One of the main expenses a business owner faces each month is their Social Security contribution. As we all know, Spain is renowned for its high rate just for the pleasure of having a business. Now I’m not saying contributions aren’t necessary, after all, this is used to fund sick pay, unemployment and pensions but there should be boundaries.
In previous articles, I have explained how Social Security determines the contribution business owners must pay each month but lets go over it again.
Since business owners technically do not have an official salary, Social Security estimates how much we need to earn in order to survive. This year, the “minimum salary” increased by 1% over last year’s contributions, setting the estimated monthly salary at 893,10 euros (963,30 euros for those over the age of 47), from which they calculate the rate to be paid; in this case a minimum contribution of 267,04 euros. As mentioned, this is the minimum amount that can be paid, however, business owners can contribute in a higher bracket if they wish. This means that before you earn a cent, you know you have to find this money that is due on the last working day of each month. This obligation scares many entrepreneurs from even thinking about setting up their own business, for fear of not being able to earn enough to pay bills and live, not to mention incurring debt with Social Security.
This fact becomes even more evident when latest statistics show that approximately 86,2% of all business owners in Spain opt to contribute in the lowest bracket. Stats also show that it is mainly under 40s, foreigners and traders who have been in business for under five years that choose to pay in this way. This is a risky play because part of our contribution goes towards our pension so the majority continue to pay the minimum throughout their working life almost until retirement age but tend to increase to a higher bracket in those final years in order to receive a better pension. In any case, a mere 0,8% of all business owners opt to pay the maximum contribution based on a monthly salary of 2.679,30 euros.
Once again, this survey demonstrates that self-employed persons are responsible for 1 in 5 jobs generated in Spain during this year. Each day self-employed persons generated 304 new positions which is a pretty amazing fact. In Spain, there are currently 17.603.313 people contributing to the National Social Security System, of which 3.187.990 are self-employed and 871.955 are employees under their care.
Other European countries have a completely different approach to Spain, basing their contributions on factors such as income so that a person who earns 500 euros a month does not pay the same as a person who earns 5.000 euros. See the below image for comparisons to see how Spain fares:
Many associations whose purpose is to ensure fair conditions for self-employed persons are lobbying the government to improve these conditions to encourage others to join ranks and set-up their own businesses as well as to alleviate the burden of such high contributions those who are already registered currently pay. This is the only way to guarantee longevity of new businesses and to continue to create jobs for the many unemployed.