SMALL FIRMS
ASSOCIATION
Submission to the
Joint Oireachtas Committee on Education
and Social Protection
on the
Entitlements of Social Welfare payments on
Self Employed Persons
March 2014
INTRODUCTION
The Small Firms Association (SFA) is the “voice of small business” in Ireland representing
over 7,500 companies and 7 affiliated organisations.
At a time when Ireland should be encouraging more people to take risks and create employment,
through setting up a business or becoming self-employed, we find increasingly that the lack of a
social welfare safety net acts as a disincentive to work. For individuals who were self-employed
or Directors of small businesses, who have experienced business failure, particularly in recent
times, we have heard terrible stories of losing everything, with little support from the state.
The SFA has argued that those business owners, who are willing to pay a voluntary additional
PRSI payment, should be allowed do so, in order that they may qualify for all social welfare
benefits as their employees do. This proposal has been positively received and is the subject of
ongoing review by the Department of Social Protection’s “Advisory Group on Tax & Social
Insurance”.
At present self-employed people pay PRSI Class S which provides cover for:
Last September the Advisory Group on Tax & Social Insurance recommended to the Minister
for Social Protection an increase to PRSI Class S for the self employed. We believe that this
shows a lack of understanding of the challenges being faced by small business owners in
Ireland today. The economy and Irish workers are taxed enough. Additional costs will push
already struggling owner managers out of business and fuel the unemployment crisis.
Ireland now has one of the highest marginal tax rates in the OECD. The marginal tax rate of
52% at average earnings is well above the OECD average of 36%. Between Budget 2008 and
Supplementary Budget 2009, marginal income tax rates for the self employed, increased from
46.5% to 55%. The severity of these increases in a short time frame has had a dramatic impact on
business owners, taxpayers and on competitiveness. These levels of tax rates are unusual across
OECD countries and it is an obstacle for entrepreneurs and business start ups.
Our recommendation is that a variation on PRSI Class A could be used to facilitate selfemployed people to make a combined contribution for themselves both as an employer and an
employee.
It is critically important that this is done on a voluntary basis as many of those already in
business may not have the necessary funds to contribute currently as they are struggling to
survive in business. It cannot be viewed as an opportunity to impose an additional tax on small
business.
There are examples of voluntary opt-in for self-employed in other countries. In the USA for
example both the employed and the self-employed pay a ‘Social Security tax’. In general the selfemployed pay twice what the employer pays for an employee with some exemptions. Amongst
these exemptions is a 2% lower rate for people trying to secure /create employment through selfemployment in the current crisis. In many European countries, self-employed people opt-in to the
social insurance scheme; with their rates / taxes varying depending on the nature of their
business. For example, in France the self-employed can pay up to 45% of their net income which
covers a range of benefits including family; health; illness; and pensions. However, there are
exemptions including unemployed people starting up a business; and there is a different approach
for micro-enterprises where the tax is calculated on a % of their turn-over.
PRSI Class A is currently broken into sub-classes depending on the employee’s income. The
employer’s contribution varies depending on the employee’s classification and on the reckonable
pay which is different for employees and employers. One avenue open to the government is to
allow the self-employed to opt into Class A and the PRSI payment they make then depends on
the level of income they receive as an employee and the relating employers PRSI contribution.
Alternatively the government could decide to create a new sub-class to Class A specifically for
the self-employed.
The wider inclusion of self-employed people in the current social insurance scheme on a
voluntary basis would help to build up a greater sense of social protection and solidarity
amongst a not insignificant group. It would be an important and timely development as
current government policy encourages unemployed people to address their unemployment
through self-employment.
Social welfare policies should also address the imbalances between female employee and female
entrepreneurs. The qualifying weeks in terms of PRSI payments to qualify for maternity benefit
and the required advance notice should be similar for female entrepreneurs as for female
employees. Currently a female employer must have 52 weeks of PRSI contributions as opposed
to a minimum of 39 for an employee. The Department of Social Protection also requires female
employers to give 12 weeks of advanced notice for maternity leave, as compared to just 6 weeks
by female employees.
There are 200,000 small businesses in Ireland employing 655,000 employees (half the private
sector workforce). During the period 1998 to 2003 the sector created over 300,000 new jobs.
In order to solve our unemployment problem, we are relying on more entrepreneurial people
to set up and take the risk.
It is only reasonable that they are afforded an equal level of protection as their employees in
the event of business failure. This will encourage more people to step onto the ladder of
creating a job for themselves. Small business are the most effective providers of new jobs
and yet they continued to be marginalised at the very time they could make the greatest
impact to recovery and growth.