Marcel Fink
Wolfgang Nagl
The Future of Social Protection
What Works for Non-standard Workers?
Chapter 3. Austria: How social protection rules affect self-employed and independent contractors
Abstract
The social protection of people in non-standard forms of employment has been a political issue in Austria since the mid-1990s. Non-standard workers have been integrated into the general social insurance system through a series of reforms, with the declared goal of preventing evasion from compulsory insurance and integrating all types of earned income from employment into social security. These reforms are likely to have contributed to a substantial reduction in the number of independent contractors. However, the number of self-employed tradespeople and of so-called “new self-employed” continued to rise and there are some indications that this to some degree compensated for the reduction in the number of independent contractors. Tradespeople and the new self-employed in most cases benefit from lower statutory insurance contributions than for those in standard dependent employment, which may imply a financial incentive to opt for these forms of employment. Furthermore, the lack of unemployment insurance coverage, in the case of self-employed people, and comparatively low employment stability and often low incomes, in the case of self-employed people and independent contractors, increase the likelihood that people in these types of employment later become (partly) dependent on tax-financed basic financial security.
3.1. Introduction
Over the past few decades new forms of work or types of non-standard employment have evolved in many developed countries (see Eurofound, 2015; ILO, 2016; OECD, 2015; Spasova et al., 2017). Among other things, this includes employment located between or on the borders between self-employment and dependent employment. The key objectives of this chapter are: 1) to show how such forms of work are embedded in the Austrian social protection system; 2) to analyse the characteristics and spread of these forms of employment over the past decade; and 3) to give some insights on incentives to take up such forms of employment and their likely consequences for public budgets.
The analysis concentrates on single-person businesses and independent or freelance contractors (Freie Dienstnehmer) and the inter-relation of the development of these new forms of work with the Austrian social protection system.
The chapter is structured as follows. Section 3.2 presents a brief overview on the legal definition of dependent employment, self-employment and independent or freelance contractors in Austria. Section 3.3 describes the institutional integration of the self-employed and independent contractors into social protection schemes in Austria. To examine the efficiency and effectiveness of the system, Section 3.4 analyses trends in the numbers of single-person businesses and independent contractors, the financial incentives to choose such contractual arrangements instead of dependent employment, the take-up of voluntary insurance schemes and possible additional costs for public budgets resulting from the growth of these forms of employment.
3.2. Definitions of self-employment and independent contractors/freelance contractors
The distinction between dependent employment and self-employment in Austria primarily derives from jurisdiction, with a number of different criteria defining the characteristics of a given activity. According to decisions1 by the Austrian Supreme Administrative Court (Verwaltungsgerichtshof), the following characteristics are typical for a dependent employment relationship: restrictions on the employee’s freedom of choice on how to implement the activity (a subordinate relationship between the employer and worker), an obligation to carry out the activity in person, reporting requirements, work equipment provided by the employer, performance of the activity at the premises of the customer, only one or a small number of clients/principals, being paid in exchange for time and endeavour (rather than for completion of a specific task) and restrictions on working for other customers (non-competition clauses). For an employment relationship to be defined as dependent employment not all of these criteria have to be met. The most important factor is the subordinate relationship between employer and worker, which is concerned with whether the employer/customer determines the working time, workplace, workflow etc.
In Austria the person performing the work and their customer or employer do not have a free choice as to whether they define their relationship as dependent or independent employment. It is the different social insurance providers and other public bodies up to the Supreme Administrative Court who can decide whether an employment relationship is classified as dependent or independent employment. The social insurance providers can examine the type of an employment relationship either on their own initiative or at the request of one or both of the contracting parties. Furthermore, since 2017 the assessment is carried out automatically when people register themselves as so-called “new self-employed” or as self-employed in specific fields of so-called “free crafts and trades” (freie Gewerbe), where there is no requirement for a training or specific authorisation.2
The largest number of self-employed people in Austria (outside farming) are so-called tradespeople (Gewerbetreibende). They fall under the Trade Regulation Act (Gewerbeordnung), hold a trade certificate (Gewerbeschein) and are – on a mandatory basis – registered with the Austrian Economic Chamber (Wirtschaftskammer Österreich), the association of Austrian businesses. Some of these self-employed have to prove that they have completed specific training in order to get licensed to perform so-called “qualified crafts and trades”3 (gebundene Gewerbe), whereas for other activities – free crafts and trades4 (freie Gewerbe) – no obligation exists for specific training or authorisation.
Other types of self-employed include the liberal professions professions5, who are subject to their own specific regulations and mandatory membership of professional bodies, and the so-called “new self-employed” (Neue Selbständige). The latter perform self-employed tasks not mentioned in the Trade Regulation Act and without specific professional registration or regulation, for example as lecturers, artists, trainers, scientists and experts, journalists, writers and people who work independently in specific jobs in health care (nurses, midwives etc.). Overall, it appears that “new self-employment” is practised in a large variety of different tasks, offering a “low-threshold” opportunity to perform work on the margins of dependent employment and self-employment.
Independent or freelance contractors (Freie Dienstnehmer) represent a specific form of employment on the border between self-employment and dependent employment. Unlike the self-employed, independent contractors normally are not required to achieve a specific task; instead, like employees, they contribute their working time and effort. Yet, unlike normal employees, independent contractors face fewer restrictions in terms of their freedom of choice on how to perform the activity, e.g. in terms of working time, workplace, workflow etc. In other words, the subordinate relationship being typical of regular employment does not apply to independent contractors. Independent contractors are – as with the self-employed – not covered by most labour law regulations, and they have to arrange their own income tax payments (employers are obliged to withhold income taxes for their standard employees).6
3.3. Institutional setting: social protection schemes and self-employment / independent contractors
The Austrian welfare state provides highly developed social protection schemes for all major types of social risks. The system is characterised by a mix of social insurance benefits, universal benefits and services available to the entire resident population and some means-tested benefits granted based on documented financial need (see Table 3.1). The Federal Republic is responsible for most areas of social policy, including social insurance benefits und universal benefits. The regional entities, i.e. the federal provinces (Bundesländer) and local and municipal governments, have responsibilities for specific parts of health care, housing, different kinds of social services (childcare facilities, long-term care services etc.) and means-tested minimum income (MMI) schemes.7
The social protection of people in non-standard forms of employment has been a political issue in Austria since the mid-1990s (Tálos, 1999). Non-standard workers have been integrated into the general social insurance system through a series of reforms. Self-employed tradespeople registered according to the Trade Regulation Act have been covered by statutory pension insurance (including old-age pensions, invalidity and survivors’ pensions) since the 1950s and by statutory health insurance and accident insurance since the 1960s. For new self-employed and independent contractors, statutory pension insurance, health-care and accident insurance was introduced in 1996. The declared goal of these reforms was to prevent people from evading compulsory insurance and to integrate all types of earned income from employment into social security (Tálos, 1999: 276).
In 2008, independent contractors were furthermore integrated into unemployment insurance and the severance pay scheme (so-called Abfertigung neu; see BMASK, 2016: 50). Since then, they have also had the right to receive sick pay.8 And from January 2009, different types of self-employed people, including the new self-employed, have been able to opt in to unemployment insurance on a voluntary basis.
Table 3.1. Social protection coverage of self-employed and independent contractors by benefit type
1. Crafts- and tradespeople (Gewerbetreibende) and new self-employed.
2. Means-tested minimum income (Bedarfsorientierte Mindestsicherung) replaced benefits of earlier social assistance schemes from 2010 (see Fink, 2015).
Table 3.2. Compulsory social insurance contribution rates by employment type
2017
1. Tradespeople registered with the Economic Chamber.
2. New self-employed not registered with the Economic Chamber.
3. The marginal earnings threshold (gross earnings/month) applies to standard workers and independent contractors. See text in this section for more details.
4. The minimum contribution basis applies to self-employed tradespeople and new self-employed. Tradespeople have to pay insurance contributions according to the minimum contribution basis even if actual earnings turn out to be lower than the minimum contribution basis. For new self-employed the minimum contribution basis also serves as a yearly marginal earnings threshold (EUR 425.70 x 12 = EUR 5 108.40), with no compulsory insurance in case of income from this type of employment below this level.
5, 6. Standard workers get two months of special payment per year. These special payments are also subject to social insurance contributions, up to the normal maximum monthly contribution basis (Höchtbeitragsgrundlage). Independent contractors may or may not be granted special payments, depending on agreement with their employer. In case of no special payment agreed, a higher maximum monthly contribution basis of EUR 5 810 applies (EUR 4 980 x 14/12 = EUR 5 810). The same maximum contribution basis also applies for tradespeople and for new self-employed.
5. For tradespeople newly registered with the Economic Chamber and starting a new business a flat-rate insurance contribution applies for health insurance during the first two years. It amounts to 7.65% of the minimum contribution basis (EUR 425.70), i.e. EUR 32.50 per month.
6. The Insolvency Remuneration Fund pays displaced workers any owed wages and other claims not covered by the insolvent firm’s assets.
7. The Chamber of Labour represents the interests of Austrian Employees in the Austrian system of Social Partnership, including in collective bargaining. Membership is compulsory for all employees in Austria (membership in labour unions, in contrast, is voluntary).
8. The Economic Chamber Levy is calculated according to complex rules and differs according to turnover, wage bill, social insurance contributions and the actual profession performed. For single-person businesses only the so-called basic levy (Grundumlage) is relevant, calculated according to a flat-rate contribution and the social insurance contributions paid. The numbers given only provide a very rough estimate for single-person businesses.
Source: Main Association of Austrian Social Insurance Providers.
Both (standard) dependent employees and independent contractors are enrolled in the pension insurance, health insurance, accident insurance and unemployment insurance systems (Table 3.1). In contrast to standard employees, independent contractors have no right to the payment of wages when on sick leave but may receive a sickness benefit (Krankengeld) from the health insurance system from the fourth day of sickness.
Standard employment contracts and independent contracts with a gross monthly income below the marginal earnings threshold (Geringfügigkeitsgrenze) of EUR 425.70 in 20179 are – with the exception of accident insurance – not subject to statutory social insurance. This is called marginal part-time employment. However, workers reaching the marginal earnings threshold of compulsory health or pension insurance through a combination of several marginal part-time contracts or a combination with other insured income from gainful employment are liable for the same (employee) social insurance contributions as standard employees for health and pension insurance (14.12%, see Table 3.2).10
Companies employing several people on marginal part-time employment contracts have to pay a general social insurance contribution to health and pension insurance if the total wage bill for those people in marginal part-time employment exceeds 1.5 times the marginal earnings threshold.11 This general social insurance contribution paid by the employer amounts to 16.4% of the contribution base. These rules were introduced in the late 1990s to reduce fiscal incentives for marginal part-time employment. Yet, insurance contributions for marginal part-time employment remain lower than for contracts with income above the marginal earnings threshold, as no unemployment insurance applies.
Both self-employed tradespeople and the new self-employed are covered by pension insurance, health insurance and accident insurance under the Act on the Social Security of Self-Employed Workers in Industry and Craft Trades (GSVG).12 Furthermore, since January 2009 both types of self-employed have been able to opt in to unemployment insurance.
New self-employed and tradespeople pay the same health insurance contribution as dependent employees, and a flat-rate contribution for accident insurance (Table 3.2). Their pension contribution rate is 18.5% of earned gross income, substantially lower than that of dependent employees (22.8%). But since their pension benefits are calculated according to the same principles13, their lower contribution rate does not imply lower pension benefits compared with dependent employment.
All active registered tradespeople have to pay insurance contributions for a contribution base of at least EUR 425.70 per month in health insurance, and of at least EUR 723.52 per month in pension insurance, regardless of their actual income. This means that for tradespeople, rules on marginal part-time employment do not apply. Their maximum contribution base is the same as the maximum contribution base of employees and independent contractors (see Table 3.2).
For the new self-employed, compulsory insurance begins once annual income from this type of self-employment exceeds the marginal earnings threshold of currently EUR 5 108.40.14 This may only become evident when the income declaration is made for the preceding year. The compulsory insurance then starts on the date on which self-employment activities commenced – or, if that cannot be clearly determined, on 1 January of the year concerned. In other words, compulsory insurance may come into force retroactively. New self-employed may also declare that their income will exceed the marginal earnings threshold, and insurance then starts with this declaration. As a general principle, once they are insured, new self-employed remain insured even if their yearly income from self-employment later turns out to be lower than the marginal earnings threshold. To terminate the insurance, the (previously) self-employed person has to cease their activities or inform the social insurance provider that their income will be below the yearly marginal earnings threshold. Overall, this means that new self-employment may take the form of marginal self-employment not subject to compulsory insurance, an option not available to self-employed tradespeople.
Regarding health insurance, insured tradespeople and new self-employed generally have access to the same medical services as insured employees. However, unlike most types of employees, the self-employed normally have to pay a patient’s contribution amounting to 20% of the cost of the health services obtained.
Regarding cash benefits from health insurance, the self-employed normally can only receive limited cash benefits in case of prolonged illness, payable from the 43rd day of work incapacity due to sickness. However, a voluntary supplementary insurance for sickness benefit is available to self-employed tradespeople and new self-employed (see Section 3.4.3 for more details). It provides an additional cash benefit to replace earned income during a short-term illness. This voluntary insurance can partly compensate for the fact that they are not entitled to the payment of wages when on sick leave, unlike normal employees.
Since 1 January 2009 self-employed tradespeople as well as new self-employed with health and pension insurance under the GSVG have been able to unemployment insurance (see also Section 3.4.3 below). However, the decision to do so has to be taken within six months of starting the business15 and is then binding for eight years. Within this timeframe, the self-employed person cannot leave or join the public unemployment insurance system.
Contributions for this voluntary unemployment insurance are not explicitly tied to earnings but are chosen by those enrolling. There are three different options for levels of insurance contributions, corresponding to three different levels of benefits: the self-employed can choose a contribution base of 25%, 50% or 75% of the maximum contribution base.16 The contribution rate is 6%, which is equal to that of employees and independent contractors (see Table 3.2). Rules on minimum insurance records for benefit access and maximum benefit duration are similar to those that apply to normal employees, and the income replacement rate is similar to that of dependent employees.
If someone combines labour income from several sources subject to compulsory insurance – e.g. insured dependent employment is combined with insured self-employment – then insurance contributions have to be paid on the sum of the income from different sources, but only up to the yearly maximum contribution base. If people are insured with more than one provider for health insurance, they can choose one of these as their provider of health services. In old-age insurance, different types of earned income (i.e. salaries, income from independent contracts and from self-employment as tradespeople or new self-employed) are registered in one common pension account, and insured periods spent in different types of employment are aggregated in one combined insurance history. This pension account (Pensionskonto) applies to most groups of people covered by statutory pension insurance, including farmers. The only major exceptions are civil servants and some liberal professions.
Regarding other social risks and social protection schemes (family benefits, maternity, long-term care) tradespeople, new self-employed and independent contractors have access to monetary benefits and/or social services according to largely similar rules as standard employees (see Table 3.1 and Fink, 2017 for more details).
This also applies to benefits from the means-tested minimum income (MMI) schemes, which are the responsibility of the nine federal provinces (see Fink 2015 for more details). MMI is granted on a means-tested basis, taking into account both earned income and assets, which largely have to be liquidated before MMI is granted. MMI can be granted if no earned income exists or can act as a top-up for low earned income. In fact, the latter is the case for the majority of benefit recipients of working age who do not have severe health issues. In principle, MMI may be granted as a top-up to income earned from any employment type. However, self-employed individuals reportedly often face problems in claiming MMI as a top-up, among other factors because their actual income situation is often difficult to assess or rather volatile. Empirical evidence on this issue is limited, but results by Bergmann et al. (2012: 109) on the socio-demographic composition of recipients of MMI indicate that only 0.2% of all recipients of MMI in 2012were self-employed at the same time. This is probably related to the fact that the means test generally requires business assets to be liquidated.
3.4. Quantitative development and assessment of effectiveness and efficiency
To provide insights about the efficiency and effectiveness of the social protection schemes for independent contractors and single-person businesses it is essential to discuss the quantitative development of these forms of employment over time. This section therefore describes how the numbers of independent contractors and one-person businesses have developed in Austria and what their socio-demographic characteristics and employment intensities are.17 In this context, it also addresses the financial incentives to take up such forms of employment. In a second step, the section examines the integration of self-employed people into voluntary unemployment insurance and health insurance (the latter concerning cash sickness benefit), with a special focus on one-person business owners. Third, it elaborates on the (likely) consequences for public budgets.
3.4.1. Independent contractors
Numbers and characteristics of independent contractors
In 2016 there were 32 000 independent contractors in Austria (Figure 3.1). Their number steadily increased until 2007 but then started to drop and is currently at an all-time low. This pattern can partly be explained by new regulations that came into force on 1 January 2008.
Before 2008 independent contractors were only covered by the statutory health insurance, accident insurance and pension insurance. From 2008 they were integrated into the unemployment insurance scheme and became liable for contributions to the Chamber of Labour as well as the Insolvency Remuneration Fund, on the same basis as dependent employees (Table 3.2). They were also integrated into the statutory severance pay scheme (Abfertigung neu), implying an employer contribution of 1.53 % of gross income. This reform appears to have contributed to reducing the number of independent contractors.
Compared with dependent employees, independent contractors are more likely to be female (62% of independent contractors vs. 48% of dependent employees, Figure 3.2), young (51% of independent contractors are aged 34 and under, compared with 38% of dependent employees) and to be foreign citizens (19% of independent contractors are not Austrian citizens, compared with 15% of dependent employees, not shown). They are also more likely to work in the service sector (95% vs. 81% of standard employees, not shown).
Independent contractors have a relatively high level of formal education. The majority have completed a tertiary education (53% compared with 33% of all dependent employees) and very few completed only lower secondary education (8% compared with 13% among all employees, Figure 3.2). Also, a large share of independent contractors works in the occupational group of professionals18 (40%), compared with only 16% of independent employees.
The vast majority of independent contractors work part time, a tendency that has been increasing over the past decade. In 2004 nearly 30 % of independent contractors worked full time whereas in 2016 fewer than 20 % did so (see Figure 3.1). The prevalence of part-time work also increased among all dependent employees, but remains much smaller.
Figure 3.1. The number of independent contractors is at its all-time low
Source: Austrian Component of the European Labour Force Survey.
Figure 3.2. Independent contractors are on average better educated than dependent employees
Notes: * The share of the low-skilled independent contractors cannot be statistically interpreted because it results from a sample with fewer than 3 000 projected individuals. Low education refers to ISCED levels 0-2, medium to ISCED 3‑4 and high to ISCED 5-8. The Austrian Component of the European Labour Force Survey is collected as part of the Austrian Micro Census survey.
Source: Austrian Component of the European Labour Force Survey.
Independent contractors’ length of service within a firm is rather short, indicating high turnover. Nearly half of all independent contractors in 2016 had a length of service of less than two years within their firm, compared with 27% of dependent employees. About 35% had been with their firm for under a year, compared with 16% among dependent employees (LFS, not shown).
According to registry data, about two-thirds of independent contractors have a contract with income below the social insurance marginal earnings threshold of EUR 425.70 per month in 2017 – that is, they are in marginal part-time employment, which does not provide statutory insurance (see Section 3.3). This share remained largely stable over the last decade. In contrast, only 9 % of all dependent employees are marginal part-timers.19
In 2015, around one-third of all marginally employed independent contractors also had a fully insured main job, 17 % were retirees and about 7 % received unemployment benefit (it is possible to combine most benefits with marginal part-time work). The remaining 40 % were not covered by an individual20 social insurance through a main job or benefit receipt (Figure 3.3).21
Overall the situation appears to be more problematic for women than men. For women, marginal employment in the form of an independent contract is much more often their sole employment status than is the case for men. In 2015 about 45 % of all women with a marginal independent contract have no other form of employment other than independent contracts, whereas this is the case for only about one-third of men with marginal independent contracts (Haydn, 2016).
Figure 3.3. The majority of marginal independent contractors are otherwise insured
Note: The marginal earnings threshold was EUR 425.7 per month in 2017. Earnings below this limit are not subject to statutory social insurance.
Source: Austrian Main Association of the Social Insurance Providers, Haydn (2016).
Assessment of financial incentives
Since 2008 independent contracts have been treated in the same way as standard employment contracts in terms of social insurance. Since 2008 independent contracts no longer offer any possibilities to avoid social insurance contributions and other levies (see above Table 3.2).
However, by using independent contracts, employers can still reduce or even completely avoid many direct and indirect costs deriving from labour law regulations., In contrast to regular employees, independent contractors are not subject to collective agreements (including regulations on minimum wages), not entitled to holiday pay and continued payment of wages during sick leave and also not covered by standard-working time regulations. Furthermore, regulations on dismissal protection do not apply. Hence, defining an employment relationship as an independent contract seems to be more beneficial for the employer than the employee.
More rigorous checks by the social insurance providers on whether independent contractors are de facto regular employees are also likely to have contributed to the fall in the number of independent contracts. Social insurance providers are interested in correctly identifying dependent employees, partly because independent contractors are entitled to cash benefits from the fourth day of illness, while employers have to continue wage payments for sick employees for 10 to 16 weeks, depending on length of service with the employer.
The 2008 reform, making independent contracts costlier for employers, may have led to a reduction in the number of freelance contracts, but at the same time contributed to a rise in the number of both single-person businesses of tradespeople and new self-employed. These forms of employment are analysed in the following section.
3.4.2. Single-person businesses
Numbers and characteristics of single-person businesses
In 2016, 280 000 people ran a single-person business in Austria. These include all self-employed people without employees, as well as the new self-employed (see Section 3.2). While this number increased by about 8% between 2004 and 2016, the increase was uneven and lagged behind overall employment growth.
However, in the manufacturing and services sectors, the number of single-person businesses increased by 27 800 or 17% between 2007 and 2010 alone. This substantial increase coincides with the start of the decline in the number of independent contractors (Figure 3.1).
Overall, there was a shift in the sectoral composition of single-person businesses towards services: the share of single-person businesses operating in the agricultural sector dropped from 40% in 2004 to 27% in 2016 (compared with just 3% of total employment). At the same time, the share of single-person businesses operating in the service sector steadily increased from 50% in 2004 to 64% in 2016, bringing this more in line with the overall share of workers in services (71%).
About 60% of all single-person business owners are men, but the number of female single-business owners has been rising in recent years (Figure 3.4). Single-person business owners are somewhat better educated than other workers: over 40% have a university degree, compared with around 34% of all workers. They are also older: in 2016, 60% were over the age of 45 (total employment: 42%) and only 17% were younger than 35 (total employment: 35%).
Foreign citizens are somewhat less likely to run a single-person business than Austrian citizens (12% of single-business owners do not have Austrian citizenship, compared with 15% of all workers).
Most single-person business owners work full time (see Figure 3.4). The overall share of single-person business owners who worked part time was 31% in 2016 but there was a marked difference between the genders, with 48% of female business owners working part time compared with only 19% of male business owners. The part-time employment rate among all workers is very similar for women (47%) but considerably lower for men (11%). For both genders the share of part-time single-person business owners has increased over time. In 2004 it was 8% for men and 26% for females. A similar trend is also evident for total employment, where the part-time share in 2004 stood at 5% for men and 28% for women.
Figure 3.4. The number of single-person business is growing tentatively
Source: Austrian Component of the European Labour Force Survey.
The survey data on one-person business owners presented above includes different types of self-employed people registered according to the Trade Regulation Act (i.e. single-person businesses of trades- and craftspeople), farmers, self-employed people in the liberal professions and the new self-employed (see Section 3.2).
According to the membership statistics of the Economic Chamber, the number of one-person businesses of trades- and craftspeople increased from about 183 000 in 2006 to about 305 000 in 2016 (see Figure 3.5) These data relate to the number of companies rather than people, and one person can run several single-person businesses. In 2016, around 52.1 % of all registered single-person businesses of trades- and craftspeople were owned by women.
In 2008 and 2009 there was a particularly pronounced increase in the number of one-person businesses of trades- and craftspeople was especially pronounced, with their numbers rising by around 19 100 (about 10%) in 2008 and around 20 300 (a further 10%) in 2009. This coincided with the period of decline in the number of independent contractors after the social security reform described above.
Results from a recent survey of registered tradespeople indicate that 58% of single-person businesses were exclusively self-employed and owned only one business (Dörflinger et al., 2017: 33), 10% owned more than one business and 24% were also dependent employees, while 6% were simultaneously receiving a pension and 5% combined business ownership with other situations. This is largely in line with earlier analyses of tax registry data, showing that around 25% of all single-person business owners (for whom data were available) were at the same time in dependent employment or receiving a pension (Lukawetz et al., 2015: 14).
Some more specific data are also available on the new self-employed. According to calculations by the Federal Ministry of Labour, Social Affairs and Consumer Protection their number increased from around 36 500 in 2006 to 49 500 in 2016 (see Figure 3.5). The growth in their numbers of around 3% per year in 2008 and 2009 was less pronounced than for single-person businesses of trades- and craftspeople (Figure 3.5).
The majority of the new self-employed are men, but the share of women increased from 39.3 % in 2004 to 45.5 % in 2016.
Figure 3.5. The number of single-person business of trades- and craftspeople and of “new self-employed” increases progressively
Source: Member statistics of the Austrian Economic Chamber (Wirtschaftskammer Österreich) and Austrian Ministry of Labour, Social Affairs and Consumer Protection (2017)
Unfortunately, there are no data on how long one-person businesses survive but data on years of activity are available (see Figure 3.6). About half of one-person business owners have been in business for over ten years but a relatively large number of business owners have been in operation for only one or two years, while only 15.8 % have been in activity for between two and five years. This suggests that many owners halt operations in the early years of business.
Figure 3.6. Many single businesses do not survive the first years of business
Source: Austrian Component of the European Labour Force Survey.
The earned income of single-person businesses has not been extensively analysed in Austria (see Lukawetz et al., 2015). However, tax and social insurance registry data indicate that comparatively low earned income is a more common phenomenon in self-employment than in dependent employment. The yearly pre-tax median income of people who are exclusively self-employed amounted to EUR 11 388 in 2013. Some 25% had an income below EUR 4 197 and 25% an income exceeding EUR 27 137. The average yearly income amounted to EUR 24 597 (Rechnungshof, 2016: 319). When compared with people with earned income exclusively from dependent employment, self-employment shows a substantially lower median income and a higher incidence of very low earned income. The median “adjusted”22 earned income of people exclusively engaged in dependent employment (including apprenticeships) amounted to EUR 20 116 in 2013, with 25% having an income below EUR 8 616 and 25% an income of over EUR 31 599. The average yearly income was EUR 23 684 (ibid., 320).
Results by Lukawetz et al. (2015: 89), derived from pooled data from EU-SILC 2011-2014, show that the yearly median equivalised per head net household income of people running a single-person business of EUR 22 716 is substantially lower than of people in dependent employment (EUR 25 372). Furthermore, 13.8% of single-person business owners are regarded as being at risk of poverty, compared with 7.4% for dependent employees.23
Assessment of financial incentives
When compared with standard dependent employment and also with freelance contracts, some initial financial incentives exist in Austria to take up self-employment as a registered tradesperson and especially in the form of new self-employment. For standard dependent employment with income above the minimum earnings threshold, social insurance contributions and other relevant levies (excluding income tax) amount to slightly over 40% of gross income, compared with 28% for new self-employed and a starting rate of around 29% for crafts- and tradespersons, although this may be somewhat higher, depending on the Economic Chamber Levy (see Section 3.3, Table 3.2).
On the other hand – and in contrast to standard dependent employment, independent contracts and new self-employment – for tradespeople there is no marginal income threshold for statutory social insurance. That is, they have to pay social insurance contributions on the minimum contribution basis, even if actual earnings are lower (see Section 3.3, Table 3.2). This reduces financial incentives to choose this form of employment. Moreover, if the self-employed opt in to voluntary unemployment insurance and the short-term sick-pay scheme, they face largely similar overall social security contribution rates as dependent employees (see Section 3.4.3).
But for employers, opting for a contract with a self-employed worker instead of hiring an employee means that standard labour law regulations do not apply and that costs for social insurance can be transferred to the self-employed person.
If and to what degree the increase of registered single-person businesses and of new self-employed is caused by a rise in bogus self-employment is a contested issue in Austria, with limited empirical evidence. Yet, a study by Danzer et al. (2014) on single-person businesses in different sectors came to the conclusion that for up to 40% of those interviewed, there were several indications that self-employed status could be called into question. And according to estimates by the Trade Union of Private Sector Employees (GPA), about two-thirds of all new self-employed and freelance contractors would be classified as standard employees, if the legal definitions were implemented properly.24 In contrast, the Economic Chamber rejects such interpretations and argues that the increasing number of single-person businesses is a result of the shift towards a more knowledge-based economy, with single-person businesses playing a key role as innovators (see e.g. WKÖ, 2017a; WKÖ, 2017b).
3.4.3. Integration of the self-employed into voluntary insurance
Unemployment insurance
Since January 2009 self-employed tradespeople and the new self-employed insured in health and pension insurance under the GSVG have the opportunity to opt in to unemployment insurance within six months of starting their self-employment.25 Once a decision is made, it is binding for eight years. Self-employed people are not allowed to leave or join the public unemployment insurance scheme during this period.
The number of self-employed people entitled to opt in to the public unemployment insurance scheme has been limited. In 2015 around 43 500 self-employed, most of them single-person businesses, would have had the opportunity to join voluntary unemployment insurance26, equivalent to around 11% of active self-employed people insured under the GSVG.27 But out of these 43 500, only 117 (or 0.3 %) opted in to voluntary unemployment insurance. Take-up rates for multiple-person business owners are slightly higher than average, but still extremely low (2015: 0.7%). The take-up rate of one-person business owners was just 0.2 % in the same year. The extremely low take-up rates have been largely constant over time, resulting in only 867 self-employed people being covered by voluntary unemployment insurance in 2015 (yearly average), only 0.22% of the total number (yearly average) of active self-employed insured under the GSVG. Furthermore, two thirds of the few people who opt in to the unemployment insurance scheme choose the lowest possible level of insurance contributions (see Section 3.3).
Health insurance
Within the statutory public health insurance for self-employed, sick pay is only paid from the 43rd day of sickness. To cover the possible substantial period of sickness without income there is the possibility of a voluntary supplementary insurance granting sick pay from the fourth day of sickness. The contribution rate is 2.5 % of the individual assessment base (i.e. the earned income), up to the maximum contribution base, with a minimum contribution of EUR 30.77 per month. The daily sick-pay payment is generally 60% of actual daily income. Earlier, a minimum daily benefit of EUR 29.23 was granted, which was then reduced to EUR 8.51 a day in January 2017. For all insured self-employed people with an income below EUR 1 461.50 per month this reform involves a reduction in benefit levels. And for self-employed people with an income below EUR 1 230.80 the new regulation involves an increase in the contribution rate. The contributions paid are unchanged at EUR 30.77 a month, but for this group the daily benefits in case of sickness now vary between EUR 8.51 and EUR 24.62.
Out of around 407 70028 active self-employed insured under the GSVG (tradespeople and new self-employed) in 2016, only about 30 850 or 7.6% were insured within the supplementary health insurance scheme. The majority of voluntarily insured people are women with low incomes. Of the 20 743 insured females, 90% were paying the minimum contribution, indicating a monthly income below EUR 1 230.80. The share of minimum contributors is much smaller for males, at 48% of the 10 105 insured, but it is still very significant. Due to the legal situation prevailing until 2017, these high shares are not unexpected. Accordingly, one might presume that the total numbers of voluntary supplementary insured people and the number of minimum contributors will decline in the future due to the now significantly reduced benefits for low-income earners, who still have to pay the same contributions as before the reform.
The share of voluntarily insured self-employed people who receive sick-pay benefits is quite substantial. About 45% of the voluntarily insured in 2016 received benefits from supplementary health insurance at least once a year. There is also a gender gap in the take-up of benefits: 53% of voluntarily insured women received sick-pay benefits at least once a year, whereas only 30% of voluntarily insured men did.
On average 21.5 days of sick pay were granted in 2016 per self-employed person covered by voluntary health insurance. The number is substantially higher in the case of women (26 days) than in case of men (14.5 days). Statistics for people in dependent employment indicate a lower average number of annual days of sick leave per employed person of 12.5 days in 2016 (men: 12.1 days; women: 13 days) (Statistik Austria, 2018).
Consequences for the public budget
The public budget might face an additional burden from the growth of new forms of work if it is more likely for people working in these new forms to become dependent on tax-financed basic financial security. What is relevant in this context is the issue of coverage by social insurance, the level of social insurance contributions, stability of employment and the level of (earlier) earned income.
As previously mentioned, independent contractors in Austria are integrated into the unemployment, health and pension insurance schemes according to similar rules as regular employees. However, in contrast to regular employees, most of the independent contractors work part time in the form of marginal part-time employment, with income below the marginal earnings threshold for statutory social insurance and are for this reason not fully integrated into social insurance in relation to their work as independent contractors.
Furthermore, they are still missing out on other benefits, such as paid holiday and advantageously taxed 13th and 14th monthly wage payments, have less labour law protection and are not covered by collective agreements. This, together with widespread marginal part-time employment, is likely to translate into lower incomes for independent contractors, compared with regular employees.
Comparatively low earned incomes, discontinuous employment and gaps in social insurance coverage are likely to cause subsequent problems in accessing social insurance benefits or comparatively low benefit levels. Thus, in times of unemployment and in old age (previously) independent contractors might face a higher risk of having to rely on other sources of household income or needing top-up benefits from tax-financed basic financial assistance schemes. Yet, there are currently no empirical studies on this topic specifically addressing independent contractors.
When compared with regular employees, a higher financial burden for public insurance providers for independent contractors derives from the fact that they receive short-term sick pay from social insurance, as independent contractors are not entitled to the payment of wages during sick leave. However, more detailed data on this issue are not available.
Access to social insurance schemes for self-employed people appears to be rather high in Austria in comparison with some other countries (Spasova et al., 2017). They are, in principle, covered by health and pension insurance, and can opt in to public insurance against the risk of unemployment and for (short-term) cash benefits in case of illness.
Regarding pension insurance, the contribution rate paid by the self-employed is lower than for regular employees and freelance contractors. However, pension benefits are calculated according to the same formula as for these groups, which might create incentives to opt for self-employment, and which implies higher co-financing of the pensions of the former self-employed from the state budget.
Income from self-employment is often relatively low in Austria, compared with standard dependent employment. This is likely to translate in to low old-age pensions. Very low old-age pensions derived from a person’s insurance record are topped up to a quasi-minimum pension in Austria via the so-called equalisation supplement (Ausgleichszulage). The latter is financed from taxation and therefore involves additional spending from the federal public budget.
Furthermore, as sketched out above, only a very small minority of the self-employed opt in to unemployment insurance. Data on the years of activity of single-person businesses indicate that many of them halt operations in the first years of business. This might lead to reliance on benefits from tax-financed minimum income schemes if a person becomes unemployed after their period of self-employment. However, no clear empirical evidence exists on whether this is actually the case.
The new self-employed are treated as a distinct group by the social insurance system, as this form of employment may be performed as marginal employment with no social insurance contributions being paid up to a yearly income of EUR 5 108.40, even if it is combined with dependent employment, which is not the case for marginal part-time employment as an employee or independent contractor. However, no clear evidence exists on the budgetary effect of this exemption from compulsory social insurance.
3.5. Conclusions
Over the past few decades substantial attempts have been made in Austria to increase coverage and close social insurance gaps for different types of self-employed people and independent contractors.
This is likely to have contributed to a substantial reduction in the number of people employed as independent contractors. However, the number of self-employed tradespeople and new self-employed continued to rise and there are some indications that this to some degree compensated for the reduction in the number of independent contractors.
Those working as tradespeople and new self-employed in most cases benefit from lower insurance contributions for statutory insurance than for those in standard dependent employment. This is caused by lower contribution rates for pension insurance and exemption from statutory unemployment insurance, which may imply a financial incentive to opt for these forms of employment.
Voluntary unemployment insurance, available for active self-employed people insured under the GSVG, shows extremely low rates of coverage. The same applies to voluntary insurance for short-term sick-pay benefits, which could partly compensate for the fact that they are not entitled to the payment of wages when on sick leave, unlike normal employees. Overall, this indicates that voluntary insurance does not appear to be an effective measure in Austria, which may be caused by often volatile and low income from newly established small businesses and the aim to avoid additional fixed costs.
The lack of unemployment insurance coverage, in the case of self-employed people, and comparatively low employment stability and often low incomes, in the case of self-employed people and independent contractors, increase the likelihood that people in these types of employment later become (partly) dependent on tax-financed basic financial security. However, there is little concrete evidence on this problem at the time of writing and this would have to be examined in more detail by further research.
References
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Notes
← 1. See, for example, the decision by the Supreme Administrative Court of 22 February 2006, Zl. 2005/09/0012, https://www.ris.bka.gv.at/Dokument.wxe?Abfrage=Vwgh&Dokumentnummer=JWT_2005090012_20060222X00
← 2. For details see: Sozialversicherungs-Zuordnungsgesetz – SV-ZG 2017, https://www.parlament.gv.at/PAKT/VHG/XXV/I/I_01613/index.shtml#tab-Uebersicht
← 3. The Trade Regulation Act (§94) lists 75 qualified crafts and trades. See https://www.ris.bka.gv.at/GeltendeFassung.wxe?Abfrage=Bundesnormen&Gesetzesnummer=10007517
← 4. Tasks not reserved to the qualified crafts and trades may be performed as free crafts and trades. The Federal Ministry of Economic Affairs publishes a (non-exhaustive) list of free crafts and trades (see: BMFWF 2017). Applicants, registering a business, may however “invent” new free crafts and trades, if they do not offer tasks reserved for qualified crafts and trades.
← 5. Lawyers, notaries, architects, civil engineers, accountants, pharmacists and physicians.
← 6. In tax law, income from freelance contracts is treated as income from self-employment.
← 7. For a more detailed overview see BMASK (2016).
← 8. This reform increased health insurance contributions 0.55 percentage points, harmonising their contribution rate with that of standard employees.
← 9. The figure is subject to annual indexation.
← 10. Since the late 1990s, persons in marginal part-time employment may also opt in to health insurance and pension insurance if no compulsory insurance applies. The monthly costs of opting in to health and pension insurance is currently (2017) EUR 60.09 per month. In effect, this option creates a very low-cost opportunity to obtain health insurance and contribution periods for pension insurance.
← 11. The threshold is 1.5 x EUR 425.70 = EUR 638.55.
← 12. See https://www.ris.bka.gv.at/GeltendeFassung.wxe?Abfrage=Bundesnormen&Gesetzesnummer=10008422.
← 13. For both groups the level earnings for which insurance contributions have been paid (the so-called assessment base) is constitutive for the level of pension benefit, but not the actual contribution rate.
← 14. This income limit is equal to the monthly marginal earnings threshold for standard workers and independent contractors (EUR 425.70) multiplied by 12 (months); see above on marginal part-time employment and Table 3.2.
← 15. Active self-employed people who had started their business before 1 January 2009 had the opportunity to opt in to unemployment insurance during the whole of 2009.
← 16. A monthly contribution of EUR 87.15 corresponds to a daily unemployment benefit of EUR 23.36 (option 1); a monthly contribution of EUR 174.30 equates to a daily unemployment benefit of EUR 37.42 (option 2); and a monthly contribution of EUR 261.45 yields a daily unemployment benefit of EUR 51.74 (option 3) in 2017.
← 17. If not indicated otherwise all presented data in this subsection are calculated using the Austrian component of the European Labour Force Survey.
← 18. According to the ISCO 08 classification the occupational group of professionals consists of: science and engineering professionals; health professionals; teaching professionals; business and administration professionals; information and communications technology professionals; legal, social and cultural professionals.
← 19. Source: Main Association of Austrian Social Insurance Providers; http://www.dnet.at/elis/Arbeitsmarkt.aspx
← 20. Regarding health insurance, these people may be co-insured with family members covered by statutory insurance. It is estimated that about 98% of the people living in Austria are covered by public health insurance (see Fuchs 2009 and https://www.gesundheit.gv.at/gesundheitssystem/gesundheitswesen/gesundheitssystem ).
← 21. This to a large degree resembles the situation of marginal employment of normal employees. However, a somewhat lower share (24%) of this group also had a fully insured first job and a higher share (11%) received unemployment benefit (see Haydn, 2016: 68).
← 22. To make gross income of people in dependent employment comparable with that of the self-employed, the figures for those in dependent employment are adjusted by deducting social insurance contributions from gross income (see Rechnungshof 2016, 171).
← 23. At-risk-of poverty threshold: 60% of the median of the national equivalised per head net household income.
← 25. People who were self-employed before 2009 had the possibility to opt in until the end of 2009.
← 26. The data on self-employed people entering voluntary unemployment insurance is collected from various parliamentary inquiries with answers from the Federal Minister of Labour, Social Affairs and Consumer Protection. Data source: registry data by the Hauptverband der Österreichischen Sozialversicherungsträger.
← 27. In 2015, 397 504 active self-employed people were insured for health insurance under the GSVG (yearly average); Source: Hauptverband der Österreichischen Sozialversicherungträger (2017, Table 2.08).
← 28. Yearly average. Source: Hauptverband der Österreichischen Sozialversicherungsträger (2017, Table 2.08).