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EU Commission wants to improve access to social protection

Non-standard work should become more standard: self-employed and non-standard workers should be adequately protected.

Dr. WSW – 05/2017

The European Commission has launched an initiative to improve access to social protection, which includes the social security systems. The Commission has launched two consultations that are similar in content: the first on 21 April was an Inception Impact Assessment for all stakeholders; this was followed a few days later on 26 April with a consultation of the Social Partners. In doing so, the Commission has laid down a major cornerstone of its project for a European Pillar of Social Rights. 

 

Specifically, the initiative is aimed at improving access for two groups of people: those who are self-employed and those who have non-standard work contracts. The group of people designated as being in non-standard employment is very broad; it covers all forms of part-time and temporary work. It also focuses explicitly on ‘new forms of employment’ such as crowdwork, collaborative work and ICT-based mobile work. 

The objectives of the initiative – not always harmonious

The initiative has multiple objectives and these have the potential to conflict with one another. The main focus is on aligning social protection across standard employment, non-standard employment and self-employment. The aim is to make it easier for people to opt for self-employment or non-standard contracts. This is to be further underpinned by the creation of individual accounts which allows workers to preserve their acquired ‘rights’ and transfer or continue these into the future, regardless of occupational and private transitions. This approach goes beyond just aligning social protection across different forms of employment. Even more far-reaching is the claim that the initiative will provide ‘adequate replacement benefits in situations of income loss’ while at the same time reducing poverty. 

 

Another potential source of tension is the European Commission’s intention to improve the funding of social security systems through the initiative. This could indeed be achieved if the acquisition of (new) rights, as suggested by the Commission, were to be adequately funded by those persons involved, namely through insurance contributions. A positive side effect from the Commission’s point of view would be a decrease in the need for safety nets of last resort. However, this is ultimately nothing more than greater financing of social benefits through contributions instead of taxes. This is the exact opposite of what the European Commission is constantly advising the Member States to do in other contexts. 

 

Nevertheless, the increased financial burden is not without its consequences; the competitive advantage of alternative forms of employment diminishes and this lowers the incentive to take up these forms of work, as promoted by the European Commission. The Commission also acknowledges this but does not comment on how to best deal with this issue.  

Procedure

The aim of the Inception Impact Assessment is to inform the public about the initiative’s possible content and any alternatives. The Commission also called for feedback from interested parties; submissions were open for one month.  

 

More or less concurrently, the Commission commenced a first phase consultation of the Social Partners, as per Article 154 TFEU, on “possible action addressing the challenges of access to social protection for people in all forms of employment in the framework of the European Pillar of Social Rights”. The consultation paper fulfils the Commission’s obligation under Article 154 TFEU, in so far that workers in non-standard employment are concerned. However, the legal basis for action to address issues affecting self-employed persons is based on Article 352 TFEU, which means there is no obligation to consult the Social Partners. Nevertheless, the Commission has decided to extend the consultation “on a voluntary basis” so that the Social Partners can share their views on the social protection of people in self-employment. In summary, the Social Partners are being asked to comment on the possible direction of EU action regarding the issue of non-standard workers accessing social protection. 

Where does the problem lie?

Massive changes in the world of work, especially in the wake of digitalisation and the resulting new forms of work, call for the social protection of various forms of employment. This is a wide spectrum that includes everything from the fulfilment of smaller assignments online through to providing comprehensive services. It even includes groups coming together to tackle complex work through the distribution of various tasks. 

 

The question of whether the social security systems need to be adjusted is inevitable. Even if the world of work and traditional employment relationships change, people’s need for protection remains the same. However, putting aside the digitalisation of the working world, many (solo) self-employed persons and people with non-standard work contracts have never had adequate protection through the social security systems. As a result, gaps in the social protection of the affected workers could arise and there could be additional burden on the national welfare systems.  

The situation in Germany

The issue is particularly well known in Germany where social insurance is predominately linked to the traditional employment relationship and not to forms of self-employment. People in self-employment, in contrast to most people with non-standard contracts, are usually not covered or have to take out expensive insurance themselves. The latter is especially true for statutory health insurance where self-employed persons take out insurance voluntarily with either a statutory or private health insurance fund. Generally speaking, the contributions paid by self-employed workers are very high, even if their income is low. The same applies to long-term care insurance. In terms of statutory accident insurance, self-employed persons are not generally covered, but there is the possibility of voluntary insurance cover.  

 

Even in the statutory pension insurance system, it is only compulsory for certain groups of self-employed persons to take out insurance; however, there are attractive voluntary insurance options for the other groups of self-employed. The need to adapt to changed forms of work and modernisation have also led to a comprehensive national reform debate in the pension insurance system over the inclusion of solo self-employed persons in statutory pension insurance or private pension insurance. A final decision is yet to be made. 

The situation in Europe

But even when looking beyond German’s borders, the picture is quite mixed. A detailed overview of the situation in Europe can be found in the report published recently by the Commission “Access to social protection for people working on non-standard contracts and as self-employed in Europe”

 

In terms of pension schemes, the report states that special statutory pension regulations apply in 12 Member States; coverage is compulsory in seven of these Member States and is voluntary in the other five. Action particularly needs to be taken with regard to young people. They are often employed in non-standard forms of work where they do not build up their pension entitlements. This increases the risk of poverty and poor living standards in old age. If the analysis of the problem is accepted, then the “de minimis thresholds” that exist in many national systems would actually have to be abolished. In fact, the Commission does indeed criticise social security gaps in other areas, including for “mini-jobbers”. The Commission is also critical of the fact that self-employed persons often have no access to occupational pensions.  

 

With regard to unemployment benefits, the report found that self-employed persons do not have access to unemployment schemes in 10 Member States, that it is compulsory in 12 countries and voluntary in 6. Unemployment insurance is also problematic for temp workers with almost a third of people on temporary full-time contracts in the EU unable to access unemployment benefits. 

 

Looking at health insurance, protection is potentially worse for self-employed and non-standard workers unless they take out voluntary insurance at significantly higher premiums. 40% of self-employed persons across Europe are not eligible for sickness benefits.  

The root of the problem: difficulties in accessing, transferring and converting rights

Differences in the breadth of access to social protection is the key motivation behind the Commission’s initiative. Reportedly up to 50% of the working population who are self-employed or in non-standard work are at risk of insufficient social protection. At the same time, the report acknowledges that self-employed workers in 17 Member States have access to most social security benefits at a level similar to dependent salaried workers. However, the report criticises the fact that social security contributions for the self-employed are mostly voluntary and calculated on a flat-rate basis.  

What’s the solution?

The Commission is calling on all stakeholders to develop sustainable solutions within their social protection systems. In principle, there are no objections to doing this. However, a crucial issue will be the funding of this additional social protection. On the one hand, it must not overburden those concerned. On the other hand, it must not lead to unsustainable business models being subsidised at the expense of the community of solidarity.  

 

The proposals put forward by the Commission follow the structure of the problem analysis: access to social protection while also maintaining ‘rights’ already acquired.  

Options for better access

The Commission has proposed several EU-level recommendations for action. It is worth noting that the two consultation papers differ from one another in important places. The Inception Impact Assessment takes a strong position on the harmonisation of social protection for self-employed and non-standard workers at a minimum level. However, the consultation of the Social Partners does not mention this option – but it is not out of the realm of possibility. The dissonance continues with the important issue of equal treatment of different forms of employment. The Inception Impact Assessment promises equal protection for all, ‘regardless their employment status’. In contrast, the consultation of the Social Partners only talks about ‘similar social protection rights for similar work’. Thus, it is no longer clear whether access to unemployment benefits is still to be included. The ‘simplification’ of a formal principle of equal treatment, which might appear to be simple, is qualified at another point when the document states: ‘There may for example be a need to tailor contributions and benefits better to the peculiar income situation of people in non-standard work and self-employment’. This assessment is quite true, but it makes every approach to the solution more complicated, especially when looking for uniformity across all Member States at European level.  

Options for the preservation and transfer of already acquired ‘rights’

According to the Commission, social protection rights should be retained and transferred even after a change in employer or work status. However, the Commission’s proposals go beyond simply preserving circumscribed rights; they advocate the possibility of easily converting them into other rights, depending on the individual situation. This is not about old-age pensions, for example. The consultation document refers to the French system of compte personnel d'activité (CPA) which allows people to use accrued ‘points’ for training, sabbaticals or salary top-ups. It is not quite clear who will pay for these points after long latency periods. What is certain, however, is that the points, entitlements, credits or whatever these rights are called, would be accrued during times of regular employment and would not be lost as a result of a change in employment.  

 

The policy of improving the preservation of rights should be accompanied by improvements in transparency. This is to be initially done via a channel for regular updates on people’s public pension entitlements. Strangely, there is no reference at all here to information on occupational pensions, although these are encouraged by the EU-funded European Pension Tracking Service. Transparency of entitlements to benefits in kind from unemployment insurance should also be improved.  

Europe’s role

The Commission stresses that the measures under consideration will be undertaken ‘in full respect of subsidiarity and national diversities’. The aim is not to harmonise rights and obligations across countries but rather promote ‘common principles’. However, doubts arise when considering the measures listed. The Commission proposes a mix of legislative and non-legislative instruments which are still to be fully defined.  

 

Due to the division of competences and the principle of subsidiarity, Member States are called upon to find sustainable solutions within their social security systems at national level. Good approaches and ideas are already being discussed, which can be exchanged among the Member States. The open method of coordination is a good platform for doing this.  

 

Thus, the EU Commission’s initiative for ensuring that all workers have access to social protection should not go beyond general recommendations. Encouraging the exchange of best practices and supporting peer-review procedures could also help the Member States. However, the actual implementation of this general objective must remain reserved to the Member States themselves, particularly given the diverse nature of the systems.  

 

This is all the more true since the Commission’s initiative often ‘overshoots’ its actual objective. This is probably unavoidable when you start intervening in segments of social welfare, which in itself confirms the problematic nature of the initiative. The issue of acquiring and preserving work-related ‘rights’ arises regardless of the type of work being carried out. The same applies to the issue of protection for mini-jobbers and compulsory insurance thresholds. The Commission is entirely correct when it states that some jobs are so poorly remunerated that contributions based on the level of earnings no longer offer an adequate level of benefits. Although this is true, it affects all low-income earners, regardless of which form of work they are engaged in.  

 

In the light of the above, there is little room for legislative action at EU level. Most notably, the conflict between better access, fair funding and avoiding overreaction to a lack of protection requires solutions which are tailored to the individual circumstances in the Member States and which take into consideration mature systems, different traditions and preferences, as well as respective economic performance.  

Next steps

The consultation as part of the Inception Impact Assessment only serves to provide information and will not trigger any formal follow-up action. 

 

The situation is different for the first phase consultation of the Social Partners conducted under Article 154 (2) TFEU. The Commission will examine the need for action based on the responses it receives. If there is a need for action, the Commission, in accordance with Article 154 (3) TFEU, will initiate a second phase consultation of the Social Partners regarding the content of the proposed action. If requested by the Social Partners, this will be followed by a dialogue as per Article 155 TFEU. 

 

However, the Commission has already announced further steps including a series of legislative acts if the Social Partners fail to reach an agreement. Moreover, the Commission is of the opinion that its initiative is only partly covered by the agreements under Article 155 TFEU. As such, it is understandable that the Commission has announced another public consultation before the summer break.