Overhaul of self-employed workers' system gets under way

SELF-EMPLOYED workers' Social Security contribution system is 'too rigid', 'outdated' and 'insufficient', says Spain's Social and Economic Council (CES), whose chairman has proposed new ways of making the régime more affordable for average-income workers whilst ensuring a higher and steadier inflow of cash for the State.

Marcos Peña (pictured) says the government needs to consider creating 'more contribution layers' and a larger 'menu' of income-to-contribution bases.

At present, anyone earning more than the minimum wage has to pay €275 a month in Spain's equivalent of National Insurance, which covers healthcare, a State pension and other benefits like sick pay and maternity leave, and those who choose to contribute at the 'upper rate' pay around €50 more.

Once 'in the system', there is no getting out of it without ceasing all professional activity, meaning those with seasonal work – such as bar owners who only open in summer – still have to pay when they are not operating.

The Social Security department will 'tolerate' farmers who only earn money for a month or two each year not making contributions, accountants say, but technically, even this is not permitted.

As a result of the flat-rate system, workers at the lower end of the income level struggle, whilst those at the higher end have relatively little financial burden, unless they choose to pay more to increase their State pension.

A high number of self-employed workers operate in cash only because they cannot afford their Social Security fee, which means the State is losing money.

Peña said in a Parliamentary sub-commission, which is working on an overhaul of self-employed workers' financial obligations, that this community is 'very disparate' and should have 'far more flexibility' rather than a one-size-fits-all approach.

He does not agree with either flat rates or reductions for employers in their staff's Social Security payments as a way of stimulating the job market, saying they do not help those paying in the long run and mean less is going into the State pot.

At present, those signing on as self-employed for the first time only have to pay €50 a month for six months, then 50% of the current €275 for the next year, but after this is over, they are charged the full amount for the rest of their working lives.

“These days, a worker may be self-employed one day and not the next,” he said.

“Small changes need to be made over time rather than a one-off permanent reform, given the volatile nature of self-employed work.

“A series of rigid, inescapable and permanent monthly quotas makes life complicated, and making contributions more flexible is not out of the question.”

Peña points out that 75% of the self-employed pay the lower rate, €275, and only 30% of them pay the upper rate in the last 10 years of their working life, since this is the period taken into account when calculating their retirement pension.

The self-employed system needs to be linked as closely as possible to the salaried employment system, Peña stresses, especially concerning financial and legal protection.

For example, dole money is automatically available to the employed and payable at 80% of their gross salary for six months, then 60% of their pre-tax wage thereafter until their accumulated entitlement expires, to a maximum of two years in total – yet, although the self-employed are, in theory, entitled to dole, the system is rigid and complex and only a very small percentage have been able to claim any money at all, with the majority giving up the process.

Peña says the self-employed are tending to make up a greater proportion of the workforce these days, but that their financial burden is much tougher than those working for a company on a salary.

“Self-employed work used to be on the fringes of the production process, but new technology and digitalisation, among other factors, are starting to place the self-employed at the centre of the system,” Peña recalls.

“Any reform of their régime needs to be connected to social protection systems, since there are serious problems of financial inequality within the sector.

“The self-employed régime is not unique, nor homogenous, and should not be set up differently to the salaried employment régime, given that both are linked to financing the Social Security fund.

He warns that the sub-commission's work is likely to be 'arduous and delicate'.

The sub-commission has given itself a deadline of a year to draw up a series of recommendations, and started its first meetings a week ago with the main self-employed workers' associations, ATA and UPTA.

Secretary for the ATA's national confederation, the UATAE, María José Landaburu, has also met with the sub-commission and called for retirement pensions and dole money to be the same for the self-employed as for the employed.