Kela | Pay security

Kela tackles benefits abuse

Source: Kela

In 2021, the Social Insurance Institution of Finland Kela uncovered 2 708 cases of suspected misuse of benefits subject to further investigation by means of hearing the customer, for example. Suspicions of benefits abuse may arise, for example, if the customer has given false information or has knowingly withheld information affecting the benefit. 

In 2021, Kela made 831 requests for police investigation, which concerned one or more incidents of benefits abuse. The misuse of benefits had usually taken place in previous years. The total value of benefits abuse cases resulting in a request for police investigation was EUR 6 334 705. The misuse of benefits is often linked to certain shadow economy phenomena such as undeclared payroll and falsified receipts. 

The success rate of Kela's requests for police investigation in the criminal process is high, with roughly 85 per cent of the cases resulting in a judgment. In most cases, benefits abusers are sentenced for petty fraud or fraud. Benefits abusers are also sentenced for aggravated fraud and forgery. Prosecution was waived in only a few cases. 

The majority (roughly 50 per cent) of benefits abuse cases resulting in a request for police investigation are related to employment benefits, which have a higher percentage of shadow economy phenomena. Kela cooperates with other authorities. For example, co-operation with the Tax Administration gives Kela access to tax audit information. Kela also conducts its own income monitoring and uses other control measures to detect and prevent misuse.

Pay security payments correlate strongly with economic trends

Source: Centre for Economic Development, Transport and the Environment

The pay security system ensures the payment of employee claims arising from an employment relationship in the event of employer insolvency. One of the reasons for rejecting a pay security claim is misuse, and sometimes these cases involve participants in the shadow economy. The statistics on claims paid as pay security indicate a strong correlation with economic trends. In 2021, cases of abuse accounted for 10.0% (7.3% in 2020) of all rejected receivables.

The employer defaulting on statutory contributions or notifications is not an impediment for paying out pay security; in fact, they may be an indication of the employer’s insolvency, which is one of the requirements for the payment of pay security. In legal practice, however, pay security payments may be withheld, if there is evidence that the employee has been in agreement with the employer about receiving compensation for work as non-declared wages.

Claims payable as pay security pass to the State. Only approximately one quarter of the pay security payments are recovered from insolvent employers. A majority of this amount is paid by bankruptcy estates as administrative expenses.

In 2021, 1,071 applications (909 in 2020) were rejected on the grounds of misuse, with the total sum of receivables applied for with these applications reaching EUR 1,705,015 (EUR 1,986,738 in 2020).

Page last updated 3/16/2022