Extension of social security: Reaching out to the self-employed

Extending effective coverage to improve access to benefits is the major objective of social security systems. But covering self-employed workers – both in the formal and informal sector – has always been challenging. With increasingly fragmented labour markets and more variable and shorter periods of employment becoming typical, covering these workers remains difficult.

These challenges mean that social security systems have to be increasingly innovative to ensure that policy and administrative measures are effective and appropriate. A number of these measures are summarized in a recent ISSA publication, Handbook on the extension of social security coverage to the self-employed .

 

Who are the self-employed?

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The type and number of self-employed varies significantly by country. While in some countries the self-employed tend to be small in number and operate in the regulated formal sector, in many regions they are more numerous and frequently operate in the informal sector with often little or no social protection. Despite a wide variety of situations, a number of similarities exist amongst all self-employed – including variable and non-guaranteed income and the lack of an employer – which means that potential responses to increase coverage to them can often be applied across all types of self-employed workers.

 

Challenges in increasing coverage rates for the self-employed - and potential solutions

Leaving aside the challenge of exclusive legal frameworks, there is often no single reason to explain why social security coverage rates of the self-employed are low. In a number of countries, such workers, typically in the informal sector, simply do not have the financial resources to pay towards contributory social security. In reality however, the situation is often more complex and the cost issue may not be the main driver of the decision not to affiliate; indeed a number of contributory schemes targeted at low-paid workers have been successful. The evidence is therefore that barriers to extending coverage may be administrative and operational. Positively, this implies that social security administrations can put in place appropriate measures to address these challenges and that there is a demand for what social security can provide to this often vulnerable group. By addressing these specific barriers there is evidence that social security administrations are increasingly putting in place tailored administrative solutions to improve the accessibility and attractiveness of social security to these workers.

The ISSA report highlights a number of barriers that prevent social security affiliation and offers potential solutions to them.

• Access and administrative issues.  How easy is it to sign up and pay contributions? By addressing the particular circumstances of self-employed workers and adapting procedures to reflect them (e.g. remote rural populations or workers with irregular hours), affiliation rates can be improved. Specific solutions to this issue vary according to the nature of the self-employed work and to administrative capacities. Two approaches are observed. First, the use of “mobile offices” which can often be effective in covering rural populations with a high proportion of self-employed workers; in South Africa, over 40 such offices have been set up. Second, the simplification of procedures to facilitate sign up. For example, by only requiring one proof of identity, workers are able to sign up all their family in certain schemes in India.
• Under-declaration and contribution compliance issues can be addressed through using flat-rate contributions or notional wages so that there is no incentive to underpay. Targeted compliance measures are also important.
• The low and variable income situation of the self-employed and resulting financing challenges  can be addressed by flexible contribution schedules and conditions and innovative financing mechanisms. These efforts support direct financing efforts (e.g. contribution subsidies) from governments.
• Disincentives, adverse selection and moral hazard impacts  – why sign up when the State will support me? – can be addressed by providing adequate benefits so that there is an incentive to contribute. At the same time, significant advances in covering the self-employed are most likely to be achieved through compulsory schemes.
• There may be a lack of confidence in social security among the self-employed , who may doubt that they will receive a benefit when they need it. This can be addressed through effective promotion of what social security does and the intelligent use of ICT to build up long-term relationships with these workers. Also required are efforts to improve awareness of benefit entitlements through effective and multi-channel communication and financial education strategies and efforts to promote a social security “culture”. Finally, benefits should be relevant for the self-employed. Tailored benefits and services and a development of participatory social security, which promotes a two-way dialogue between the self-employed and social security administrations, can be effective.