Extending social security to self-employed workers
In many countries, self-employed workers, including own-account workers and assisting family workers, make up the majority of the workforce. Seven out of ten workers are self-employed or work in small businesses. Social security legislation has traditionally focused on covering employees. For this reason, many countries are adopting measures to extend labor and social security legislation to self-employed workers and to overcome challenges through a range of measures tailored to their situation. However, further progress is still needed to ensure effective protection for self-employed workers.
This module highlights the specific challenges of extending social security to self-employed and own-account workers. It also presents an analysis of some policy options, based on international experience and guided by ILO social security standards.
- What are the specific challenges with regard to including self-employed and own-account workers under social security legislation?
- How can self-employed and own-account workers be included under social security legislation?
- What else needs to be considered when aiming at including self-employed and own-account workers under social security legislation?
- Diverse circumstances, needs, and contributory capacities: The situation is very different for professionals or business owners than it is for small farmers, entrepreneurs, members of cooperatives, or contributing family workers, requiring a diverse set of policy responses.
- Legal exclusion: Social security legislation is often focused only on employees. Sometimes self-employed workers are de facto excluded because they do not meet certain eligibility criteria (minimum income). Disguised self-employment is another issue, as are other situations involving an unclear or ambiguous working arrangement.
- Administrative barriers: Self-employed workers face a higher administrative burden in terms of reporting income, keeping records, collecting contributions, and receiving benefits. Without an employer, they are personally responsible for all administrative procedures.
- Inadequate benefits and priority needs: Self-employed workers are not always willing to contribute to social security if the available benefits do not meet their needs. Depending on their situation, different types of benefits and services may be necessary to meet their needs, especially their most immediate needs.
- Lack of enforcement and low compliance: In some cases, compliance imposes excessive costs and involves cumbersome procedures that discourage self-employed workers from accessing the systems. In addition, labour inspections are unable to detect fraud committed by self-employed workers. Inspections are more difficult for workers who have no fixed workplace (e.g., taxi drivers, street vendors) or are "invisible" (domestic workers).
- Lack of information and organization: Many self-employed workers are not organized, and most existing organizations lack capacity. Due to their isolation, they may lack information/knowledge about social security plans and procedures.
Extending legal coverage
- Including self-employed workers in the general social protection system in order to provide adequate coverage when workers change employment status or combine paid (part-time) employment and self-employment.
- Expanding the scope of the legislation for workers, for example by redefining the terminology used in social security legislation, such as contributor or insured person.
- Promoting mandatory coverage, rather than voluntary coverage.
- ILO study: Microemprendedor Individual in Brazil
- ILO policy resource guide: reducing vulnerabilities of homeworkers through extending and applying the law
- ILO policy resource guide: innovations in regulatory support for street vendors
- ISSA good practice: Extension of family benefits to the self-employed in Monaco
Promoting mandatory coverage, rather than voluntary coverage
- Simplifying and streamlining registration and other administrative procedures, such as through mobile or online registration, and removing geographical barriers by increasing access points for self-employed workers.
- Developing integrated service delivery mechanisms, such as one-stop-shops, to improve access to social protection for self-employed workers, especially in remote areas.
- Facilitating access to social security through partnerships with independent workers' organizations (cooperatives or rural producers' associations).
Facilitating contribution collection and funding mechanisms
- Simplifying the declaration and payment of social insurance contributions and taxes for the self-employed, such as through monotax mechanisms.
- Facilitating the payment of social security contributions by making the timing of contribution payments more flexible or by allowing contribution to priority branches of social security, and by introducing differentiated contributory provisions or unified social insurance contributions.
Enhancing compliance and facilitating inspections
- Making it easier to carry out inspections of self-employed workers by adapting the legal and operational framework to their characteristics, including the legal framework governing inspection services, and by allocating more resources to inspection services.
- Raising awareness and promoting compliance through preventive measures and combining sanctions with information and awareness campaigns.
Raising awareness and sharing information
- Raising awareness of the importance of social protection among self-employed workers and informing them about the plans and benefits available and the relevant procedures, taking into account the specific needs and characteristics of self-employed workers in the design of communication and awareness activities.
Strengthening incentives for formalization through links with other policy areas
- Simplifying business registration procedures and reduce transaction costs for self-employed workers, facilitating market access for self-employed workers to help self-employed workers transition to the formal economy.
- Providing training to self-employed workers in the areas of finance and entrepreneurship.
- Promoting the organization of self-employed workers.
- In view of the specific characteristics of self-employed workers and the heterogeneity of this group, a series of additional measures are necessary to ensure the application of the laws in practice. These measures include adapting registration and other administrative procedures and the calculation of contributions, adapting labour inspection mechanisms to the situations of different groups of self-employed workers, and raising awareness among self-employed workers about existing plans and how to access them.
- Designing plans that take into account the worker's ability to contribute and providing appropriate mechanisms for adjusting contribution rates and scales.
- Where separate plans are created for self-employed workers, appropriate mechanisms should be found to minimize negative effects on labour mobility and protect workers' rights.
- Linking the different policy areas and strengthening synergies can multiply the positive effects. For example, entrepreneurship training and skill-building programs can promote productivity among self-employed workers and help them transition to the formal economy.
- ILO study: Innovations in extending social security to independent workers
- ILO report: Global evidence on the contribution to employment by the self-employed, micro-enterprises and SME's
- ILO Compendium on international standards and human rights instruments
- EC Study: Access to social protection for people working on non-standard contracts and as self-employed in Europe
- ISSA Handbook on the extension of social security coverage to the self-employed
- ISSA Guidelines: Administrative Solutions for Coverage Extension