Extending social security to self-employed workers
In many countries, self-employed workers, including own-account workers and contributing family workers, represent the majortiy of the workforce. Seven in 10 workers are self-employed or work in small businesses. Social security legislation has traditionally focused on providing coverage for salaried employees. However, many countries have taken steps to bring the self-employed under labour and social security legislation, and to address the specific challenges through a range of measures tailored to their situation. However, more needs to be done to en-sure self-employed workers are effectively protected.
This module stresses specific challenges for the extension of social security to self-employed and own-account workers and explores 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?
- Diversity of circumstances, needs and contributory capacities: The situation of liberal professions or business owners is very different from the situation of small farmers, contractors, members of cooperatives or contributing family workers which requires a diverse set of policy responses.
- Legal exclusion: Social security legislation often focuses on employees only. In other cases, self-employed workers may be de facto excluded because they fail to meet certain eligibility criteria, such as earning above a certain minimum level of income. Another notable issue arises with regard to disguised self-employment or other situations where an employment relationship is unclear or ambiguous.
- Administrative barriers: Self-employed workers face a higher administrative burden in terms of income declaration, record-keeping, contribution collection and benefit receipt. Without an employer, they have to deal with all the administrative procedures themselves.
- Low and volatile earnings: Self-employed workers face the double-contribution challenge, that is the burden of paying the full contribution (employer and employee contribution) in the absence of an employer. In addition, the earnings of self-employed workers are often volatile and thus not be able to contribute the same amount at the same time every month, as required by many social security administrations.
- Mismatch between benefits provided and priority needs: Self-employed workers may not be willing to contribute to social security, if the available benefits fail to meet their needs. Depending on the situation of workers, different types of benefits and services may be necessary to meet their needs, in particular their most immediate needs.
- Lack of enforcement and control: In some cases, the compliance with the law imposes excessive costs and involves burdensome procedures that discourage the self-employed to access the systems. In addition, labour inspectorates often lack capacities to detect evasion by self-employed workers. Inspections are more difficult for workers with no fixed workplace (e.g. taxi drivers, street vendors) or those who are “invisible” (e.g. home-based workers, domestic workers).
- Lack of information and organization: Many self-employed workers are not organized and most of the existing organizations lack capacities. Due to their isolation, they may lack information/knowledge about social security schemes and the procedures
Extending legal coverage
- Include self-employed workers in the general social protection scheme to provide adequate coverage in cases when workers change their employment status or combine (part-time) paid employment and self-employment
- Broaden the scope of workers covered by law, for example by re-defining the terms in the social security legislation, such as contributor or insured person
- Prioritize mandatory coverage over voluntary coverage
Facilitating access to social protection by removing administrative barriers
- Simplify and streamline registration and other administrative procedures, for example through mobile or online registration, and remove geographical barriers by increasing the access points for self-employed workers
- Develop integrated service delivery mechanisms, such as one-stop-shops, to improve the access to social protection for self-employed workers, particularly those living in remote areas
- Facilitate access to social security through partnerships with organizations of self-employed workers, such as cooperatives or rural producers' associations
Facilitating contribution collection and financing mechanisms
- Simplify the declaration and payment of social insurance contributions and taxes for self-employed workers, for example through monotax mechanisms
- Facilitate the payment of social security contributions by allowing greater flexibility regarding the scheduling of contribution payments or allowing for contributing to priority social security branches, introducing differentiated contributory provisions or unified social insurance contributions
Enhancing compliance and facilitating inspections
- Facilitate the inspections of self-employed workers by adapting the legal and operational framework to their characteristics, such as adapting the legal framework governing inspection services, allocating more resources to inspection services
- Raise awareness and promote compliance through prevention measures and combine sanctions with information and awareness raising
Raising awareness and sharing information
- Raise awareness among self-employed workers on the importance of social protection and inform them about available schemes and benefits as well as the relevant procedures, taking into account the specific needs and characteristics of self-employed worker for the design of communication and outreach activities
Strengthening incentives for formalization through linkages with other policy areas
- Simplify business registration procedures and reduce transaction costs for self-employed workers, facilitate market access for self-employed workers to promote the transition of self-employed workers to the formal economy
- Provide access to finance and entrepreneurship training for self-employed workers
- Promote the organization of self-employed workers
- Given the specific characteristics of the self-employed workers, and the heterogeneity of this group, a range of additional measures is necessary to ensure that the legislation is applied in practice, such as adapting the modalities for facilitating registration and other administration procedures, calculating contributions, adapting labour inspection mechanisms to the situation of different groups of self-employed workers and informing the self-employed about existing schemes and how to access them.
- Design schemes in a way that takes into account the contributory capacity of the worker, and foresees appropriate mechanisms to adapt contribution rates and contribution schedules
- When separate schemes for self-employed workers are created, appropriate mechanisms need to be found to minimize negative effects on labour mobility and protect workers’ entitlements.
- Linking different policy areas, and strengthening synergies can multiply positive impacts. For example, entrepreneurship training and skill-upgrading programmes with social protection can help to develop the productivity of self-employed workers and promote their transition to formality.
- 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