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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.
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:
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.
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.
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.
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Self employed people pay PRSI too so there is no way they should be treated differently to the rest of us.
The article clearly states they pay PRSI class A, it even lists what it covers. What it does not cover, is unemployment. They are employing themselves. They should be bale to pay PRSI ti cover their own unemployment also.
They pay lesss PRSI than everyone else and so don’t recieve the dole. The article advocates that they should be allowed the pay extra if they want and recieve the benifits that go with it. This is only pure common sense but then again it’s the government that you are dealing with.
Probably just a typo in your comment P Wurple but it’s Class S and not Class A. As well as unemployment benefits, the self employed are also not entitled to Illness Benefit which is very important also.
Crikey, it’s typo central on my comment Misses OD. Apologies!
Many self employed people were employees for years and paid full PRSI. They should at least be entitled to get a percentage of what they paid into the system during those years.
So people taking the iniative to get themselves off the dole should not have a safety net? My dad was made redundant two years ago after working 25 years in his position. He had the choice of startin his own business or going on social welfare. In fairness, Enterprise Ireland are a class organisation but he pays 35% tax so the hours are long and he works extremely hard. Should he be punished if it fails? while some of those on social welfare havent worked a day in their lives even during the celtic tiger! my dad never had a medical card bot even the 13 weeks he was claiming the prsi he paid. Those who take the risk to get themselves out of a hole should be rewarded!
The self employed pay tax and PRSI yet get no help if they need it so how are welfare families entitled to so many handouts, when many of them have contributed nothing?
Well said Aidan. My dad is selfemployed over 35 years now and is atruggling. He pays full PRSI and gets nothing.
My Dad’s paid all hisTaxes, put 4 kids through school/college, and in the good times has employed staff yet during the bad times he’s on his own. I’ve worked since college & i’m lucky BUT This does not give me the drive to start my own business EvER!
Brings tears to my eyes. My small business has collected a small fortune in taxes for the man over the last 15 years. I’ve tried to keep my staff employed, and saved the man plenty of money. It breaks my heart to think that if my business fails; I worthless!
You’re not worthless I’m the….problem is the polar opposite actually…your worth your weight in gold to this economy. Rather you thinking you’re worthless you should be seeing it as this country not realising you’re immense value to the nation. I’m in the same boat as you…small family originated and run business that has contributed a lot to the economy. But if it all goes south…you’re discarded like a used tissue. It’s immoral how any government have failed to rectify this but at least it’s being discussed. Raise it at the door step at the next election and watch how the maggots wriggle round the question. Keep your head up…things WILL get better.
Your not worthless people like you will rebuild this country as you are the life blood of any economy.
I’m only saying
You are certainly not worthless. If it was not for you and Tony and all the other small business owners , this country would be a much poorer place. Fair play to you all for keeping going and it certainly is not fair that you would not get some assistance if your businesses failed….
Please , do not think of yourself as worthless, you should feel very proud and maybe you and others like you could start a campaign to the relevant Minister (JoanBurton ) even on facebook to change the law and allow you to receive your dues if your business is no longer viable.
Sorry if this is a little off topic , but this is what ordinary people are up against… It is in all our interests to know this
https://www.youtube.com/watch?feature=player_embedded&v=kpg76VjTa58#!
Thanks for your comments guys, much appreciated.
I didn’t mean worthless that way; I’m not downing myself. I really meant it to represent how the government value us self employed employers, should any of our businesses fail.
It sure is easy to get pissed off listening to the government taking, on one hand about bailing out the banks with huge sums, and on the other hand, talking up the ‘ stimulus for small firms’ The banks are so tight fisted with their money now. The banks blew away their money on bad gambles ( and we’ve covering their bad bets) and now they are gambling their money again on various new wagers, rather than the prescribed stimulus. Who’s running the country?
End of rant!
At least matter is being spoken about, people who get off their rears and try should be supported if their business fails. Majority fail because they are owed 1000s they cannot recover from debtorsi n this depression. As for paying twice, sticking more pressure in cashflow etc is hardly helpful
The rules are stupid and unfair! Why are farmers not subject to the same rules? It seems they have it totally sewn up! Most of them never pay tax, but are entitled to everything going! Including a pension and grants to put their kids through college!
Great article by the journal. Will the people who have the power to implement this listen?
Will they like heck …
My Son was made redundant 4 and half years ago . The biggest mistake he made was to set up his own business.it has been nothing but hassle both from customers and taxman, customers not paying for the work, or leaving him short and saying that they will send it next week, yea next week hardly ever comes with these non payers. Taxman hassle is that his books shows he did do the work so regardless wether he got paid or not he HAS to pay the tax and the supplies he bought for the job needs to be paid also which leaves him down the cost of the job,the cost of his time and skill and the vat on the above And then the tax for the income he did not receive. So with some jobs he may as well have flushed it all down the toilet and gone back to bed
As a self employed person one of the reasons for me considering going back to the PAYE sector is the total lack of support if I were to become ill or my business fails. It doesn’t make sense that if I employ a person he/she is entitled to benefits after 13 weeks, yet I may not be entitled to the same after 13 years. I would gladly pay into an enhanced PRSI fund ( upgrade from Class S) for the peace of mind that it bring.
Absolutely. I’m in the same boat. Teaching music privately and have virtually no work in the summer so have to rely on what I earn 9 months of the year. And when I’m sick I get nothing. I would gladly pay more prsi for illness benefit.
Tell me about it lost my job a few years ago no dole I was paying 35 pence in the pound every pound no tax free allowance yes I got some cash back at tge end of the year but not a lot , here’s one thing when I’m on paye I’m down as a single mans tax but when I when to the welfare the told me my partner has a wage so why us that nit the same when a person paying tax
Maybe with the likes of Wallace in the chamber now small business owners can find a champion in government. Without business owners in government, we’ll never see change. The lunacy of hanging your business owners out to dry is beyond belief but not unbelievable in this country.
Yeah but what is Wallace doing on their behalf? F all from what I can see. In fact so far he has been a liability in opposition.
I would actually go further an say the amount of tax you pay should be considered regardless of prsi payment. One year I paid 30k+ in tax and then was entitled to nothing.
Mean while people who never paid income tax were getting benefits. I was privy to this information so it isn’t wild speculation. Lots of people getting over 4k a month in benefits who never contributed. That is ignoring things like medical cards. If your self employed income come in within one tax year and dries up in the next you really are at a loss.
To add to that, self employed people are not entitled to the PAYE tax credit and so pay more income tax compared to an employee on the same wage. Many self employed are company owners and do pay their income tax through the PAYE system but are still not entitled to the PAYE tax credit. This is unfair.
Have to agree, as a self employed person it does make me ill at the thoughts of things going bust on me, its all the risk for zero “reward” if things go tits up for us.
For those that missed it first time round, on Monday TJ ran an excellent and thought-provoking piece about the concept of a Universal Basic Income. Well worth a read….
more information on how Basic Income benefits the Self Employed ( amongst others)
The tax increases necessary to sustain this would hurt the self employed more than anybody else, though it would enable more people to start very small enterprises without risk.
Certain multi-nationals are getting people to work basic jobs as self-employed persons, meaning they get away with no responsibilities towards that employee and pay lots less in tax, etc. this is even creeping in at part-time roles. Race to the bottom.
Lisa, this is widespread, and not just multinationals, but you are 100% correct. Its impossible to get into a lot of MNC work, even in lucrative fields like IT, without being willing to work as a self employed contractor. If you are lucky you may get excellent rates, but there are quite a few paying very modest rates. Another thing they do is set an 11 month limit on how long you can contract to them for to prevent you from gaining any rights under the temporary work directive.
Totally agree with this. I run 2 businesses myself and work 70 hour weeks sometimes just to keep the bills paid. While they are about it they could do something about the growing black market. I have continually been priced out of work by competitors doing deals for cash and no paperwork. Telling a customer I am more expensive than some others because I source everything off Irish suppliers does not mean squat anymore to them. Oh Crikey I feel a rant coming on…
All self employed are rolling in the money. Your a bunch of moaners. Im Self employed myself so your not fooling me. If you cant hack being self employed give it up thats what Id do.
Well Frank, since you are “rolling in it” may I suggest you pay someone to teach you the difference between your and you’re. As well as that, your last sentence is kind of stepping all over what this whole article is about. Troll much?
I dont troll as much as you thats why Im a good self employed person unlike you.
Couldn’t agree more with the article. Lets see if the clowns listen. Then again, if it wasn’t their own idea, then it must be wrong.
Given that PRSI no longer pays out on the basis of income, maybe that’s what we should look at abolishing. It is now just a tax.
Introduce a single tax on earnings with some kind of extra employer contribution that the self-employed could also make if they wanted to avail of full benefits.
For the purposes of Self employed PRSI there are two distinct catagories those that operate as sole traders and partnerships on the one hand and those that operate through companies and are considered proprietory directors. (that is they own more than 15% of the company) both of these groupings of people pay PRSI as class S which is 4% of income. All that entitles them subject to certain criteria is a contributory old age pension and maternity benefit. As it stands as per the article there is no entitlement to jobseekers or disability benefit. Of course the option is available to apply for assistance but invariably they fall down on the means testing for assistance payments from social welfare.
I was at a course about six weeks ago and it was mentioned that in respect of proprietory directors that Class A was going to be extended to them but I have heard no more about it. While this would be a welcome move there would be the 2 year wait to build up appropriate credits. There is also a cost element as the total PRSI wedge moves from 4% now to depending on the income of the individual to between 4.25% to 14.75% of income. However I am sure that people would be willing to pay this is it guaranteed the safety net at the end of the day.
this then leaves those who operate outside of a company set up with the existing system which can pose many difficulties.
But surely the so-called safety net is only worth 52 job seeker benefit payments? And what about employer’s prsi exemption for self employed?
Good point Patricia, but as service provider I’m VAT liable at an eye watering rate of 23%. Ultimately somebody ends up having to pay that VAT rate but nobody gets anything for it. Thats nearly 6 times the proposed increase in prsi – would it not make far more sense to scrap that VAT and pay ordinary A class instead? This is crippling my clients because they lose all of the savings they would otherwise make from using a contractor instead of an employee.
If there is no change to the current VAT rate, and PRSI is increased, then many people could end up with enormous effective tax rates.
The other issue is the very hardest up self employed, the people who really need the benefits of additional PRSI, are those least likely to be able to afford it. I don’t have the reference to hand, but there was a study done some years ago, I think published in HBR, that showed self employed people earned only about 85% of what they would have earned in a job, and many people only became self employed because they had no other options left.
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