According to reports this week, the Spanish government is preparing to overhaul the way social security contributions were paid and take into account their actual earnings rather than a fixed monthly amount regardless of the true income.
What needs changing?
It has long been a gripe of those registered as “autónomos” – the term for self-employed workers in Spain – that the system of paying into social security involves a “tarifa plana” or flat fee that currently stands at around €283 a month at the minimum rate.
The fee gives access to Spain's public health system among other welfare benefits including contributions towards a state pension but has to be paid regardless of whether an autónomo has any monthly earnings, and on top of other taxes.
In fact self-employed workers in Spain currently pay the highest monthly social security fees in the EU which are far higher than the UK's €14/month (minimum fee), the Netherlands's €50 a year and Germany's €140 for those earning more than €1,700 a month.
Under the current system freelancers get to choose the contribution base that they want to pay a rate on and not surprisingly 85 percent of Spain’s freelance workforce opts for the minimum contribution base.
This system is seen to penalize those on a low income while allowing those who are doing well and earning more to get away with contributing more. Basically, your contribution would be the same whether you earned €20,000 a year or €200,000.
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Home office in Sella on the Spain's Costa Blanca. Photo by Euan Cameron on Unsplash
So what are the new proposals?
It seems that the new plans consist of establishing income brackets to set the level of contributions meaning the more you earn then the more social security contribution you pay. It broadly follows the system used to establish how much income tax is paid.
Introducing a mantatory system that sees to link contribution to proportion of earnings rather than a flat minimum rate will mean that when self-employed workers see a reduced income, their social security contributions will drop and when they earn more, they will pay more.
Cadena Ser which broke the story said the Social Security Ministry and Tax Agency were sharing data to come up with a new system but that nothing specific had been decided yet.
An overhaul in the system would mean that the freelance workforce would be entitled to better benefits down the line. Increasing pension contributions based on actual income rather than the minimum opted by the majority means a bigger state pension when the time comes.
The report suggested the government was looking at a system that would set €12,000 as a minimum base with discounts of up to 50 percent on contributions from those who don’t reach that threshold with the next bracket for those earning between 12,000 and 25,000 a year contributing the same as the current minimum base with another five brackets beyond that.
Who will it affect and how?
There are 3.2 million self-employed people in Spain, around 16 percent of the country's working population.
This may seem like a large amount for a nation that isn't famed for its entrepreneurial spirit, but it's more a product of a dire labour market for salaried employees than a consequence of advantageous conditions for autónomos.
For what we know so far it seems that for those who earn up to €25,000 it’s unlikely to change their monthly contributions unless they are earning below €12,000 when they may be able to get discounts on their monthly contributions.
Those who earn over €25,000 will likely see their monthly payments increase.
The new system hasn’t been designed just with the lowly paid freelance in mind. It has been calculated that creating a compulsory tier system could see a rise of 20 percent of contributions.
What are people saying?
The move is controversial with critics railing against the introduction of any change which could see higher monthly payments for those trying to keep afloat in during the coronavirus crisis.
“This is not the right time, the self-employed are suffocating,” said Lorenzo Amor, the president of the self-employed workers association ATA, who argued that lowering monthly fees would be helpful but not raising them.
Nos tendrán enfrente quienes pretendan subir las cotizaciones a los autónomos de forma obligatoria
Ni es el momento ni toca
Los autónomos están asfixiados!!!
Bajar las cotizaciones,SI
Subirlas NO pic.twitter.com/jB5Xq3pnEY
— Lorenzo Amor (@lorenzoamor_ata) October 5, 2020
However, it was welcomed by others.
“We celebrate the fact that a government is doing something about one of the sector’s longstanding demands, which is a protection system based on solidarity. It is important to come out of our state of precariousness and firmly join the welfare state, and this is a fundamental step toward that,” María José Landaburu, secretary general of UATAE which also represents freelancers, told El Pais.
When will it be introduced?
Beyond the leaked reports, at the moment there is no official word on when we can expect to see the changes and confirmation from relevant ministries only goes so far as to say a proposal is on the cards but no details are forthcoming.
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