A cash bonus loses most of its value on the way to the employee.
Finnish employers pay performance bonuses as salary, where tax and social costs take their share before anything reaches the person who earned it. Bonuses paid into a personnel fund carry no social security contributions, and the employer's contributions can be applied to the bonus itself. When a member withdraws from the fund, 20% of the withdrawal is tax-free.
The employee's view
€1,000 bonus – paid as salary or to the personnel fund?
The video compares two payment methods for the same bonus: as salary and to a personnel fund. The sample calculation illustrates how the value of the fund units can grow over five years.
Disclaimer
All calculations presented here are illustrative examples. The illustrative examples are based on a €1,000 reward, a 10% employee social security contribution, and a 30% income tax. The bonus paid into the fund does not accumulate pension benefits. A 4% annual return expectation has been calculated for a funded annual bonus of €1,200 over a five-year period. According to the law, a personnel fund must invest its assets in a secure and income-generating manner or in the employer company. Please note, however, that all investments involve a risk of losing your invested capital. Past performance is not indicative of future results, and no investment is guaranteed to be profitable. In this example the fund member does not utilize their annual withdrawal right but continues to save, thus increasing the amount available for withdrawal.
The total employer cost in the examples is €1,220, including 22% employer side costs. The bonus increase to the employee is 20%, as the employer covers the fund's administrative costs. The chosen method of payment for the bonus does not affect the company's costs, as funding does not increase the total cost of the bonus.
You remain responsible for your own taxation. Allshares and your employer do not provide investment advice.
In detail
What you get
Finnish expertise
Built on Finnish regulation.
A personnel fund only works if it is set up and administered exactly as Finnish law requires. Our Finnish team handles the rules, the filings and the participant questions, so your reward team does not have to.
What is a personnel fund?
A personnel fund is a legally regulated fund owned by a company's employees, a structure unique to Finnish legislation. Bonuses that would otherwise be paid as salary go into the fund instead, where they are invested and can grow.
Funded bonuses are invested on a gross basis, so returns are generated on the tax portion too, and tax is paid only on withdrawal. With 20% of withdrawals tax-free, the net bonus can be 40–50% higher than the same amount paid in cash, at no additional cost to the employer.
In detail
How Allshares helps
Direct contact
Questions about personnel funds?
Visa Korhonen
Director, Personnel Funds, Helsinki