Social Welfare Cost of Benefits for Self Employed

Self-employed and the Welfare State....finding a middle ground.

August 26, 2019

Traditionally the self-employed didn’t get access to social welfare benefits due to their contributions rate.

However in recent months the Government announced plans to widen the net of eligibility for those who need State support when their business dries up.







So, from November, thousands of self-employed people will be able to sign up for jobseeker’s benefit of €203.00 per week should their business fail.

We at, John M Shanahan & Co, Chartered Accountants, Tullamore, Co Offaly have taken a moment to reflect on its merits.

The availability of the allowance will be dependent upon the individual paying an, as of yet, unspecified amount of PRSI contributions. However, where the amount of PRSI contributions are insufficient to qualify an application for means tested jobseekers allowance can still be made.

It’s a welcome development for those who fall on hard times.

Paying for those Benefits

PAYE employees pay Class A PRSI, at a rate of 4%, while the self-employed on the other hand make Class S contributions, which was only introduced back in 1988, at the same 4% rate. However, employers also pay PRSI on their employees’ behalf – 8.7 per cent on weekly earnings up to €386, while the rate goes up to 10.95 per cent when earnings exceed this limit. This means that an employee in the PAYE sector has a combined PRSI contribution of up to 14.95 per cent - versus just 4 per cent for the self-employed.

Should the Self-Employed pay more.

The Irish Congress of Trade Unions Congress takes the view that the differential between the 4% self-employed rate, and the combined 14.95% for employees, is too great. They would say that - overlooking the source of main source of the contributions, which actually comes from the Employer, those risk-takers who created the jobs in the first place.

Another argument is the inequality of the tax system towards the employed; the self employed only get a tax credit of €1,350 versus €1,650 for the employed, while the self employed also pay a USC surcharge of 3 per cent on income of over €100,000.

Also the system works such that a self-employed person on a lower income will find themselves with a higher PRSI burden, as it kicks in at a much lower rate of earnings figure of €5,000, and a minimum rate of €500. In this instance the employee will pay no PRSI on earnings up to €18,304, or a reduced rate on earnings up to €22,048. But our self-employed person starts paying PRSI once they hit earnings of €5,000 – so on an income of €18,034 the will be paying PRSI of approx €700.00.

However you look at it there are pros and cons to levying the self employed with an additional burden, the argument is there that if the employer doesn't carry if the State will have to - the money has to be found from somewhere.

There is merit in self-employed paying for their own benefits but I would say through a system that gives credit for and recognises their existing contribution to the Sates coffers.

The old adage ... there is no such thing as a free lunch!!


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