Approved the new contribution and social protection system for the self-employed according to their “real income”. The Council of Ministers has given the green light to the royal decree law with this important reform that affects 3.3 million self-employed workers, which reflects the agreement reached with the main self-employed organizations and the unions and the majority employers. The new quotas based on workers’ earnings will start to apply in January 2023 and will be rolled out little by little over the next nine years. In 2025, the minimum agreed fee will be 200 euros per month and that of workers with higher incomes will reach 590 euros per month, according to the table agreed with the social agents.
Historic agreement for the self-employed to contribute based on their income: quotas from 200 to 590 euros
The Minister of Social Security, José Luis Escrivá, has appeared at the press conference after the Council to explain the approved changes, which will allow “one out of every two self-employed” -that is, around one and a half million people- to have access to a lower quota than the current one. Now, the most common minimum is almost 300 euros (294 euros per month).
“Three out of four will be able to pay an amount equal to or less than the current one”, added Escrivá, which will have a “gender component”, since she has highlighted that it reaches many women, and also “older”, with a very important incidence among young people. On the other hand, just under a million self-employed will pay more, those who have earnings above 1,700 euros per month.
In the absence of the publication of the decree in the BOE, which will contain all the details and the small print for some particular situations, below we summarize some questions and answers about the new contribution and social protection model.
What does the reform consist of?
Until now, self-employed workers could choose how much to contribute to Social Security, unlike wage earners who contribute a percentage of wages on their payroll. This situation caused that around 85% of the workers contributed for the minimum possible.
The reform now approved, which will be applied progressively, will mean that the self-employed also contribute based on what they earn, according to the reference that has been popularly called “real income” and that in the legislation is defined as “net income” .
When do the new fees start?
The new system will start operating next year, from January 2023, but will be rolled out little by little over “a maximum of nine years.” The Government has agreed with the social agents and the self-employed groups on transitory contribution tables according to 15 real income brackets, which contain the minimum quotas that will be applied in 2023, 2024 and 2025 in each bracket.
From then on, the reform will continue to be rolled out little by little, for which there will be evaluations every three years between the Government and the social agents, until culminating – at the latest – in 2032. By that date, the quotas will be defined by applying the resulting percentage of all types of contribution (common contingencies, professional, cessation of activity, etc.) to the worker’s net income. As with wage earners, there will be a minimum and a maximum base, which limits contributions to Social Security.
Do I have to pay the minimum fee for the section or can I quote more?
As of 2023, self-employed workers must be in one of the net income brackets, according to their forecasts, and contribute based on those earnings. The self-employed may contribute according to the minimum base established for said section, from which the monthly installments that appear in the agreed table result, or the highest of that section.
For example, if the net income bracket is between 2,030 and 2,330 euros per month, the self-employed person may contribute according to the minimum base established for this bracket (which represents a fee of 320 euros per month in 2023) and up to the maximum base for that section (which represents a fee of 230 euros per month).
What “real income” is taken into account to contribute?
The “real income” is formally defined in the decree as the annual “net income” of the worker. These are calculated taking into account the income of the self-employed as a result of his activities, less the deductible expenses for this.
In addition, to the deductible expenses defined by the Treasury, the self-employed person may subtract an additional 7% (3% in case of being a company) of “deduction for generic expenses” that the Ministry of Social Security added for those expenses that are difficult to justify.
What if I don’t know what my income will be? Or if they change a lot?
The reform assumes that the self-employed contribute based on their net income forecasts, but these quotas will be adjusted later (the following year) with the real earnings of the worker once the Treasury data closes.
At first, the worker will choose a contribution bracket according to their estimates and will contribute based on it. You can change up to six times throughout the year. Once the Tax Agency closes its data for the year, the Social Security contribution will be adjusted according to the actual net income. If the worker paid less than his share, he must pay what he owes to Social Security. If he paid more, it will be the Administration that returns the money to the worker.
The first year, is there still a flat rate?
The Government has maintained the so-called “flat rate” for the start of the activity of self-employed workers. That is, a reduced price at the start of business. This will be applied in the first 12 months of activity to all workers and will be defined in the Budgets each year. For 2023 to 2025, the flat rate has already been agreed at 80 euros per month.
The following 12 months, the flat rate may continue to apply to workers who have net earnings below the minimum annual interprofessional salary that corresponds to this period. Workers will have to apply for these flat rates and may waive them.
End to the top in the contribution of those over 47 years of age
The reform also ends the limit on the contribution that has been applied each year to workers over 47 years of age, so that they cannot raise their contributions at the end of their working life.
With the new system according to income, workers from this age must contribute according to their net income like the rest, with the same maximum base limits.
More access to the ‘unemployment of the self-employed’
Another of the key pieces of the reform now approved goes through an improvement in the social protection of the group, which the self-employed organizations demanded, and which focuses on expanding access to the so-called ’employment unemployment’, the benefit for cessation of exercise. This may be charged, for example, with a significant reduction in income or in the face of the need to reduce staff, for example, without the need for the total closure of the business.
Special benefits are also created for the self-employed in cases that are affected by the new ERTE, the Red Mechanism, in cases of cyclical or sectoral crises.