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LABOUR MINISTER SAYS PROPOSAL WILL PROVIDE HIGHER FUTURE PENSIONS

Agreement reached on self-employed payroll levies

HIGHER future pensions as well as more money flowing into Sociálna Poisťovňa, Slovakia’s social insurer, are the two main benefits expected from an increase in payroll levies to be paid by self-employed persons. The Labour and Finance ministries told the media that agreement on the exact amount of the new levies had been reached in a meeting with organisations representing self-employed Slovaks on June 14.

HIGHER future pensions as well as more money flowing into Sociálna Poisťovňa, Slovakia’s social insurer, are the two main benefits expected from an increase in payroll levies to be paid by self-employed persons. The Labour and Finance ministries told the media that agreement on the exact amount of the new levies had been reached in a meeting with organisations representing self-employed Slovaks on June 14.

“The result has neither winners nor losers,” said Labour Minister Ján Richer, as quoted by the TASR newswire. He added that the increase in the payroll levies will allow self-employed persons to receive a dignified pension in the future while also raising social solidarity and considering the special characteristics of self-employed citizens.

An association representing self-employed persons told the Sme daily that it is satisfied with the outcome of the negotiations.

“Negotiations with the [Labour] Ministry have led, in the end, to a sensible compromise,” stated Stanislav Čižmárik, president of Slovenský Živnostenský Zväz (SŽZ), an association representing self-employed trade and craft workers, as quoted by the Sme daily.

The past government of Iveta Radičová attempted to change the payroll levy scheme for self-employed persons during its term but failed to get the legislation advanced in parliament.

The proposed changes

Based on the agreement reached on June 14, the assessment base for calculation of payroll levies, that is the contributions made by self-employed persons for social insurance and health insurance will be modified with the coefficients currently being used changing in future years and the lump-sum allowance that a self-employed taxpayer is able to deduct from his or her gross income before calculating income tax will be capped.

The coefficients currently are set at 2.0 for social insurance and 2.14 for health insurance and will gradually decrease to 1.486 for both.

“The figure for this coefficient takes into consideration the total of contributions paid by an employer and an employee and is not a random figure,” Richter stated. The coefficient will fall to 1.9 in 2013, to 1.6 in 2014 and to 1.486 in 2015.

Self-employed persons currently pay their payroll levies on an assessment base calculated by dividing their income (after deduction of tax allowances and other expenses – that are also proposed be eliminated in the future) by this coefficient. The assessment base also has a minimum level that the government proposes to increase from 44.2 percent to 50 percent of the average nominal wage in the Slovak economy two years ago, according to the agreement reached between Richter and the self-employed associations.

The lump-sum allowance that a self-employed person can deduct from his or her annual gross income will be capped at €5,040 per year, i.e. €420 per month.

Richter argued that higher payroll levies are necessary because 87 percent of self-employed persons currently make the minimum permissible contribution to Sociálna Poisťovňa and he said this puts them at risk of not contributing enough to qualify for Slovakia’s minimum pension when they are ready to retire. The minister that after the proposed changes are passed by parliament and implemented, the proportion of self-employed persons paying payroll levies at the minimum level will decrease to about two-thirds.

“In doing this we will achieve a situation in which self-employed persons will not be forced into social benefits when they are retired,” Richter stated, as quoted by the SITA newswire.

Vojtech Gottschall, the chairman of Slovenská Živnostenská Komora, a chamber representing self-employed persons said that the agreements reached on June 14 stemmed from the reality of current conditions and told SITA that he believes the increase in the assessment base and the change in the coefficient will increase payroll levies for the self-employed in exchange for greater security in the future.

“The pursued aim of securing future social certainty may be achieved,” Gottschall stated, as quoted by SITA.

Though the associations first made a proposal to make sick leave insurance, part of the regular monthly levy paid to Sociálna Poisťovňa, voluntary for self-employed persons, they later withdrew this idea.

If the proposals are adopted by parliament in their current form it should bring an additional €42 million to Sociálna Poisťovňa in 2013.

Experts weigh in

Several experts stated that an increase in levies paid by self-employed persons is necessary so that they qualify for higher pensions. But they added that the proposed changes would affect self-employed persons who work with their heads and have higher incomes and lower costs more than manual trade workers.

“These [changes] will harm those who work with their heads,” Vladimír Baláž from the Slovak Academy of Sciences’ Institute for Forecasting told the Hospodárske Noviny daily, specifying occupations such as scientists, accountants and notaries whose monthly costs of doing business as a self-employed person are comparatively low, adding that the proposed changes give preference to manual occupations rather than to knowledge-based occupations on which he said Slovakia’s economy should focus. Nevertheless, Baláž told the daily that he thinks the proposed changes are a comprehensive solution with the right kind of changes.

Michal Páleník from the Employment Institute think tank told the daily that experience has shown that some self-employed persons have not paid enough in payroll levies to Sociálna Poisťovňa to secure a dignified retirement and believes the proposal by the government is justified. He also stated that the proposed changes may curb a recent phenomenon in which employers have forced employees to become self-employed so the employer can reduce the payroll levies that it pays and reduce its overall labour costs.

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