Are you self-employed? Thinking about it? Your timing couldn’t be better now that some valuable social welfare benefits have been finally extended to the self-employed, including sickness and disability benefit.
There are about 326,000 self-employed income-tax paying workers in Ireland, according to the Revenue (450,000, say the Department of Social Protection), quite low numbers compared to many other EU countries. Ireland also does poorly in the number of new companies created each year and one reason often cited is that the self-employed and new entrepreneurs have a relatively small social safety net compared to people in other EU and OECD countries.
Here, the self-employed/sole trader and small business owners pays the same 4% social insurance contribution as every other worker, yet have been unable to claim the same benefits, like basic dental or optical treatments, sickness, disability or Jobseeker’s Benefit if their work dried up. The reason for the anomaly was the absence of the employer’s 10.75% PRSI contribution.
The great crash of 2008 highlighted how tiny that net has been for the Class S, self-employed. Employees were not the only ones to lose their jobs; so did the contractors and freelances who depended on those same companies for their livelihoods. Everyone’s fees dropped after the crash; our spending on artisan goods and services fell sharply while everyone’s taxes went up.
By 2016 the government could finally afford to make some reforms.
On the tax front, it introduced a €550 earned income tax credit for the self-employed, farmers and company directors who had not been eligible for the PAYE credit worth €1,650 (€1,830 from 2018). In 2018 it will rise to €1,150.
Last Spring the Department of Social Protection announced it was extending treatment benefits like dental and optical examinations under the Treatment Benefit Scheme to the self-employed and last week it was announced, at a cost of about €23 million, that the Invalidity Pension will also be payable starting next month.
The pension is a modest €198.50, is taxable and will only be payable to people under the age of 66 who, due to sickness or disability cannot work anymore and who have the qualifying number of PRSI contributions:
48 PRSI paid or credited Class A,E,H,S in the last complete contribution year r the second last contribution year before the date of their claim.
(This benefit is payable even if you have income protection insurance – something every self-employed person or small business owner should have had to protect their your income in the event of illness or disability up to age 65. The cost of income protection insurance is tax deductible at your highest rate of tax.)
When the government first suggested that it would consider extending PRSI benefits to the self-employed many wondered whether PRSI contributions would have to go up. Or if the new system could be voluntary, with people who could afford private dental/eye treatment or income protection insurance being allowed to opt out. Instead, they found the money to finance the benefits …for now.
People decide to become their own boss for lots of different reasons: you might be stepping into a family business. Or you’ve worked for someone else and spotted a great opportunity to do something similar in a different way. Others become self-employed by necessity after losing a job and the hours can be more flexible if you also have a young family to care for. Artisans and farmers’ work, is clearly more ‘unconventional’ and is produced at a different work pace than that of the office or factory worker.
As every self-employed person knows, corporate life has some big attractions – a regular paycheque, a pension (if you’re lucky) and hopefully an opportunity for job security that will get you closer to the top of the queue if you need to speak to a mortgage lender.
Self-employment is riskier, but it also means you get to be the dictator or your own success. There’s no one else to blame if things don’t quite go to plan. It rewards people who can cope with risk and uncertainty and it suits people with imagination, are innovative and flexible. (There’s no question having a fully employed spouse or partner in the early days of self-employment will help you sleep at night.)
The best advice I ever got when I became self-employed 30 years ago was to get a good accountant and to start a pension. I did both and am eternally grateful I took it. But my accountant also told me that I would have to build my own welfare safety net of life, income and health insurances and to ring-fence at least one-third of my gross turnover into my tax payable account. Only after the Revenue got its cut, could I then pay myself.
These extra PRSI benefits are especially welcome for the self-employed on tiny incomes. The government has actually done the right thing.