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The rules governing Social Security contributions for self-employed workers are changing in January. Graduated income tax brackets will no longer be the reference point. Payments will be based on 70% of declared earnings in the previous three months, rather than on the total of sole trader income from the previous year. The rate of contributions also drops from 29.6% to 21.4%. Freelancers will have to submit a quarterly statement to determine the relevant income, which will be the basis for Social Security assessment in the following trimester.
Earned income can be adjusted by up to 25% (up or down) so that workers can elect to pay a higher or lower amount that will eventually be reflected in benefits. The new rules also establish a minimum monthly Social Security payment of €20, including periods with no recorded income, as a way to ensure on-going social protection coverage, rather than the start-and-stop method that was used in the past.
Beginning in 2018, taxpayers with earnings exclusively from Local Lodging (Category B) will be exempt from SS contributions. Those who accumulate salaried income with self-employment earnings from “AL” will only be excused from monthly Social Security payments on their green receipts below a gross of €2,450 per month. Any excess shall be assessed at the rate of 21.4%. The measure is expected to encourage “AL” compliance which has already quadrupled over the past three years.
The Government has confirmed that, for independent workers under the Simplified Regime, Social Security deductions are to be based on net taxable income after application of the appropriate coefficient, not the gross received. In addition, overall Social Security deductions due may not exceed 10% of gross income from all sources.
Independent entrepreneurs in the Simplex system must still submit a Social Security annex together with their IRS tax return. The disputed annex was created in the previous legislature, but it created confusion. The new government now promises to examine this reporting scheme in the coming months.
Cleaning at regular intervals is an essential service in Local Lodging offerings. There are two methods of hiring cleaners: as an independent sole trader or as a domestic worker.
The first is by far the more common of the two. The Owner agrees to pay “X” Euros per hour for “Y” hours per day over an interval of “Z” (daily, weekly or monthly). Upon completion of the interval, the Owner pays the Sole Trader and the Sole Trader issues an electronic green receipt. The Sole Trader is solely responsible for his/her own Social Security contributions.
The same method applies when using a cleaning company.
The second method is as a Domestic Worker. Here there are three contractual options:
- Hourly: a minimum of 30 hours per month. Retentions from pay to the Domestic Worker will be at 50% on an annual basis;
- Monthly: Minimum of 80 hours/month where the worker has full normal rights and privileges;
- Full time: where the minimum wage is €419.22 X 14 per annum.
For Social Security contributions, the basic hourly wage is €2.42 per hour. Total SS contributions are 28.6%; 19.9% is paid by the employer and 9.6% by the Domestic Worker. The full SS monthly payment is €79.23.
In a new hiring situation, the Sole Trader method is usually simpler and more flexible for all. If the arrangement proves long-term, the position can evolve into a on-going Domestic Worker contract.