COVID-19 and the Self Employed

Apr 06, 2020

Originally published in the Business Post, 29 March 2020

You don’t need to be an economist to know that the collapse in the demand and supply of goods are accounting for a lot of the Covid-19 job layoffs.  All the time however, the focus in the commentary is on the disruption to employment. 

Much less is heard about the situation of the self-employed.

Only a few short weeks ago, there were 2.36 million people employed in this country.  Of that number, 330,000 were self-employed – working mostly in the trades and professions, some in retailing, many in services.  In relative terms, by European standards, Ireland has (or perhaps had) a high proportion of self-employed relative to employees .  How well are the self-employed being looked after in the crisis?

As a general principle, the self-employed are not entitled to many short-term benefits like illness and disability benefita.  All workers in this country, employees or self-employed, pay PRSI at a rate of 4%.  That is not the whole story.  Employers pay on behalf of their employees a further amount of PRSI up to 11.05% of wages.  It is this additional contribution that funds the wider range of benefits available to employees above what is normally available to their self-employed counterparts.  But these are not normal times.

Previous downturns have been a consequence of market instability, poor trading decisions and faltering economic decisions at government level.  This time it is different.  The economy is collapsing because, for the excellent reasons of public health and safety, the government has decided to directly or indirectly close many businesses down. 

Self-employed though doesn't always mean solo employed.  About 100,000 or so of our self-employed cohort are or were themselves employers, giving work to other professionals and tradespeople and support staff.    It is this group that can benefit most from the emergency supports from Government, because many will be able to claim wage subsidies for the people working for them.  These subsidies are not just for companies – the self-employed are also eligible.

First announced on Tuesday last, the details of this Wage Subsidy scheme are still taking shape almost on a day by day basis.  Because the scheme is being run by Revenue, an agency more usually associated with taking money away rather than disbursing it, it is a new departure for everyone concerned.  The big question for employers is whether they can qualify, but the gist of the scheme is now clear.  According to Revenue the focus is on “significant negative economic disruption on the employer due to Covid-19”.

The key criterion is a reduction of 25% in likely turnover due to Covid-19.  That’s turnover in the second quarter of 2020, against a yardstick of a comparable quarter in 2019, or even a decline in orders in March 2020 in comparison to February 2020.  It’s not about business collapse or insolvency, and businesses with strong cash reserves can still qualify for the subsidy.  Even a start-up business might be eligible where it can show that the investment won declined by 25% as a result of Covid-19.

This wage subsidy scheme is being operated on a self-assessment basis.  It is up to the business owners and directors themselves to decide they fit the criteria, and the subsidy will be given on their application.  Revenue reserve the right to come knocking after the crisis to check claims, and there will have to be documentary evidence available that the claim was valid and justified.  Yet because this scheme is all about business preservation and being ready to get back up to speed when the crisis ends, many businesses can and should qualify.  This is particularly true for self-employed businesspeople with employees of their own.

Few sectors suffered to the same extent as the self-employed sector during the 2007/08 recession, and few businesses took so long to recover as businesses in that sector.  Nowhere is this better illustrated than from the income tax take from the self-employed.  That fell from €2billion in 2007 to €800 million in 2010, and it took five years to recover to its former level.  Commercial catastrophe at that scale must not happen again.

A significant advantage of the schemes announced this week is that the cash will be delivered quickly.  Compare that with the supports announced this week for the self employed in the UK, where there will be direct grant aid for some self-employed businesses, but payments won’t be made until June.  God knows where we’ll all be by then.

There are still some anomalies – the weekly pandemic unemployment welfare benefit of €350 for the self-employed without employees looks low - but the announcements and legislation this week provide much more support for many self-employed people than was available just ten days ago.  Perhaps one of the outcomes of the Covid-19 crisis is that the self-employed are being recognised for their employment capabilities.  They are now more on the radar when it comes to economic policy.


Dr Brian Keegan is Director of Public Policy at Chartered Accountants Ireland