In Spain being self-employed is becoming more common and, according to the latest demographic data, the number of self-employed workers has increased over the last 4 years, to 18% of the current working population.
Those who venture to start their own business must be aware of the risks they face. Today I would like to talk about the lack of social protection to which self-employed workers are exposed and how this is accentuated if, like 86% of self-employed workers, you pay the minimum Social Security contribution.
Paying contributions at the minimum rate, puts your family, your business and yourself at risk.
As a self-employed worker, it is vitally important to know the situation you face in the cases set out below.
Sickness/disability: Lost income due to your inability to work is compounded by other costs involved. You may need to hire a substitute to keep your business running, repairs may be necessary, invoices have to be paid… Benefits for widows and orphans: Your family will be facing a difficult situation due to the loss of a loved one, made worse by a lack of financial resources to carry on their day-to-day lives.
Retirement: Sooner or later you will be retiring and the state pension system pays you an amount that is far below what you need to maintain your standard of living. Your pension plan should cover this shortfall.
These are just some of the potential issues. We should all review our needs and take appropriate preventive measures.
The charts below show just how underprotected you are, based on your income level, if you only pay the minimum contribution.
Although they are purely for guidance, the figures are truly worrying.
The figures and percentages for the calculations have been obtained from the Spanish Ministry of Employment and Social Security.
Widow’s pension. Calculated as 52% of the Social Security salary base.
As we can see, even in the best case scenario, paying the minimum contribution covers less than half your income and there is no protection for the remaining 54%.
Benefits for orphans. Calculated as 20% of the Social Security salary base.
Paying the minimum contribution covers 18% of a self-employed worker’s monthly income of €1,000, while there is a 94% shortfall for those with monthly income of €3,000.
Temporary disability. Calculated as 60% of the Social Security salary base from the fourth to the twentieth day of the first month and 75% of the salary base from the twenty-first day.
The case of temporary disability is no exception and, if you are unable to work due to illness or an accident, your income could be down by 90%. This is a significant risk, as a two-month or three-month period off work because of an accident can seriously damage your finances.
Total permanent disability. Calculated as 55% of the Social Security salary base.
In the case of total permanent disability, the pension payable does not cover 50% of the salary, even in the best case scenario. A problem until your income level recovers.
Absolute permanent disability and retirement. We consider these two cases together, as the benefits are the same and are calculated as 100% of the Social Security salary base.
These scenarios provide the highest income to retired workers, but the chart shows how even here there is a serious lack of protection in most cases.
This gives an idea of the issues facing self-employed workers. They should certainly assess their situation in order to anticipate these risks and avoid worrying about unpleasant surprises.
We hope that this information will be useful for all of you and for all those who are thinking about becoming self-employed. At RibéSalat we encourage people to become entrepreneurs and we hope that we will be able to support you. We would like to grow with you and assist you with our experience.