Employment Contracts Act), a non-civil-servant employee is not subject to the same obligation-to-inform as a civil servant is. An employee is obligated to inform his/her employer of the secondary occupations he/she engages in during his/her own time only if providing such information has been agreed upon separately between the employee and the employer.

The basic premise is that the employee is entitled to engage in other work in his/her own time, and this includes the activity of a secondary-occupation entrepreneur. However, the Finnish Työsopimuslaki (transl. Employment Contracts Act) does prohibit the employee, while employed by an enterprise or organisation, from practising an activity, which, considering the nature of the activity and the employee's position, could injure the employer. Engaging in a competing business activity and making preparations for such an activity can be considered to be examples of this prohibited activity. Prohibiting of competing business activity during an employment relationship is a matter to be assessed case by case.

The prohibiting of competing business activity is in effect only during the employment relationship. Launching of competing business activity following the termination of the employment relationship with some other enterprise or organisation is possible unless the former employer and employee have concluded a specific prohibition-of-competition agreement. Such an agreement may be concluded only if the former employer has a real need for prohibiting competition and a particularly solid reason for demanding it. The mere aim of restricting competition is not enough. When assessing whether or not the requirement has been fulfilled, it is necessary to take into account the employee's position and duties, and the nature of the employer's business activity and the need for such protection caused by the need to retain the employer's trade and professional secrets or the fact that the former employer has arranged special education and training for the employee.

A prohibition-of-competition agreement can be used to restrict competing business activity for no more than six months since the termination of the employment relationship of the person in question. If the employee is deemed to have received reasonable compensation for the hindrance that the prohibition-of-competition agreement causes him/her, the prohibition may be in effect for 12 months at maximum.

ADJUSTED UNEMPLOYMENT ALLOWANCE FOR SECONDARY-OCCUPATION ENTREPRENEUR

A secondary-occupation entrepreneur is well advised to pay special attention to how unemployment benefits are determined. A person is deemed to have fulfilled the employment precondition of an entrepreneur if he/she has worked as an entrepreneur for 15 months during the 48 months preceding his/her becoming unemployed and if his/her entrepreneurship has been so broad in scope that his/her earned income, as confirmed by the entrepreneur's Yrittäjän eläkelaki (Entrepreneur's Pension Insurance) data, has amounted annually to at least 12,576 euros throughout this period (this is the situation in 2018).

In addition to there being full-time entrepreneurs and secondary-occupation entrepreneurs, there are numerous other variations on this theme, and in these cases the ownership share is of significance as is the question whether the person is paid a salary by the enterprise or does he/she merely receive dividends (and even then part of the dividends received by the person whose ownership exceeds 50% is deemed to constitute a salary dividend).

According to Finland's Työttömyysturvalaki (transl. Unemployment Security Act), entrepreneurship or own work is considered to be a secondary occupation if the amount of work required by the entrepreneurship or by own work can be deemed to be so minor that it is not an obstacle to accepting full-time work. And so the work load of secondary-occupation entrepreneurship must be such that it allows the person to simultaneously hold a full-time job. Entrepreneurship is also deemed to be a secondary occupation once it has been practised long enough (6 months) alongside a full-time job.

It sometimes also happens that, in its early stages, the work load in entrepreneurship can be so light that it can be deemed to be a secondary occupation. Moreover, entrepreneurship can be demonstrated to be a secondary occupation by means of normally progressing full-time studies, which have lasted at least eight months during the period of entrepreneurship.

Staff at the local TE employment office decide as regards the labour policy preconditions for a person being entitled to unemployment benefits, including whether engaging in entrepreneurship is a person's primary or secondary occupation. There is no weekly hour limit. Instead, these decisions are based on how much work the entrepreneurship requires.

The TE employment office staff request the person in question to submit a report on his/her entrepreneurship. The information required includes the following:

  • The degree to which entrepreneurship keeps the person in question occupied
  • How binding the entrepreneurship is, and
  • Whether the person in question is seeking or willing to accept a full-time job.

The final decision is always based on the TE employment office's overall assessment with all of the reports received on the employment effect of the activity being taken into consideration. The amount of work required by the entrepreneurship is crucial, while, for example, the amount of earnings from entrepreneurship is not. A case of entrepreneurship deemed to be a secondary occupation does not become a primary occupation if the person's full-time job ends and neither does the duration of his/her entrepreneurship influence this.

The local TE employment office issues its statement on whether or not the applicant is deemed to be employed as an entrepreneur primarily or secondarily. The payer of the unemployment benefit (an unemployment benefit society or Kela - The Social Insurance Institution of Finland) proceeds to examine and decide regarding the other preconditions for these payments; e.g. whether the person has fulfilled the being-employed requirement, which is a precondition for being entitled to the unemployment allowance, and how the person's earnings from entrepreneurship or his/her other benefits influence his/her situation. Based on this report, the unemployment benefit is adjusted before being paid.

The earnings from entrepreneurship are taken into account based primarily on the applicant's tax details. If no confirmed tax details are available at the moment, the person's earnings are estimated based on some other reliable report, e.g. by presenting the bookkeeping details to the payer of the benefits. A report is also needed when the entrepreneurship has undergone an essential change since the confirming of taxation.

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