Social insurance of sole traders

What it means

Social insurance for the self-employed is the compulsory insurance of sole traders and other self-employed persons with the Social Insurance Agency. It comprises sickness, old-age and disability insurance and a contribution to the solidarity reserve fund.

The obligation does not arise automatically with the trade licence. It starts on 1 July of the following year if business income for the previous year exceeded a statutory threshold, and lasts a year. It is reassessed every year on the basis of the tax return, so the insurance can start and stop.

Contributions are paid monthly on an assessment base derived from income in the tax return, but at least on the minimum assessment base. Unemployment insurance is voluntary for sole traders.

How it works in practice

After the tax return is filed we work out whether compulsory insurance will start or end for the client in July and what the monthly contribution will be. The Social Insurance Agency announces the result, but we recommend planning for it in advance so the client can adjust their standing order.

With low income, when compulsory insurance does not arise, we consider voluntary insurance with the client. Without it the sole trader has no entitlement to sickness benefit, and uninsured periods do not count towards their pension.

For sole traders who are also employees, contributions from employment and from the business are paid in parallel. Business income is assessed separately; employment does not cancel the sole trader’s compulsory insurance.

What to watch out for

Contribution arrears have two consequences: a penalty for every day of delay and loss of sickness benefit payments while the debt remains. Anyone who does not follow changes in their contributions may only learn of the debt when they fall ill.

Choosing between flat-rate and actual expenses also changes the assessment base. Higher expenses reduce tax and contributions, but also future benefits. When planning we therefore compare the overall effect, not just the tax.