Contributing to the minimum base for a self-employed person can be an inconvenience in the future, but also on a day-to-day basis as a worker
The monthly fee that the self-employed must pay to Social Security at the end of each month is one of the most controversial issues of self-employment in Spain. If you are reading this, it is very likely that you are among the vast majority of businessmen who have decided to quote for the minimum base. Specifically, in the group under 47 years of age, this percentage reaches 93%. In other words, 9 out of 10 are paying, this 2016, about 267 euros per month, unless they have some bonus.
Before going into detail about the inconvenience of quoting for this minimum fee, it is necessary to correctly understand what this payment represents. The contribution base is the theoretical "salary" that we declare to receive as self-employed workers before Social Security. Each year, the Government establishes a minimum (893.10 euros in 2016) and a maximum (3,642.00 euros) allowed. From these amounts, a percentage determined by the State is applied, which results in the monthly figure that we must pay.
Contrary to what happens in other countries, in Spain the contribution base is freely chosen by the self-employed worker (up to 47 years of age) instead of adjusting to the income that is actually received. What's the score? As you will have been able to verify, in most cases, the base for which you contribute does not correspond to the "salary" you have. For some, the payment of 267 euros per month implies a large outlay. However, there are freelancers with high benefits who see almost a bargain in that fee.
What happens in case of illness?
The consequences of choosing the minimum base come when a sick leave occurs. If you are forced to stop working, during the first 20 days you will receive 60% of the contribution and, after that, 75%. Doing a simple calculation, you will see that the benefit is quite low: between 535 and 669 approximately. Also, keep in mind that during the period in which you remain on leave, you will have to continue paying the monthly fee to Social Security.
However, the biggest problem is that you will also have to face the expenses of your company. In the case of a small self-employed person who declares the base that corresponds to him, this will not mean a large outlay. But if you really invoice well above the contribution base you have chosen, it is foreseeable that your business expenses will be quite high.
The retirement of the self-employed
Beyond this problem in case of sick leave, the main drawback is that the self-employed person's retirement is calculated from the contribution base. As a result, self-employed pensioners earn an average of 610 euros per month, which is 37% less than in the case of workers in the General Regime.
To avoid this situation, until some time ago self-employed workers chose to raise their contribution base in the last years of their working life. But now this is no longer so simple. In 2016, the pension is calculated taking into account the last 19 years of contributions. In addition, from the age of 48 the law limits the maximum base for the self-employed, which stands at 1,964 euros.
What is the solution?
The most advisable thing would be to always quote for the theoretical "salary" that corresponds to you in reality. Even so, Spanish rates are much higher than those of other countries and in some cases they can pose serious difficulties for the consolidation of the business. Hence, this is not a very widespread decision.
The other option is to open a pension plan to complement the amount of the public benefit.
Pension plans are financial tools that have certain advantages, especially for the self-employed. On the one hand, the contributions made to the pension plan are deducted from personal income tax, so as long as contributions continue, a reduction in tax payments will be achieved.
On the other hand, pension plans offer flexibility in contributions, that is, they allow the worker to contribute what he can at all times, depending on his income level. The maximum amount is €8,000 per year or 30% of net income from work, but there is no minimum contribution, so it remains open to what the worker decides each year.
In addition, it must be taken into account that a pension plan is an investment, so your own savings will be increased by the interest generated. Thus, a contribution of €100 per month for 15 years could translate into around €40,000 to be received at the time of retirement.
Finally, it is important to remember that pension plans are taxed as earned income at the time of redemption, that is, the amount recovered will be added to what was received that year and personal income tax will have to be paid depending on the tranche that has been reached.
Consult with our professionals, who will inform you of the options to set the contribution base and the pros and cons in each case.
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