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Self-employed workers cross their fingers as government 'considers' percentage-based Social Security fees
By thinkSPAIN Team Wed, Jan 22, 2014
How the system works and what the debate is about
SPAIN'S government is considering overhauling the Social Security system for the self-employed after years of complaints by sole traders and small business owners that they are being bankrupted by financial demands from the State.
In what could be a landmark reform that would provide a much-needed boost to business for those working for themselves, the PP may be considering the possibility of the self-employed paying monthly Social Security (National Insurance) contributions according to what they earn, rather than a flat rate.
Although the government insists it has no immediate plans, after a meeting between vice-president Soraya Sáenz de Santamaría and a national association representing self-employed workers, the latter claims the cabinet has promised to investigate the situation in depth and consider a radical reform.
The association presented a revised system whereby each person who works for him or herself pays according to their 'actual financial capacity', which would drastically reduce Social Security and income tax for those with low earnings and considerably increase them for those who are capable of paying more.
This way, the association told Sáenz de Santamaría, the Social Security authorities would in fact claw back more, rather than less money and smaller entities and sole traders would have a chance to grow, invest in their businesses and possibly take on more staff.
At the moment, as the vice-president revealed, the Social Security office accumulates an annual debt exceeding 10 billion euros, and has just seen a loss of 900 million in a year when it expects to have to pay double the number of retirement pensions out of the pot.
But as the self-employed association explained during the meeting, most of those who work for themselves pay a Social Security fee based upon an income of less than 1,030.70 euros a month whatever they actually earn, since they cannot afford to pay the upper of the two levels and even with the lower level, struggle to meet these payments.
And by paying according to the lower level, their eventual retirement pensions, as at today's figures, will barely reach 350 euros a month.
The introduction of Social Security contributions for the self-employed in recent decades, despite having been something workers had historically clamoured for, was very poorly received when it was set up because of the fixed-fee aspect – and especially now, in the last five years, with pensions having barely increased by 100 euros a month.
Also, the association says the bureaucratic near-impossibility of claiming dole money upon cessation of activities means eight in 10 who have had to give up being self-employed have not been able to do so.
Self-employed levels in Spain 'higher than Europe' and rising
During the meeting with the vice-president, the association produced statistics which showed the number of people either registered as self-employed or with the intention of doing so has rocketed since the start of the crisis, given that with mass redundancies and the near-absence of situations vacant, those of working age are being far more creative at finding ways to make a living.
Last year alone, over 60,000 people used their dole money to set up a new businesses or agreed to take a ratio of their unemployment benefit entitlement to combine it with working for themselves on a reduced income.
And in the first nine months of 2013, the number of self-employed workers increased by more than two per cent – six times the average rise in the rest of the EU.
In early 2013, the government allowed all new self-employed workers aged under 30 to pay just 50 euros a month in Social Security for the first six months, but in July extended this to those of any age.
As a result, the number of self-employed workers shot up in 2013, but after the first six months they are then obliged to pay the minimum fee of 250 euros a month.
Another move, to allow those in receipt of a State pension to combine this with self-employed work has seen an increase of 7,600 people choosing to work for themselves.
Given the popularity of working for oneself in the absence of opportunities to work for an employer, where the company pays most of the Social Security and only a small portion falls to the employee – and always a percentage of income – the association is calling for an overhaul.
'Administration and system problems' blamed for no change to current system
To date, the government has always refused the request by associations of autonomous workers to claim Social Security on a percentage basis, because of 'administration problems' of 'so many different base rates' as they did not have the system to check that the earnings declared for the purpose matched what was being paid.
Despite this, income tax has indeed always been paid as a percentage without the 'system problems' each government has always cited.
An association spokesman and secretary-general says the government does indeed now have the systems in place which would enable them to manage varying Social Security fees and 'has always said it would be reasonable' to do so, given that it would enable a much fairer distribution of financial obligations to the State for workers and would translate into amassing more money for the ever-waning pot.
Ongoing calls for a 'system akin to those of France, Germany, the USA' and 'especially the UK' are seen on global petition sites, such as change.org.
Many contributors say they have de-registered as self-employed but continue to work, due to the prohibitive costs, but that they would like to 'go legal' if they could.
This supports the association's argument that making Social Security more affordable for the self-employed would mean more workers registering and paying their dues.
How the current system works
At present, sole traders and businesses can only choose from one of two formats for registering as self-employed and paying Social Security if they are aged under 47, or just one, based upon a higher income, for those aged 48 and over.
Women under 35 and men under 30 get a reduction on their payments of around 50 euros a month.<
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