Unjust enrichment and recovery

Unjust enrichment

An unjust enrichment exists if an income earner is not entitled to a payment they have received. An unjust enrichment occurs when, for example, a payment has been made on incorrect grounds, to an incorrect person, or in an incorrect amount.

Information on changing income paid to an unjust enrichment must be reported to the Incomes Register. Overpayments cannot be corrected by submitting a negative amount to the Incomes Register.

The following must not be reported as an unjust enrichment:

  • a fringe benefit or other non-monetary benefit
  • tax-exempt reimbursements of expenses
  • charges collected from income or other deductions (400 series income types).

Report an unjust enrichment immediately after you have become aware of the error

Unjust enrichment must be reported without undue delay and no later than within one month after becoming aware of the unjust enrichment.

An unjust enrichment must always be reported when the payer separately recovers the excess amount paid from the income earner. 

If an overpayment is corrected by processing it as advance pay during the next payday, the overpayment must be reduced from the next pay, and the next pay must also be reported to the Incomes Register according to the actually paid amount, i.e. the reduced gross amount. In this case, no unjust enrichment needs to be reported. It should be noted that processing an overpayment as advance pay is only permitted if the overpayment is reduced from pay in full during the next payday. 

It is important to separate an unjust enrichment from other payments in order to ensure that the correct income can be used as the basis of benefits granted to the income earner, for example. Reporting an overpayment as an unjust enrichment also reduces the amount of social insurance contributions based on the amount of income. For this reason, it is good to remember that

  • when an unjust enrichment is reported, the employer’s earnings-related pension and unemployment insurance contributions must also be corrected
  • if the correction affects the amount of the employer’s health insurance contribution paid, the employer’s separate report must also be corrected.

There are two ways to report an unjust enrichment. The reporting method depends on whether the payment has already been reported to the Incomes Register or whether the unjust enrichment paid was identified before reporting the data.

Report information on recovery

When an income earner pays an overpaid income back to the payer, the payer must report the repayment to the Incomes Register. Recovery must only be reported if income was actually recovered from the income earner.

Information on amounts paid back must be reported no later than on the fifth calendar day after the day of becoming aware of the payment of the collected amount, its payer and the unjust enrichment to which the payment is connected.

Reporting an unjust enrichment precedes a recovery report

Reporting recovery data requires that an overpayment has been corrected as an unjust enrichment on the report of the original payment date of the income. Income cannot be reported as recovered, unless it has first been reported as an unjust enrichment.

How to report a recovery

The recovered amount is reported using a new report, allocated to the repayment date. The recovered income must be reported using the same income type used to report the income as an unjust enrichment.

Report the following information on the recovery:

  • Income type
  • Recovery – Yes
  • Recovered amount
  • Repayment date
  • Withholding from the recovered amount (in net recovery situations)
  • Original pay period
  • Earnings period of the recovered income (voluntary complementary data)
  • Original payday (voluntary complementary data)

Recovered income cannot be reported to the Incomes Register as a negative amount.

There are three ways to recover an overpayment

An overpayment can be recovered in three different ways:

Net recovery means that the payer recovers the overpayment, from which they have first deducted the proportion of withholding carried out on the original payment date, from the income earner. The payer deducts the withholding in question from other taxes paid to the Finnish Tax Administration.

The income can be recovered from the income earner as a net amount if the income is repaid during the same year or at the beginning of the following year by the date defined in the Finnish Tax Administration’s decision (30 April). As a result, the Finnish Tax Administration can access the data before the person’s tax period ends, and the withholding will not be accredited to the income earner in taxation.

The Finnish Tax Administration will allocate the withholding correction to the payer’s withholding obligations for the original payment month.

Gross recovery means that the payer recovers the amount paid to the income earner, plus the original withholding carried out from the income.

In gross recovery, the payer can, for example, send an invoice to the income earner, or recover the overpayment at a later date from the net wages paid to the income earner. Payers can also use gross recovery if net recovery was also possible.

In gross recovery, the withholding from the recovered amount is not reported.

An overpayment can only be offset during the next payment of wages if the overpayment is recovered in full from the next pay. In this case, the payer will process the overpayment as advance pay or other similar item and recover the overpayment by offsetting, i.e. reducing, it from gross wages paid to the income earner.  

If an overpayment is offset during the next payment of wages, information on an unjust enrichment or recovery must not be reported.

It is recommended that an overpayment be always reported as an unjust enrichment. The processing of an overpayment as advance pay is not recommended. If an overpayment is processed as advance pay, the amount of income used as the basis of any benefits may be distorted and the payer will need to provide more additional clarifications.

To be noted when reporting recovery data

Recovery data can only be connected to monetary payments, because a fringe benefit is either used or it is not used, for example, and it cannot be recovered.

Charges collected from income or other deductions (400 series income types) cannot be reported as recovered.

Recovery data has no impact on obligations to pay social insurance contributions.

Data users need data about unjust enrichment and recovery for their decision-making processes

Each data user in the Incomes Register has defined how they use the data disclosed to them in their decision-making processes. Some data users only need data about unjust enrichment, while others only need data about recovery and some need both.

It is important that data about unjust enrichment and recovery is reported so that decisions made by data users are based on correct income amounts.