Explanatory Memorandum to COM(2018)132 - Access to social protection for workers and the self-employed - Main contents

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dossier	COM(2018)132 - Access to social protection for workers and the self-employed.
source	COM(2018)132
date	13-03-2018

1. CONTEXT OF THE PROPOSAL

• Reasons for and objectives of the proposal

Offering access to social protection is crucial for the economic and social safety of the workforce and well-functioning labour markets that create jobs and sustainable growth. Nevertheless, there is a growing number of people who, due to their type of employment relationship or form of self-employment, are left without sufficient access to social protection.

Social protection can be provided through in-kind or in-cash benefits. It is generally provided through social assistance schemes that protect all individuals (based on their citizenship/residency and financed through general taxation) and through social security schemes that protect people in the labour market, often based on contributions related to their work-income. Social security includes several branches, covering a variety of social risks ranging from unemployment to illness or old age.

The European Pillar of Social Rights ¹ jointly proclaimed by the European Parliament, the Council and the Commission in November 2017, set out 20 principles and rights to support fair and well-functioning labour markets and welfare systems. Principle 12 of the Pillar in particular states that regardless of the type and duration of their employment relationship, workers, and, under comparable conditions, the self-employed have the right to adequate social protection. This initiative aims at implementing this principle as well as at contributing to the implementation of other Pillar principles such as the principles on 'secure and adaptable employment', 'unemployment benefits', 'access to healthcare' and 'old-age income and pensions'.The present Recommendation applies to the branches of social protection which are more closely related to the labour market status or type of employment relationship and mostly ensure protection from loss of work-related income upon the occurrence of a certain risk.

Welfare and social protection systems differ across the EU reflecting different national traditions, political preferences and budgets. Nevertheless, they are faced with similar, transformative challenges. Namely, in the past, work relationships were mainly characterised by full-time, open-ended contracts between a worker and a single employer. Over the last two decades however, globalisation, technology, changes in individual preferences and demographic changes have contributed to important changes in the labour markets. They have led to the growth of forms of employment other than full-time open-ended contracts such as temporary work, part-time work, and casual employment. Such forms of employment are providing more flexibility for companies to adjust work supply to their business needs and for workers to adjust their work patterns in line with personal preferences. Careers have also become less linear, with people more often transitioning between labour market statuses and/or combining salaried employment and self-employment.

More recently, digitalisation has increased significantly the pace of change. Companies and businesses need to adapt faster their economic activities to different markets, to implement new product cycles and seasonal activities, and to deal efficiently with fluctuations in business volumes and flows. In many circumstances, new forms of employment and contracts, such as on-demand work, voucher-based work, and intermittent work, are being favoured by businesses in order to respond to these needs. Other new forms of self-employment or employment such as platform work are also creating new opportunities for people to enter or remain in the labour market or to supplement the income from their main job.

Likewise, and for similar reasons, self-employment has evolved over the last two decades in the EU. Importantly, the structural changes in the labour markets have blurred boundaries between labour market statuses. Alongside the traditional 'entrepreneurs' and liberal professions, the self-employed status is being used more widely, in some cases even when de facto a subordinate employment relationship exists.

As the world of work evolves - with growing numbers of people in self-employment, in jobs not governed by standard contracts, or going through transitions between and combinations of dependent employment and self-employment - larger parts of the workforce are left without sufficient access to social protection due to their labour market status or the type of employment relationship.

These gaps increase risks to the welfare of the affected individuals and their families who endure greater economic uncertainty but also for the economy and society, in terms of domestic demand, investment in human capital and social cohesion. The accumulated effects of disparities in access to social protection overtime are likely to give rise to new inter- and intra-generational inequalities between those who have or manage to gain employment on contracts with full social rights and those who do not. They may constitute an indirect discrimination against young people, the foreign-born and women, who are more likely to be hired on non-standard contracts.

The gaps in access to social protection, due to labour market status and due to type of employment relationship, may hinder the take-up of opportunities to move from one labour market status to another, if this means losing entitlements, and ultimately may result in lower labour productivity growth. Thus, they may also not be supportive of entrepreneurship and hinder competitiveness and sustainable growth.

In the long run, it is the social and economic sustainability of national social protection systems that is at stake. Gaps in access to social protection for growing groups of the workforce will lead them to take recourse to tax-funded safety nets of last resort in case of social risk while the number of people contributing to social protection will be proportionately smaller. These gaps also may result in abuse of employment statuses and create unfair competition between companies that continue to contribute to social protection and those that do not contribute.

The Access to social protection for workers and the self-employed initiative aims at supporting all self-employed and non-standard workers who, due to their contract type or labour market status, are not sufficiently protected by social protection schemes regarding unemployment, sickness, maternity or paternity, accidents at work and occupational diseases, disability and old-age. In particular the initiative aims to encourage Member States to:

·Allow all individuals in employment and self-employment to adhere to corresponding social protection systems (closing formal coverage gaps),

·Take measures allowing all individuals in employment and self-employment to build up and take up adequate entitlements as members of a scheme (adequate effective coverage) and facilitate transferability of social protection entitlements between schemes,

·Increasing transparency regarding social protection systems and rights.

This initiative is part of the Social Fairness Package, together with a proposal for a Regulation of the European Parliament and the Council establishing a European Labour Authority ² and a Communication on the monitoring of the implementation of the European Pillar of Social Rights ³

Other initiatives contributing to the implementation of the European Pillar of Social Rights are closely related to and complementary to this proposed Recommendation, notably the Commission's Proposal for a Directive of the European Parliament and of the Council on transparent and predictable working conditions in the European Union (see below section on consistency with existing policies).

The present Recommendation builds on and complements the ILO Social Protection Floors Recommendation ⁴ , which provides guidance to countries in extending social protection coverage by prioritizing the establishment of national floors of social protection accessible to all in need.

The challenge addressed by the Recommendation affects a significant number of people in the EU. Altogether self-employment and non-standard forms of work represent a significant share of the labour market. In 2016, 14% of the employed persons in the EU were self-employed, 8% were full-time temporary employees, 4% were part-time temporary employees, 13% were part-time permanent employees and 60% were employees with a full-time permanent contract.

The prevalence of non-standard work and of self-employment varies greatly across Member States, regions, sectors and generations. The proportion of younger workers aged between 20 to 30 years old in temporary contractual arrangements or with ‘other or no contract’ is twice that of the other age groups. A gender division is also evident, with a strong prevalence of men among the self-employed, and a strong prevalence of female workers in fixed-term and/or part-time situations.

The self-employed also form a heterogeneous group. Most individuals voluntarily choose to be self-employed, with or without employees, taking the risk to become entrepreneurs, while around 20% become self-employed because they cannot find a job as employees. Some enjoy a good level of job quality and autonomy; others, accounting for less than 10%, experience economic dependence and financial vulnerability. Among the companies being newly created every year in the EU, those created by self-employed account for 15% to 100% in the Member States where data allow performing this analysis ⁵ . Newly founded firms, created by the self-employed, have survival rates typically between 30% and 60% after the first five years.

In addition, a growing number of people is accumulating, in parallel, several employment contracts or combines employment with self-employment. In some cases, an identifiable main source of income is accompanied by marginal/ancillary activities; in other cases several activities allow to form a full income but no principal source of income can be identified.

In a number of countries the self-employed were never fully included in social protection systems. In 2017, the self-employed did not have any access to unemployment protection in eleven Member States (MS). They were not insured against accidents at work and occupational injury in ten MS and were not covered by sickness benefits in three. In the countries where voluntary coverage is provided for the self-employed, the take up rates are low, ranging from 1% to 20%. By contrast, people in non-standard employment usually have the same statutory access to social protection schemes as those on standard contracts, with the important exception of certain categories of workers including casual and seasonal workers, apprentices or trainees, on-demand workers, and those on temporary agency contracts or with country-specific contracts.

Some non-standard workers and some self-employed face obstacles in building and taking up adequate entitlements to benefits due to the rules governing contributions and entitlements (minimum qualifying period, minimum working period, long waiting period or short duration of benefits), the way the income based is assessed or due to the insufficient adequacy of the benefits.

Moreover, while most Member States provide general information on rights and obligations related to the participation in social protection schemes, only half of them provide information on individual rights and obligations. Access to individualised information would help people to be aware of the entitlements they have accrued thoughout their career and thus enable them to make informed decisions.

• Consistency with existing policy provisions in the policy area

The Recommendation is consistent and builds further upon the existing policies in the area of social protection.

In particular, the existing EU guidance in the area of access to social protection ⁶ in the context of the European Semester and the Social Open Method of Coordination, has established a consensus among Member States and the EU institutions that social protection systems need to be modernised ⁷ . In this context, policy guidance has been developed in key branches of social protection (pensions, unemployment insurance, etc.). The present initiative would therefore complement on-going cooperation on social protection, by examining the situation of the self-employed and non-standard workers across different branches of social protection.

Over the years, an EU legal framework for protection of rights in some areas of non-standard employment has been developed through the Directive on Temporary Agency Work ⁸ and through negotiated agreements between social partners and implemented via the Directives on Part-Time Work and Fixed-Term Work ⁹ . But as the Directives apply to employment conditions, their impact on social protection is rather limited. They cover social protection rights that are closely linked to employment conditions and are considered as part of pay, such as occupational pensions ¹⁰ maternity pay and sickness pay. However, the Court of Justice has made clear in its case-law that the Directives do not apply to statutory social protection schemes ¹¹ . In the preambles to their Agreements ¹² , the social partners call on Member States to ensure that social protection arrangements are adapted to fit with evolving flexible forms of work. These preambles are not legally binding and, while Member States on several occasions have stated their commitment to make social protection more employment friendly, a recent review of the extent to which this has happened suggests that in several Member States there is still ample room for improvement ¹³ .

In the field of gender equality, a number of directives provides for some rights related to work-life balance. The Directive 2010/41/EU ¹⁴ on equal treatment between men and women engaged in self-employed activity foresees the possibility to grant women (including spouses of the self-employed) the right to be entitled to maternity leave and benefits for at least 14 weeks. Since this Directive leaves to Member States the decision if the right to such benefits should be granted on a mandatory or voluntary basis, levels of benefits and eligibility conditions vary widely among Member States. The Commission's proposal for a Directive on Work-Life Balance for Parents and Carers ¹⁵ provides for coverage by paternity and parental benefit and carers' benefit for all workers, including non-standard workers, with an employment contract or relationship.

Regarding transferability, there is no requirement in EU law to ensure the transferability of occupational pension rights but the Directive 2014/50/EU ¹⁶ on the portability of supplementary pension rights encourages Member States to improve it and in fact, all Member States have opted to extend the same legal treatment to all workers (the Directive does not apply to self-employed persons) who leave an occupational pension scheme.

Moreover, several recent EU initiatives will contribute to address the problem of transparency. First, this concerns old-age benefits in the context of occupational pensions. This will be addressed by the Directive on minimum requirements for enhancing worker mobility between Member States by improving the acquisition and preservation of supplementary pension rights ¹⁷ (Portability Directive) and by the recast Directive on the activities and supervision of institutions for occupational retirement provision (IORP directive) ¹⁸ . Both directives improve the provision of information on the pension schemes. The Portability Directive also covers the protection of pension rights upon termination of employment ¹⁹ . The two directives should be transposed into national law by 21 May 2018 and 13 January 2019, respectively.

Second, the lack of transparency for other social protection areas for workers will be partially addressed by the Commission's proposal for a Directive on transparent and predictable working conditions in the European Union ²⁰ , but the scope does not include the self-employed. According to the proposal, workers will receive information on the social protection institution(s) receiving the social contributions attached to an employment relationship and any protection relating to social protection provided by the employer. However, the proposed directive does not determine whether workers should have access to social protection. It limits itself to secure that information on acquired rights is available to employees.

• Consistency with other Union policies

The initiative is consistent with the political priority given to a fairer and deeper economic and monetary union. The EU economy as a whole could benefit from positive effects on labour market dynamism, and from reduced economic insecurity and social costs. Depending on financing choices, companies could experience an increase in the cost of managing fluctuations in production in line with some cost increase for non-standard employment and self-employment. However, they could also benefit from a possible increase in productivity of individuals in the newly protected forms of employment and from a fairer competition.

The provision of benefits to previously uncovered groups through public social protection systems could lead to a rise in public expenditure. The initial budgetary costs could be nevertheless reduced due to increased social protection contributions and to tax revenues related to household consumption given the positive effect on the disposable household income, especially for poorer households. Moreover, in cases where previously uncovered groups currently rely on safety nets of last resort such as social assistance, expenditure for other parts of the budget could be reduced. Some costs for provision of personalised information would also arise. However, this cost is judged to be considerably lower than the expected benefits both for the individuals over a life-time and for the social protection systems over the medium to long-term.

This initiative is consistent with the Commission Communication on A European agenda for the collaborative economy, which highlighted that whether or not an employment relationship exists between a platform and the provider of the underlying service must be established on the basis of a case-by-case assessment looking cumulatively in particular at whether the services provider acts under the direction of the platform determining the choice of activity, remuneration and working conditions; whether the services provider receives remuneration; and the nature of work. ²¹

2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

• Legal basis

The initiative 'Access to social protection for workers and the self-employed' will support the Union's aims recognised in Article 3 of the Treaty on the EU: to promote the well-being of its peoples, the sustainable development of Europe aiming at full employment and social progress, but also the aim to promote social justice and protection, equality between women and men and solidarity between generations. Pursuant to Article 9 of the Treaty on the Functioning of the European Union, the Union, in defining and implementing its policies and activities, shall take into account requirements linked to the promotion of a high level of employment, the guarantee of adequate social protection, the fight against social exclusion and a high level of education, training and protection of human health.

The Council Recommendation would be based on Article 292 TFEU in combination with Articles 153(1)(c) and 153(2), third subparagraph, as well as with Article 352 TFEU.

Article 153(1)(c) and (2) TFEU enables the EU legislator to adopt measures in the field of social protection and social protection of workers as long as it (i) avoids imposing administrative, financial and legal constraints in a way which would hold back the creation and development of small- and medium-sized undertakings, ii) does not affect the right of Member States to define fundamental principles of their social protection systems; (iii) does not significantly affect the financial equilibrium of these systems. This legal basis can be used to address the challenges of access to social protection for persons in non-standard employment. The Council is required to act by unanimity.

Article 352 TFEU can provide the legal basis of an initiative related to the challenges of access to social protection for people in different forms of self-employment. In this case the Council is also required to act by unanimity.

• Subsidiarity (for non-exclusive competence)

Employment and social protection policy remain primarily a responsibility of the Member States.

The problem of insufficient access to social protection for a growing number of people in the labour market and its negative consequences for social cohesion, labour market dynamism and sustainable growth are wide-spread across Member States. While several have adopted reforms or are carrying out national debates on the subject, evidence shows that these reforms, while being steps in the right direction, are not comprehensive and systematic, i.e. they are not closing gaps in access for all groups and all branches of social protection. Nor do current debates imply that all Member States necessarily plan to take action. Single Member States may hesitate to regulate in this area on their own, as they may fear that such action could put their own companies at a disadvantage relative to companies from other Member States.

EU action can be a springboard for further national reforms and ensure that progress is not partial or uneven but is instead secured across groups, social protection branches and Member States. EU action can also avoid a 'race to the bottom' and ensure that all Member States move in the same direction at the same time, promoting upward convergence within and between Member States, to the benefit of the EU economy as a whole.

EU action can also diminish the obstacles that the problem poses to the pursuit of the Union's objectives. Differences between types of employment relationships or between labour market statuses in access to social protection can be detrimental to the EU's fundamental objective of promoting full employment by hampering occupational labour mobility including towards higher productivity sectors. It can discourage workers to undertake certain type of employment or deter people from taking on the risks associated with self-employment, thus hindering entrepreneurship and innovation. The problem can also be an obstacle to the achievement of the Union's objectives in relation to quality of jobs and the fight against poverty and social exclusion.

By enhancing convergence towards robust labour market institutions, EU action can facilitate resilient economic structure and foster social cohesion in the Union.

The measures proposed in this Recommendation aim at eliminating or reducing obstacles which impair social protection systems from providing people with adequate social protection regardless of their type of employment relationships or labour market status, while respecting Member States’ competences in designing their social protection systems. A number of choices are left to Member States’ discretion, in particular: i) the level of protection provided, ii) whether to extend coverage under existing schemes or by the creation of new schemes, iii) the way to finance the protection, and iv) combinations of schemes to be used (public, occupational or private). These issues are beyond the scope of the current initiative. Member States are best placed to decide about these dimensions in ensuring effective protection in the most efficient way, given the diversity of existing social protection systems across the Union.

• Proportionality

The proportionality principle is fully respected as the scope of the proposal is limited to ensuring minimum standards in access to social protection.

Moreover, the proposal leaves the Member States the option of keeping or setting more favourable standards and taking into account features specific to their national situations. As a consequence, it leaves room for flexibility as regards the choice of actual implementing measures.

Proportionality also plays a key role in guiding the choice of instrument (see section below).

As documented in Annex 7 of the Impact Assessment, several Member States have started national debates and are undertaking some reforms. This Recommendation will further support these efforts at national level, by building on good practices, experience and evidence gathered from across the Union and fostering actions to address gaps in data collection.

As indicated in the Impact Assessment (Chapters 5 and 6), available quantifications indicate that the costs implied by extending formal and effective access and improving transparency are reasonable and justified in light of the accrued and longer-term benefits in terms of more secure employment, increased productivity and social cohesion, matching the wider social ambitions of the EU.

• Choice of the instrument

The instrument preferred for the initiative is a Council Recommendation, providing guidance to Member States on how to achieve access to social protection for all people in employment and self-employment.

The Commission considers a Council Recommendation to be the most proportionate approach at this point in time for an EU action to address the challenges related to access to social protection. Compared to a Directive which would impose binding outcomes, the Recommendation allows the EU level and the Member States to work further together to address the different dimensions of the problem and anticipate how they will evolve, including its implications at national level and possible spill-overs in the internal market, to stimulate and guide national reforms and ensure that progress is not partial or uneven across target groups and social protection branches. The Recommendation responds to the need to act at EU level, while taking into account the lack of political consensus, at this point in time, on the direction of the reforms. Indeed, the stakeholders' consultations (see below) reveal substantial divergence on the best instrument, as well as the direction of reforms. Furthermore, it can support the efforts to strengthen the statistical and knowledge-base necessary to monitor the situation at EU level.

The key added value of a Recommendation is therefore to create momentum supporting and complementing national debates and reforms, guide Member States in their efforts and create consensus on the best reform options, which would also steer the position of the EU and its Member States in all relevant international fora. A Council Recommendation also allows the EU to leave flexibility to Member States on the way to achieve the goals, depending on the point of departure, national history and practices.

At the same time, a stand-alone Council Recommendation has significant value added compared to addressing the issue only through existing processes such as the European Semester or through the Social Open Method of Coordination. A focused approach is needed to give the issue the necessary political visibility, raise awareness and build momentum. Also, efforts are needed from all Member States in a coherent way and also in a somewhat co-ordinated fashion to dispel doubts about possible first mover disadvantages.

The EU support in implementing and monitoring the Recommendation can be fully embedded in the on-going processes of the European Semester and of the Open Method of Coordination on Social Protection and Social Inclusion. The uptake of the Recommendation can be promoted by a number of flanking measures, notably through mutual learning programmes and funding supporting experimentations and reforms in Member States.

3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS

• Ex-post evaluations/fitness checks of existing legislation

The Commission has not yet published the evaluation of the Directive 2010/41/EU on equal treatment between men and women engaged in self-employed activity, the Directive 2014/50/EU on minimum requirements for enhancing worker mobility between Member States by improving the acquisition and preservation of supplementary pension rights (Portability directive) and the Directive 2016/2341/EU on the activities and supervision of institutions for occupational retirement provision (IORP directive). However, an independent expert evaluation concluded that the Directive 2010/41/EU on equal treatment between men and women engaged in self-employed activity was unsuccessful in delivering improved maternity and social benefits to the self-employed ²² .

Moreover, the Commission's proposal for a Directive on transparent and predictable working conditions in the European Union ²³ is based on the Commission's (91/533/EEC). •Stakeholder consultations

Several stakeholder consultations have been conducted to inform this initiative over the course of 2017 and in early 2018. This includes a two-stage consultation procedure of European social partners as stipulated in Article 154 TFEU, an open public consultation, targeted hearings with key stakeholders and with representatives of Member States within the Social Protection Committee.

The consultations provided indications on the degree of divergence between different stakeholders' views.

All stakeholders agreed, largely, that there are problems related to access to social protection for workers in non-standard forms of employment and for the self-employed.

The consultations carried out showed that there is no general consensus on the best instrument to be used. In particular, the feedback from the Member States in discussions in the Social Protection Committee and through position papers submitted in the context of the open public consultation signalled the lack of general Member State support for a legislative proposal in relation to all the objectives presented. The European Parliament also called for a recommendation enabling all people in all employment forms and self-employment to accumulate entitlements for social insurance in its resolution (2016/2095(INI)) on a European Pillar of Social Rights. Social partners expressed diverging views. Trade unions consider that improvements should be made to EU legislation, while cautioning that it should not undermine existing EU acquis, nor lower existing national standards, nor lead to downward harmonisation of rights. By contrast, some employers organisation consider that the open method of coordination and the European Semester process, including benchmarks, would be the right tools to facilitate mutual learning and exchanges of good practice.

All trade unions favour mandatory formal coverage, equalised to that of standard workers but taking into account national traditions. Employers held different views regarding the coverage. Some agree that social protection should be mandatory, but employees should have the right to choose the form of coverage (public or private), whilst the freedom of choice for the self-employed is particulary highlighted. Other employers favour voluntary formal coverage to take into account the diversity of forms of employment and the heterogeneity within the self-employed. All social partners agreed on the need for higher transparency.

Whereas trade unions call for full transferability, employers would like to limit it to minimum social protection rights and stress that there should be no associated additional burden or cost.

Choices regarding policy options and the legal instrument strike a balance between divergent stakeholder views.

• Collection and use of expertise

The Impact Assessment relies on a thorough mapping of policies in Member States, a review of literature, an analysis of current trends, derived from comparative data and the results of a social partners’ consultation and a public consultation. The estimation of social and economic impacts includes several sets of microeconomic simulations, quantifying the likely social impacts and impact on public budgets, as well as more qualitative analysis, allowing to better understand behavioural reactions and attitudes (through a dedicated survey) and country specific context (through case studies).

• Impact assessment

In line with its policy on Better Regulation, the Commission carried out an Impact Assessment of potential policy and governance options. This work was supported by structured consultation within the Commission via an Inter-Service Steering Group ²⁴ . The Impact Assessment was discussed with the Regulatory Scrutiny Board (RSB) on 7 February 2018. On 9 February 2018, the RSB issued a positive opinion with reservations, which have been addressed by further substantiating the rationale for the choice of a recommendation and further clarifying and underpinning the scope of the initiative and its expected benefits and economic effects ²⁵ .

1. The Impact Assessment examined different policy options, which combine measures addressing the objectives of the initiative. The policy option preferred in the context of the Impact Assessment is:

·Mandatory coverage for all workers in non-standard forms of employment not yet covered and voluntary for the self-employed;

·Adjustment of time thresholds; mandatory transferability of accumulated entitlements; aggregation of periods;

·Provision of generic and personalised information.

This would lead to high effectiveness regarding protection and thus pronounced positive social impacts, including reductions in income uncertainty and poverty, while entailing corresponding costs for public authorities and for employers. The differentiated approach fully takes into account the nature of self-employment while reflecting the significant heterogeneity among the concerned group. The provision of generic and personalised information improving transparency could stimulate higher voluntary enrolment, at a relatively small cost for public authorities.

However, it was decided that this proposal should adopt a more refined approach regarding formal coverage for the self-employed, notably based on further differentiation between social protection branches to better reflect the nature of self-employed work. For the unemployment risk, which is more difficult to evaluate and control in case of self-employment and is more intimately related to the entrepreneurial risk, more flexibility is given to Member States in the design of the scheme through the possibility to extend coverage to the self-employed on a voluntary basis. This also reflects the heterogeneity of the self-employed and would respect their freedom of choice. For other risks such as old-age, invalidity, sickness and maternity, mandatory coverage is recommended for both the self-employed and the workers. These risks are less difficult to evaluate than the unemployment risk and more similar for the two groups; a differentiated approach by labour market status are therefore more difficult to justify. The differentiated approach for people in self-employment is likely to increase the effectiveness of the EU action. For Member States where voluntary schemes exist for the self-employed, low rates of enrolment are observed (less than 1% to 20%), which would be explained by individual myopic behaviour and preferences, lack of awareness and financial disincentives. The higher resulting enrolment rates under a mandatory approach can be expected to lead to higher social benefits, including the reduction of income uncertainty and poverty, compared to a voluntary approach. Establishing mandatory coverage for the self-employed is a realistic option, as the mapping presented in the Impact Assessment shows that mandatory schemes for this group exist for each social protection branch in at least a few Member States. The proposal is thus in line with realities in the Member States and it sets a high level of ambition in terms of formal coverage. It may thus also be even more effective in reducing incentives for unfair competition which exploits differentiated social protection rights, as reflected e.g. in bogus self-employment.

The material scope of the initiative has also been adjusted compared to the Impact Assessment to include healthcare. Healthcare is a particular area that mixes social assistance provisions (ensured to all citizens/legal residents) with health insurance related to social contributions. In a few countries, non-standard workers and the self-employed may face gaps in access to healthcare, due to their type of employment relationship or to their labour market status. In line with the European Pillar of Social Rights and its Principle on healthcare, the initiative should therefore call on Member States to ensure access to healthcare for all people in employment and self-employment.

Overall, if the measures proposed in the Recommendation are fully implemented by Member States, non-standard workers and the self-employed, who represent all together 39% of the employed population, will benefit from better protection. This is set to entail a reduction in the individualisation of risk, income uncertainty, precariousness and notably a reduction in these groups' risk of poverty to levels closer to those of standard workers. Currently, non-standard workers face a much higher risk of poverty (16% compared to 6% for standard workers in 2016) as a result of low income and gaps in coverage. Similarly, social protection systems play a much weaker role in reducing the poverty risk for the self-employed compared to salaried workers on average in the EU.

Reducing differences in access to social protection is also expected to encourage transitions between contract types and labour market statuses, promoting labour market dynamism. Reducing the possibility of over-reliance on contracts exempted from social protection contributions is set to create a more level playing field between firms. Stemming the trend of an increasing share of people outside social protection systems avoids weakening their role including for labour markets and the stabilisation of economic cycles and may have positive effects on their fiscal sustainability.

Businesses could benefit from reduced unfair competition, a possible increase in productivity of individuals in the newly protected forms of employment and self-employment and from positive effects on labour market dynamism. Depending on financing choices, companies could experience an increase in the cost of managing fluctuations in production in line with some cost increase for non-standard employment and working with self-employed people.

The level of costs and their distribution between public budgets, insurance providers, employees and the self-employed and taxpayers strongly depend on key decisions left to Member States for subsidiarity reasons, including on the organisation of schemes, their financing and the level of protection provided. Direct costs are mainly related to the provision of benefits, with exemplary simulations on the extension of coverage by unemployment and sickness benefits to the self-employed suggesting a limited cost, which varies inter alia with the number of self-employed in the country, the unemployment risk they face as well as on the generosity of the system. Indirect costs could result from behavioural changes in response to the increased social protection coverage.

It is important to note that the wide scope of the initiative addressing simultaneously different branches of social protection, the differences in the organisation of social security schemes among Member States, in conjunction with the limitations in data available seriously constrains the possibility to provide a comprehensive quantitative picture in the Impact Assessment. The limited nature of the quantification equally reflects the uncertainty related to the key decisions on protection levels, design and financing of social protection systems, which are left to the Member States for subsidiarity reasons.

• Regulatory fitness and simplification

The key expected impacts stemming from the improved protection would be an increase in the mutualisation of risk, increase of income security resulting in less precariousness and poverty for individuals. The initiative is also expected to contribute to increased labour market dynamism and a better allocation of resources and to strengthen the well-established key role of automatic stabilisers of social protection, dampening business cycle fluctuations. The companies will also benefit from a well-functionning labour market and from resilient economic structures.

Companies could benefit from an increase in productivity of individuals in the newly protected forms of employment, from reduced unfair competition and from the positive effects of social protection systems on labour markets and on domestic demand. Depending on financing choices, companies are expected to experience an increase in the cost of managing fluctuations in production, in line with some labour cost increase related to non-standard employment and the self-employment.

The initiative will apply to all employers. It will, however, particularly affect all employers of non-standard employees and, to a slightly lesser extent, companies working with the self-employed. The data presented in the Impact Assessment allow determining to which extent the companies use these typologies of contracts. The self-employed with and without employees work mainly with micro-enterprises (1-9 employees), and much less with SMEs and large companies. Exempting micro-enterprises thus would unduly reduce the effectiveness of the initiative. Non-standard employees work particularly in the public administration (28%) and in SMEs and to a less extent also in large and micro enterprises.

• Fundamental rights

No negative impact has been identified on fundamental rights. On the contrary, the initiative promotes the entitlement to social security benefits and social services providing protection in cases such as maternity, illness, industrial accidents, dependency or old age, and in the case of loss of employment, in line with article 34 of the EU Charter of fundamental rights.

4. BUDGETARY IMPLICATIONS

This Recommendation has no financial implications to the EU budget.

5. OTHER ELEMENTS

• Implementation plans and monitoring, evaluation and reporting arrangements

The Commission will monitor implementation in the Member States and review the Recommendation in cooperation with the Member States and after consulting the concerned stakeholders, ensuring a sufficiently long period to evaluate the effects of the initiative after it has been fully implemented. The effectiveness of the Recommendation could be measured on the basis of existing and new data and of information gathered through Member States' reporting.

A mapping of existing gaps of social protection has been done for the purposes of this Impact Asssessment (see Annex 6) and will be repeated in some years. The comparison of the two mappings – ex-ante and ex-post - will provide a picture of the evolution of the social protection scheme, their coverage and their eligibility conditions.

At the same time, one of the current limitations in the analysis of the probem pertains to the lack of a good statistical base allowing to fully quantify the size of affected groups. For this purpose, statistical reporting commitments will be included in the Recommendation itself. This will encourage Member States to collect and publish reliable statistics on access to social protection broken down by labour market status (self-employed/employee), type of employment relationship (temporary/permanent, part-time/full-time, new forms of work/standard employment), gender, age and citizenship.

Moreover, reinforced cooperation will be established with Eurostat to create indicators appropriate for this area. Although long-time series would not be available, it should be possible to track progress towards formal coverage, effective coverage and transparency since the publication of the Recommendation. Work on improving indicators has already started and they could be available at the same time as the Member States start implementing the Recommendation.

Further, work would be undertaken by the Commission in the context of the Social Protection Committee to establish a benchmarking framework for social protection.

• Explanatory documents (for directives)

Not applicable.

• Detailed explanation of the specific provisions of the proposal

§ 1 to 6 indicate the subject matter of the Recommendation and its objectives. They also define the personal scope (who are the individuals to be covered) and the material scope (what are the branches of social protection that are concerned) of the Recommendation.

§ 7 contains definitions which are to be applied for the purpose of the Proposal.

§ 8 and 9 recommend to Member States to extend formal coverage to all workers, regardless of the type and duration of their employment relationship, and to the self-employed.

§ 10 recommends to Member States to ensure effective coverage, regardless of type of employment relationship and labour market status, by reviewing the rules governing contributions and entitlements. § 11 introduces the principle of transferability of entitlements, which should contribute to an effective coverage.

§ 12 to 15 encourage Member States to ensure the adequacy of social protection and to better tailor the schemes to the situation of beneficiaries.

§ 16 and 17 introduce the principle of transparency by encouraging Member States to improve access to information on social protection rights and obligations and to simplify administrative requirements.

§ 18 to 23 establish the maximum period that Member States have in order to implement the principles set out in the Recommendation and to publish regular data. They invite the Commission to propose a benchmarking framework within a year after the publication of the Recommendation, to review the implementation of the Recommendation within three years, and to support Member States through funding and mutual learning exchanges.