Social Protection of Workers in the Platform Economy: A Cross-Country Comparison of Good Practice
Text: Christoph Freudenberg, Wolfgang Schulz-Weidner
Platform work can have negative implications for the individual protection of workers and the financing of social security systems. This article provides an international overview of measures for the social protection of workers in the platform economy.1 It is based on recent surveys of social security institutions worldwide. The analysis focuses on innovative regulatory approaches of countries that seek to provide better protection for platform work not only legally but also in social practice, as well as to tackle social security fraud.
Increasing digitisation and its implications for the “future of work” constitutes one of the central challenges for social protection worldwide. A survey of European social security institutions conducted in 2019 actually identified it as the greatest challenge – even more so than demographic change. The phenomenon of increasing platform work2 – also known as gig work, crowd work or click work – is a particular cause for concern in this context. Negative consequences for the individual protection of workers and the financing of social security systems are feared.
Various countries have already undertaken measures to prepare their social protection systems for an anticipated further increase in platform work. This is the finding of an analysis based on surveys of 35 social security institutions worldwide, which were conducted within the context of studies for the “International Social Security Association” (ISSA) and the “European Social Insurance Platform” (ESIP).3
Two reform approaches to ensure better social protection for platform workers can primarily be observed in this context: first, many countries must first ensure that as self-employed persons, platform workers have sufficient social protection by law. The German Federal Government’s plan to introduce compulsory old-age provision for all self-employed persons is essentially aligned with this goal. Protection by right, however, is no guarantee that platform workers also enjoy social protection in practice. Lack of knowledge regarding compulsory insurance, inadequate financial resources and the intentional failure to declare income subject to compulsory social security contributions in order to avoid taxes and social charges (social security fraud) are just some of the reasons for the gaps between protection by law and effective social protection. Second, countries have to ensure that platform work also enjoys social protection in practice. In this article, we will focus on this goal and present innovative regulatory approaches taken by other countries to increase effective protection and tackle social security fraud. The article will also demonstrate that new opportunities, but also new challenges for social security, arise precisely because of the high degree of digitisation in the platform economy.
Good practice: contribution monitoring and data transfer by the platforms
In most countries, platform workers are responsible for reporting those earnings which are subject to compulsory social security contributions. It can be assumed that a considerable proportion of workers do not comply with this reporting obligation. For example, a survey of citizens in France revealed that only 15 per cent of respondents would declare income from platform work to the state. The majority (59 per cent) would refrain from doing so, and 25 per cent were still unsure. Thus, it makes sense to obtain information about platform activities directly via the individual platforms. As the studies indicate, this is already good practice in several countries.
In Belgium, for example, platforms have been able to benefit from more favourable tax rules on a voluntary basis since 2017 under the condition that they inform the tax authorities about income earned on their platform. The tax authorities then forward this information to the institutions responsible for providing social security. In return for the higher administrative burden, annual income of up to € 6,250 (2019) earned through the platform is exempt from tax and social security contributions. In practice, this communication of data in Belgium is limited to platforms that provide local services on-site. By contrast, platforms that operate internationally and provide digital services do not participate.
France is considered a pioneer when it comes to the regulation of the platform economy. As early as 2014, the country decided that the agencies responsible for the collection of social security contributions (ACCOS) and the tax authorities have the right to demand information from platform providers at any time regarding the names of individuals active on the platform and the income these individuals have earned (if this exceeds certain thresholds). Initial experience has shown, however, that here, as in Belgium, platforms domiciled abroad rarely meet this reporting obligation. At the end of 2018, a new law was adopted in France that from 2019 requires platforms to disclose detailed information on the income of their platform workers (above certain thresholds) to the French revenue authorities once a year. This information is forwarded to the social security agencies (ACCOS). Any platforms failing to comply with this reporting obligation face a penalty of 5 per cent of the non-declared income.
Uruguay also offers an interesting approach. Since 2017, drivers on transport platforms (like Uber) in Uruguay have been required to register as a small business on a public mobile phone application. This registration is filed with the social security institutions and the tax authority. A winner of the ISSA regional social security award, this model’s success lies in the fact that all stakeholders have an incentive to take part: drivers have access to a far bigger pool of potential clients via the digital platforms. For many, this advantage outweighs the costs of tax and social security associated with working via platforms. The platforms themselves check whether the drivers provided through their platform have registered correctly on the application; any platforms failing to run a thorough check risk losing their licence to operate on the Uruguayan market. The social security institutions and tax authorities receive information about activities subject to compulsory social security and tax payments at relatively low cost. Furthermore, the decline in the volume of undeclared work also results in higher social security revenue and a higher level of protection. The example of Uruguay demonstrates that the platform economy offers new opportunities for public administration to improve effective social protection through new technologies (applications) and smart incentives for
„Thus, it makes sense to obtain information about platform activities directly via the individual platforms. As the studies indicate, this is already good practice in several countries.“
everyone involved. The scope of this model is limited, however, as it is not suited to global platforms operating across borders. Denial of access to the national market is not an effective threat for these platforms, as they can recruit workers in other less regulated countries without suffering any major losses.
The government of Estonia has opted for a more gradual introduction of income reporting. In 2016, the Estonian tax authorities started a pilot project with the platform Uber (and later with Taxify) involving automatic reporting of drivers’ income. This enables drivers to authorise Uber on a voluntary basis to send their income data to the Estonian tax authorities. The data is then automatically entered into the Uber drivers’ tax returns. The taxpayers can then include costs incurred as a result of their work as an Uber driver in their tax return. This automatic income reporting system makes it easier for platform workers to prepare their tax returns and can help public authorities curb tax fraud. In theory, this data could also be useful for the social security authorities.
Good practice: payment of contributions via platforms
The examples above illustrate that platforms already send income data to government authorities in a number of countries. Should it then not also be possible for platforms to transfer social security contribution payments directly? Such a centralised contribution collection system could significantly reduce the administrative burden for platform workers (particularly important for those only earning small amounts through platforms, as is often the case).4 While there are examples of contribution payments via platforms, these are mostly on a voluntary basis or are only implemented by a handful of platforms.
„While there are examples of contribution payments via platforms, these are mostly on a voluntary basis or are only implemented by a handful of platforms. “
In France, for example, platform workers (as micro-entrepreneurs) can, under certain conditions, authorise the platform to withhold and transfer the contribution payments for them. This task is also performed by some platforms in Switzerland, such as gigme.ch. In the case of gigme.ch, the service is provided for everyone working on the platform; there is no opt-out option for those wishing to pay the contributions individually. The collection of contributions is limited to platform workers who live in Switzerland. In Indonesia, the GoJek (motorcycle) taxi platform automatically transfers contributions to the accident insurance system for each taxi ride. A similar system is in place in Singapore and Malaysia, where a number of platforms transfer contribution payments to the social security institutions on a voluntary basis. Chile’s innovative contribution payment model also deserves a special mention. Here, the government deducts 10 per cent of the gross amount of each electronic invoice of self-employed persons – regardless of whether this is for a platform-based activity or not – and directs it to a pension account for the self-employed individual. In effect, the contributions are transferred by the commercial customers. Overpayment or underpayment of pension insurance contributions is taken into consideration at the end of the year when the self-employed person files his/her tax returns (including business expenses). Data exchange under the system of electronic invoicing for taxable businesses forms the basis for the Chilean model. This system is also used in other countries, such as Mexico and Ecuador, to obtain information about activities in the platform economy.
Good practice: digital information campaigns
The digital platform economy also offers new opportunities for targeted information campaigns, as the French example shows. Since 2016, platforms in France have been required to inform platform workers about their obligations with regard to social security contributions and taxes, and provide a direct electronic link to the government authorities involved. Platform workers can therefore get more information about social security and tax requirements at a simple click of the mouse. In this way, information and awareness raising campaigns can reach the target audience much better than in the analogue world.
Conclusion: new opportunities and challenges for social protection
To conclude, it is important to highlight two key characteristics of platform work that demonstrate the particular potential the platform economy offers for social protection:
1) In the platform economy, all business transactions are digitally recorded (and saved). Consequently, data on the income earned by platform workers can be communicated to the government authorities with relatively little effort compared with the traditional economy and can be used to curb social security fraud.
2) Furthermore, data on business transactions of platforms can now be saved centrally for a large number of self-employed persons. For example, the largest platforms collect information for several million self-employed workers. If these data are forwarded by the platform – rather than being reported individually by each self-employed person – it can considerably reduce the administrative burden for self-employed persons and for the authorities.
„All the country-specific examples studied have one common denominator: they are successful in collecting information on income earned (mostly) through physical platform work performed locally in each country. However, the national models show their limitations when it comes to platform activities carried out online across borders. “
Alongside the opportunities offered by the platform economy, however, the new digital world of work also poses challenges which are not seen on such a scale in the traditional economy. All the country-specific examples studied have one common denominator: they are successful in collecting information on income earned (mostly) through physical platform work performed locally in each country. However, the national models show their limitations when it comes to platform activities carried out online across borders.
How platforms domiciled abroad can be encouraged to cooperate remains largely uncharted territory. Any action will require international regulatory frameworks, also to set single data transmission standards and therefore limit the administrative burden for platforms which have workers from dozens of countries. The introduction of globally uniform and lower social security contribution rates, as put forward in Enzo Weber’s 2019 model5, offers valuable food for through in relation to recording cross-border platform activities, but is nevertheless problematic, as it would create an incentive to replace traditional jobs with platform work that is less well protected.
The solutions currently being discussed at EU- and OECD-level offer a more promising approach, whilst taking a central aspect of the Weber model into consideration: namely the global exchange of data. These ideas can be expected to take shape as early as 2020. The social security institutions and socio-political actors should therefore closely follow and support the process launched by the EU and OECD given that this will lay important foundations and set standards for the future of social protection.