Internet Entrepreneurs Need Pension Insurance When Hobby Becomes Business

An Internet business often begins as a hobby. Gradually the operations grow and become a business. It is exciting to publish one’s own writings or products, and when they are of high quality, advertisers become interested. From the point of view of insurance under the Self-employed Pensions Acts (YEL), Internet entrepreneurship is one form of self-employment.

The Internet can be utilised in many ways in business. Products and services can be advertised and partly also shared over the web to a large group of people at small costs. Over the Internet, even a small entrepreneur can reach global markets.

A typical feature of new products and services sold over the Internet is that they are easy to duplicate. In that case, the sales and business growth does not necessarily require an increased work effort of the Internet entrepreneur. The income from advertising on the website may seem to come out of the blue if the sales of the advertising spots and their ‘upkeep’ is handled by others than the Internet entrepreneur.

Quick reactions and constant product development

A productive online business requires a lot of work. The website has to be updated and new material must be produced. Products sold over the Internet must be acquired, stored and shipped out to customers.

A typical feature of online business is quick reactions and constant product and service development. Administering various contracts and such tasks also require the work input of the Internet entrepreneur.

“Sometimes it may feel as if ‘the money flows in with no work required’. In such situations it is often the case that the work input and the earnings occur at different points in time,” explains Markus Palomurto, Development Manager at the Finnish Centre for Pensions.

From the point of YEL insurance, Internet entrepreneurship is one form of self-employment.

“Insurance for the work input of the Internet entrepreneur is assessed in the same way as for any other form of self-employment,” Palomurto states.

Insurance also for fun self-employment

Assessing the work input of a self-employed person may be difficult, but even so, the self-employment requires YEL insurance. If the income from self-employment is based on the work input of the self-employed person, the value of this work input must be established: what is the reasonable wage a professional doing the same work would be paid? Data on the revenue of the business and external services used will help in the assessment of the work input.

The Finnish Centre for Pensions supervises that the self-employed have fulfilled their insurance obligation. The supervision is done, among other things, by comparing taxation and insurance data. This way, also Internet entrepreneurs who lack YEL insurance are found.

“In discussions with these Internet entrepreneurs it is often discovered that they have not understood that the fun work they do that started off as a hobby and is a sideline should be insured,” says Palomurto.

After sorting things out, the Internet entrepreneurs take out insurance and it is noted that even fun self-employment needs to be insured if the activities are professional and the value of the work input exceeds the limit set in the law (EUR 7,430/year in 2014).