Assessment base for levies

What it means

The assessment base is the amount social and health insurance contributions are calculated from. It is not the tax base: levies run off a different figure, on a different timetable and under rules of their own.

For an employee it is income from dependent activity including benefits in kind; for a sole trader it is derived from the partial tax base for business income. The maximum assessment base caps most of the social insurance funds, while accident insurance and health contributions on wages have no ceiling at all.

The assessment base decides not only what is paid but also what will one day be received. It drives the amount of sickness benefit, unemployment benefit and the future old-age pension. A lower base means lower contributions now but also lower benefits later, which often comes as an unpleasant surprise to sole traders paying the minimum.

How it works in practice

The employer works the base out each month from the payroll run and reports it to the Social Insurance Agency and the health insurer. A sole trader has it recalculated once a year from the previous year’s income and pays on that figure until the next recalculation.

Not everything goes in: the law lists payments exempt from contributions, and for low earners a levy-deductible item lowers the base for health insurance, though it does nothing for social insurance. Health insurance is trued up in an annual reconciliation; social insurance has no such settlement.

A sole trader who is just starting usually does not pay social insurance as a self-employed person straight away: the duty arises only on the basis of the filed tax return, if business income exceeded the statutory threshold. After the return is filed we recalculate the new base for the client and tell them in advance from when and how much they will pay.

What to watch out for

The classic mistake is leaving income in kind out of the base, a company car also driven privately being the usual one. On inspection the insurers assess the contributions retrospectively with penalty interest, and the employee’s share, which can no longer be withheld, is paid by the company itself.

The managing director is paid under a contract for the performance of office and the company pays it without levies, as if it were a profit share. That remuneration does belong in the assessment base, and when the insurers find out, contributions are paid back for every month together with penalties.