Director of the Small Firms Association Patricia Callan argues that if you want to get more people to take the risk of starting up businesses you have to ensure there is a safety net for those that take the risk.

AT A TIME when we should be encouraging more people to take risks and create employment for themselves, 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 those who were already self-employed or directors of small businesses, and have gone under during the recession, we have heard truly terrible stories of losing everything, with very little support from the state.

‘Business owners willing to pay additional PRSI should be allowed to do so’

In its pre-Budget 2012 submission meeting with Minister for Finance Michael Noonan, the SFA delegation 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”.

Clearly this development will not have an impact on those people who are currently unemployed, who were previously self-employed, and this issue must separately be tackled by the social assistance system.

At present self-employed people pay PRSI Class S which provides cover for:

• Widow’s and Widower’s (Contributory) Pension
• Guardian’s Payment (Contributory)
• State Pension (Contributory)
• Maternity Benefit
• Adoptive Benefit
• Bereavement Grant

Our recommendation is that a variation on PRSI Class A could be used to facilitate self-employed 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.

‘Other countries have a voluntary opt-in for self-employed people’

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 self-employed 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 self-employment 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.

‘We are relying on more entrepreneurial people to set up businesses and take a risk’

There are 200,000 small businesses in Ireland employing 655,000 employees (half the private sector workforce).  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.  This is vital to our economic recovery.

Patricia Callan is the Director of the Small Firms Association.