Self-employed in the Netherlands Thijs Weistra t.weistra@minszw.nl - - PowerPoint PPT Presentation

Self-employed in the Netherlands

Thijs Weistra t.weistra@minszw.nl Directie Arbeidsmarkt en Sociaal Economische Aangelegenheden (ASEA) OECD June 24th 2016

Content

• Self-employed in the

Netherlands

• Who are these people?
• IBO ZZP
• Results
• Recommendations
• Policy response
• Discussion

Immediate challenge: sharply increasing share of self- employed

3

Share of self-employed without and with employees (%) over time, 2002-2012

4

What kind of people are these ‘self-employed’?

Freek Zonderland (24)

6

Business: making movies Turnover: 50.000 Insurance: no Pension: no

Jan Bolhuis (46)

7

Business: ICT Turn over: Insurance: Disability, since his divorce Pension: From previous

• ccupations

Martin Hoeflaak (46)

8

Business: construction Turnover: 1750 nett income Insurance: Disability, since previous accident Pension: yes

Marja Bos

9

Business: nurse Turnover: Insurance: Savingsaccount Pension: Savingsaccount

Tom van Houtum (26)

10

Business: Courrier for PostNL Turnover: 1000 per week Insurance: Too expensive Pension: No

The zzp’er (self-employed without employees)

• Growth is exceptional in international comparison
• Heterogenous group
• Large variation in income in comparison to employees
• The majority is satisfied with their labour market position/status
• Small minority (10-20%) forced/ no other option
• More often social benefits recipients in the past (compared to

employees)

• Influx older worker mostly from inactivity/unemployed.
• Influx from social benefits succesful
• Mostly hired for their flexibility
• Limited potentional to become employer

11

Which sectors are popular among self-employed?

12 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% zzp'ers werknemers Als percentage van het totaal aantal zzp’ers c.q. werknemers (CBS, 2014)

IBO ZZP

A brief history

• Coalition agreement (2012): Increasing differences in

taxation between entrepreneurs and employees. In order to improve this balance, the government planned to cut tax facilities for entrepreneurs related to working time requirements by 0.5 billion

• Consolidation package (2014): Planned tax cut not

implemented due to political reasons. Yet, desire for balance

• remains. To this end, high-level civil servants were to conduct

an interdepartmental analysis on self-employed (IBO ZZP). This would form the basis for informed decision making and public support.

• Assignment: Collecting data, analysing, formulating policy
• ptions. Explicitly included analysis on differential treatment

with employees. All developed policy scenarios work on the principle of budget neutrality.

Causes

• Economy (sectoral, production) could be an explanatory factor,

but then why just in the Netherlands?

• Cultural factors: no indications to support this
• Composition of the labour force:

More older workers (partly due to institutions) Migration (pressure on labour conditions)

• Institutional factors

Procedural (VAR) Social security and protection Taxation

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VAR: declaration of employment relation (2004)

• Self employed fill out a form about the circumstances of the job
• With the VAR, a hiring company can safely assume that this

relation is considered not as an employer-employee relationship.

• If, by inspection, the circumstances are different from the

information in the VAR, the self-employed is held responsible.

16

Social security and protection

Self employed Employee Health care Yes Yes Pension 1st pillar, 3rd pillar 1st, 2nd and 3rd pillar Disability/sickness None Two years wage continuation, benefits Unemployment Basic, means tested benefits Unemployment benefits up to 2 years Protection from dismissal None Strict Collective bargaining No Yes

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Taxation

Markup self-employed, director/stockholder and employer at same net disposable income

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‘Couldn’t find a job as an employee’ (lower end of the labour market)

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Minimum wage, modal en 2x modal

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‘I wanted freedom (to choose) and could earn more’ (higher end of the labour market)

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Budgetary impact tax facilities self-employed

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Consequences of the rise of self-employed

• Economy: very limited external effects (i.e. innovation)
• Labor market: participation vulnerable groups and crowding out
• f employees (scale unknown)
• Social security
• Underinsurance
• Financial sustainability not under pressure, but decreasing

coverage of social security and risk of decreasing public support

• Negative impact on government budget:

No positive effects Some negative effects (lower revenues, higher expenditures)

23

Conclusions/recommendations

Strict lines between employees/ self-employed with employees and self-employed without employees leads to an institutional set-up that influences the choice for self- employment.

• Limited rationale justifying these differences
• compare: economically dependent employee vs economically

dependent self-employed

• Or: self-reliant employee vs self-reliant self-employed
• Self-employed and employee are becoming more similar

Effectiveness generic tax facilities limited

24

Policy options should target:

1) Decrease distortive institutional differences

• Taxation
• Social security entitlements
• Social protection

2) Offer self-employed sufficient protection where needed 3) Improve policy effectiveness 4) Strengthen public support for social security arrangements

25

International advice: IMF

• Directors noted that the rapid growth in self employment points to the need

to address rigidities in the formal employment sector.

• In this context, they encouraged the authorities to consider liberalizing the

regulatory regime for regular employees, and to review tax and other incentives for self employment to ensure equitable treatment between regular employees and the self employed.

• The rise of the self-employed in the labor force: The share of the labor force

recorded as being in self-employment has risen sharply in the past 15 years to 17 percent.

• Because of the exemption from the second pillar of the pension system and

social insurance schemes and substantial tax preferences, employee positions are being converted into self-employed status. This is enhancing the flexibility of the labor force.

• However, it may be undercutting the social safety net to the extent that de

facto employees are being reclassified as self employed and remain outside some of the social benefits schemes as a result.

• The authorities should consider creating alternative pension options for the

self-employed, perhaps with partial optouts, mandatory sickness and disability insurance with pooling of risks to control costs, and more equal tax treatment between employees and the self employed.

26

International advice: European commission (2016)

• Tackle remaining barriers to hiring staff on permanent contracts

and facilitate the transition from temporary to permanent contracts.

• Address the high increase in self-employed without employees,

including by reducing tax distortions favouring self-employment, without compromising entrepreneurship, and by promoting access

• f the self-employed to affordable social protection.

27

International advice: OECD

• The rapid rise in self-employment promises a more responsive

economy, but also poses challenges for the social insurance system.

• Reconsider the degree of tax incentives fors self-employed, and

explore alternatives for ensuring they build adequate savings for disability, and ageing risks if needed.

28

Policy response

Policy response: long term

• Recognition of the value of the self-employed for the economy:

competition, flexibility

• Concern for the vulnerable groups within the self-employed
• Large difference between institutional arrangements for self-

employed and employees should be reduced.

• Different possible solutions:

Taxation: decreasing tax benefits self-employed vs. decreasing labour costs employees Social security: increasing social security self-employed vs. decreasing social security employees

• Broad political and public debate needed for necessary public

support for these reforms.

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Policy response: short term

On the short term, three policy approaches will be rolled out:

• 1. combat ‘bogus’ self employment
• 2. increase attractiveness of hiring employees
• 3. accesible social security protection for self employed

31

Combat ‘bogus’ self employment

Wet Aanpak Schijnconstructies (Act on Combating Sham Arrangements)

• 1 July 2015
• Chain liability on wages
• Also for ‘bogus’ self-employed.

Deregulering Beoordeling Arbeidsrelaties (Deregulation appreciation employment relationships)

• April 2016
• No longer ‘VAR’ and disclaimer client
• Model contract, possibility of a check at Tax Authority.
• Shared responsibility client/contractor

32

Increase attractiveness of hiring employees

Lowering costs of labour

• 5 billion-package
• Wage cost advantage (LIV)  difference on minimum wage level

cut by half. Reduce employers risks

• Wage payment during two years of sickness
• Research on reintegration ‘second track’
• Discussion on supra-legal supplements
• Focus on small employers/second year

33

Accesible protection for self employed (1)

Pension

• AOW (public pension)
• Fiscale Oudedagsreserve (FOR) (fiscally attractive saving within

your business), by annuity via an insurer, bank or investment scheme, by voluntary continuation of the employee pension or by personal savings.

• Exemption of pension savings in means-tested social assistance
• Former employees: at least 9 months to decide on continuation
• Pilot standardized products
• National pension dialogue

34

Accesible protection for self employed (2)

Working Conditions

• Campaign ‘Decent commissioning’; i.e. Communication

campaign Unemployment

• Entrepreneurial risk
• Institutional framework related to Participation Act
• Decree social assistance self-employed (Bbz)

Education

• Access to sectoral training funds

35

Accesible protection for self-employed (2)

Disability benefits

• Voluntary insurance against sickness and/or disability at private

insurers.

• Voluntary insurance against sickness and/or disability at public

insurer (UWV) for self-employed starting from employment or social benefits

• ‘Safety net insurance’ for self-employed at high-risk.
• Deductible premiums
• Take up pension savings for disability benefits
• Campaign on awareness

36

Discussion

Two possible directions

• 1. More equality between employees and self-

employed?

• 2. Or sharper division between employees and

self-employed?

38

Questions

In what way do differences between self- employed and employees justify differences in government intervention (specifically social protection, collective bargaining)?

39

Questions

Are there best practices in OECD-countries:

• That ensure freedom to become self employed

without starting a race to the bottom in social protection for employees.

• That ensure accessible social protection for

self-employed (i.e. pension and disability benefits)

Kennismaken met Rijksbreed | 15 mei 2009

Thank you for your attention

Literature

IBO ZZP: https://www.rijksoverheid.nl/documenten/rapporten/2015/10/02/ eindrapport-ibo-zelfstandigen-zonder-personeel European Commission: http://ec.europa.eu/europe2020/making-it-happen/country- specific-recommendations/index_nl.htm OECD: http://ec.europa.eu/europe2020/making-it-happen/country- specific-recommendations/index_nl.htm IMF: http://www.imf.org/external/country/NLD/index.htm

Kennismaken met Rijksbreed | 15 mei 2009