A member of any cooperative can be either a self-employed entrepreneur, i.e. a natural person carrying on a business, or an employee, i.e. a natural person receiving wages or salary.
The demarcation between the two is based on the provisions of the Unemployment Security Act (työttömyysturvalaki), chapter 1, section 6.
According to this section, an entrepreneur is any natural person who is required, because of their principal activity, to take an entrepreneur pension scheme YEL or a farmer pension scheme MYEL.
Entrepreneur is also any person included in an employee pension scheme (TyEL) who is a part-owner of the company and
- owns alone at least 15 %, or his or her family or they all together own at least 30 % of the company where the part-owner works in a leading position
- owns alone or his or her family or they all together own at least 50 % of the company where the part-owner works in a leading position
Example 1: You are member of a cooperative with seven members, each having equal share and voting power (less than 15 %). You have employment relationship with the cooperative in which you are working. In consequence, you are not an entrepreneur and not required to take a YEL pension insurance. As an employee, you are entitled to unemployment security, if your employment contract fulfills its conditions.
Example 2: You are member of a cooperative which has three members with equal ownership and equal voting powers amongst the members (> 30 %). You are member of the board of directors. Considering your unemployment security, you are an entrepreneur.*)
Any person who has a paid employment without a contractual work relationship, even if they have no business ID (Y-tunnus) or other activity classifying as factual business activity, is also classified as self-employed. Anybody working through an invoicing service without their own business ID and being paid against their tax card is considered for the unemployment security as a full-time self-employed person, if the work they do takes so much time they could not take a full-time job and the work lasts more than two weeks (Act on unemployment benefits, chapter 2, section 5 https://www.finlex.fi/fi/laki/ajantasa/2002/20021290#O1L2P5 ). Such a person exercising full-time business activity has no right to unemployment security.
*) In case you are an entrepreneur and your earnings from it exceed €7,958.99 per year (in 2020), you are obliged to subscribe a YEL insurance, so you are in an entrepreneur pension scheme and, thus, entrepreneur as to the unemployment security. The YEL insurance is also required for the entrepreneurs’ unemployment benefit. More details on YEL insurance, see https://www.etk.fi/suomen-elakejarjestelma/elaketurva/tyoelaketurvan-kattavuus-ja-vakuuttaminen/yel-yrittajat/ and on the unemployment security of the entrepreneur, see https://syt.fi/
Here above we have discussed a member’s belonging to either an employee’s or a self-employed person’s unemployment security scheme. As a consequence, he or she can apply for the membership of any self-employed persons’ or employees’ unemployment fund in order to receive an earnings-related benefit. The entitlement of the cooperative’s worker, member or not, to unemployment benefit depends also on the relationship of the work (contractual job). Next we will discuss some of the distinctive characteristics and conditions of a contractual job relationship, viewed from the cooperative’s and the member’s side.
Employment or light entrepreneurship?
During the last few years, there has been lots of talk about the so-called light entrepreneurship, with no specific definition for it. It can mean that a registered private trader uses a service system enabling them to access payment and bookkeeping services. It is often used to describe self-employed activity with no employment contract nor own business, but the invoicing and the payment of the remuneration are taken care of by a so-called invoicing company. Because of these new forms of work, like the work under invoicing companies, it has been necessary to clarify the status of people working in a cooperative, i.e. as to their entitlement to unemployment benefits.
According to the executive guidance on unemployment security system, published by the Finnish Ministry of Employment and the Economy (TEM/2414/03.01.04/2018), the cooperative is not considered as an employer if it only communicates information about jobs and takes care of the marketing, invoicing and bookkeeping of its members’ work. In these cases the contractual employment relationship can exist only between the company and a person responsible for the marketing, invoicing and bookkeeping.
The work done by a member in a cooperative is considered as an employment relationship if the job applicant has signed a contract with the cooperative. It is also required that the cooperative qualifies as an employer. This means it must offer those services the employee was recruited for under its own name. Usually this means in practice that the work is done for the cooperative’s account and has a contractual relationship with the client.
Hence, the cooperative must be an independent entity with own business. The members work as employees of this entity, not as distinct agents. The cooperative activities are meant to benefit the cooperative and not pass through directly down to its members.
TABLE: DIFFERENCES BETWEEN WORKERS’ COOPERATIVES AND INVOICING SERVICE COMPANY
| WORKERS’ COOPERATIVE | INVOICING SERVICE COMPANY | |
| HAS SOME BUSINESS ACTIVITY | yes | yes |
| WHAT KIND OF ACTIVITY | according yo its respective field of business | invoicing service activities |
| SERVING | consumers and community customers | private traders: self-employed, light entrepreneurs etc. |
| ON WHOSE ACCOUNT THE CLIENT WORK IS DONE | on cooperative’s account | on invoicing company user’s account |
| ARE THE PREREQUISITES OF EMPLOYMENT CONTRACT FULFILLED | yes | no |
Temporary work agency
The cooperative activities can include those of a temporary work agency detaching, as an employer, its own employees with their consent to another company. In these cases, the relationship qualifies as contractual employment of the employee, even though the cooperative working as an employer does not supervise this work, the work is not done at cooperative’s own premises and if the cooperative business is something else than the work done by the employee.
Irrespective of the nature or the line of the business, the cooperative has to draw meticulous agreements with their members, and also with their clients, and take care of the supervision and control of work required by the Employment Contract Act, establishing the existence of the employment relationship.
Ensure the relationship of the cooperative with worker
By definition, a workers’ cooperative functions as an employer, but there can be situations where this is not established or it can be disputed. The form of the employment relationship is significant for the employee working for the cooperative and for the latter, too. If the cooperative presumed to be an employer, it has taken care of the statutory insurance fees for pensions, accidents and social security and financed them partly by paying its contribution deductible from its gross profit. The fulfillment of obligations has also meant work and expenses for the administration.
If in practice, say in case of an accident at work, the insurance company takes the view that it was not an employment relationship, there will be no insurance payout in spite of the statutory insurance. In certain cases, the fees paid for these can be refunded, at least partly, but the insurance coverage is not real in the way it was supposed to be.
Characteristics of an employment relationship:
- existence of an agreement
- individual working
- against remuneration
- on employer’s account
- under employer’s supervision and control
More details on the real characteristics of an employment relationship are available in the guidance of the Finnish tax administration: https://www.vero.fi/syventavat-vero-ohjeet/ohje-hakusivu/48037/palkka-ja-ty%C3%B6korvaus-verotuksessa/#5-ty%C3%B6–ja-toimeksiantosuhteen-tosiasialliset-tunnusmerkit
To clarify the employer status of a cooperative, it has to align its procedures according to each situation of employment relationships. The practical organization of activities must take into consideration all employer obligations and procedures supporting them, from organizational facts up to supervision and control. The employees must be clearly informed on their responsibilities and obligations under employment relationship and in the organizational procedures.
A cooperative can be a consortium
Companies can incorporate a cooperative, be its members and exchange with it. In this case, its purpose is some kind of marketing or purchasing activity or it can be a consortium offering various activities for its members’ benefit, like an excellence center, or taking care of specific functions for its members, like negotiations and environment relationships etc. (cf. different types of cooperatives). In these cases, the transactions are considered normal billed trade between the cooperative and its member company. It is a business relationship, the member company is doing business autonomously, while respecting the contracts made with the cooperative.