EUROPEAN COMMISSION Strasbourg,13.3.2018 SWD(2018) 70 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Council recommendation on access to social protection for workers and the self-employed {COM(2018) 132 final}



{SWD(2018) 71 final}





Table of contents 1. Introduction: Political and legal context 2. Problem definition 2.1. A first look at how many people are potentially not covered by social security 2.2. Problem drivers 2.3. Consequences 3. Why should the EU act? 3.1. Legal basis 3.2. Results of the social partners consultations and of the public consultation 3.3. Subsidiarity: Necessity and value-added of EU action 4. Objectives: What is to be achieved? 4.1. General objectives 4.2. Specific objectives 5. What are the available policy Measures? 5.1. Baseline scenario 5.2. Measures discarded at an early stage 5.3. Description of the policy measures 5.4. Impacts of the policy measures

6. What are the Policy packages and their impacts? 6.1. Description of alternative policy packages 6.2. Impacts of the policy packages 6.3. Comparing the policy packages 7. Preferred Package 7.1. Preferred policy option 7.2. Overall impacts 8. The choice of legal instrument 8.1. Legal options 8.2. Preferred instrument 9. How will actual impacts be monitored and evaluated? 9.1. Monitoring 9.2. Evaluation Annex 1: Procedural information Annex 2: Glossary and Terminology Annex 3: Further information on the organisation of social protection systems Annex 4: Further information on non-standard employment and self-employment Annex 5: Visualisation of the Problem Tree Annex 6: Internal Drivers Annex 7: Overview of recent reforms in Member States

Annex 8: The existing EU instruments Annex 9: Analytical methods Annex 10: Further information on impacts of policy measures and policy packages Annex 11: Stakeholder consultation Annex 12: Who is affected and how? Annex 14: Monitoring indicators Annex 15: Summary of case studies Annex 16: Behavioural study 1.Introduction: Political and legal context Globalisation, technological developments and demographic ageing have driven changes in the European labour markets for the last two decades and will continue to do so in the future. Employment will increasingly be more diverse and careers will be less and less linear. As labour markets evolve, social protection systems too need reforms in order to make our social model future-proof making the most of the future world of work. Offering access to social protection is crucial for the economic and social safety of the workforce and the well-functioning labour markets that create jobs and growth. Yet there is a growing number of people who, due to their employment status, are left without sufficient access to social security. The Commission Reflection Papers on harnessing globalisation and on the social dimension recall that national social protection systems in the EU differ due to different national traditions, political preferences and budgets but they face similar, transformative challenges. They underline the importance of social policies for a better distribution of the benefits of globalisation so people are confident that governments will protect and empower them in the adaptation to change. They also stress the importance of delivering new protections to help individuals use their full capacities in fast-changing labour markets. During the public consultation on the European Pillar of Social Rights many stakeholders expressed concerns regarding the obstacles faced by workers in non-standard forms of employment and by the self-employed in accessing social protection such as unemployment benefits, sickness benefits, disability benefits and pensions. In his State of the Union speech in September 2017, President Juncker further stressed that a social fragmentation and social dumping are to be avoided in Europe. He underlined that, whilst national social systems will still remain diverse and separate for a long time, the EU should strive for a European Social standards Union and for a common understanding of social fairness in the single market. Solemnly proclaimed in November 2017, the European Pillar of Social Rights is the EU's political commitment to address these challenges and to uphold citizens' social rights in times of structural changes, including by stressing 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" (principle 12). The Commission's initiative on "Access to social protection for workers and the self-employed" is a key step to make principle 12 of the Pillar a reality on the ground. The initiative (2017/EMPL/003) is contained in the Commission Work Programme 2017 and 2018 and is a key component of the Social Fairness Package to be adopted by the Commission on 13 March 2018. The objective is to support people in non-standard forms of employment and self-employment who, due to their employment statuses, are not sufficiently covered by social security schemes and thus are exposed to higher economic uncertainty. By focusing on the level playing field for economic agents at national level, the initiative will also aim at avoiding short-term competitions in the internal single market, complementing the coordination of social security across borders already set at EU level and ensuring long-term gains stemming from the economic benefits throughout the Union. While acknowledging that many social protection schemes aim at protecting all citizens - whether or not active in the labour market - the initiative is expected to concentrate primarily on social security schemes which are governed, financed and designed in function of the labour market dynamics and leaves out of scope social assistance and other social protection schemes which are based on residence/citizenship status. The initiative focuses in particular on social security areas which are mostly impacted by the changing nature of work relationships, namely unemployment benefits; sickness benefits; maternity and equivalent paternity benefits; invalidity benefits; old-age benefits as well as benefits in respect of accidents at work and occupational diseases. This Impact Assessment describes the current gaps in social security for people in non-standard forms of employment and self-employment across the Member States and discusses different policy options and impacts for EU action. It is important to note that the quantification of impacts described in this document does not capture the entire scope of the problem analysed. The limited nature of the quantification made stems from technical limitations of the statistical data and of the simulation models available. It also reflects the uncertainty related to the decisions on design and financing of social security systems. Since these decisions are to be left to the Member States, according to the principle of subsidiarity underlined in Article 153 (4) TFEU, the choices to be made are yet unknown and therefore a full measurement of their fiscal and economic impacts is not possible. In light of the above, this document presents a proportionate assessment of impacts. The impacts are primarily described through a qualitative assessment and, where possible, a quantification of impacts is outlined.

Procedural information regarding the preparation of this Impact Assessment can be found in Annex 1. Annex 2 provides the glossary and definitions of key terms used in this document. 2.Problem definition Social security serves to protect people against the financial implications of social risks, such as ill health, old age or job loss, and contributes to preventing and alleviating poverty and social exclusion. It also functions as a buffer during economic downturns by supporting domestic demand. Social security can take the form of in-cash benefits which replace or supplement work income (unemployment benefits, pensions, sickness benefits, child benefits) and/or in-kind benefits which provide support through the supply of goods and of services (healthcare, child care, training or job search assistance). Further information on the basic characteristics of social security systems in the EU can be found in Annex 3. Well-designed social security systems are an important lever of competitiveness and sustainable growth as they facilitate labour market participation and support human capital investment in a world of rapid and growing labour market transformations. Adequate social security contributes to a better allocation of the labour force towards emerging and dynamic sectors of the economy by providing workers opportunities and incentives to participate in education and training and devote time to search for a job matching their skills. It helps people feel secure in order to fully embrace the opportunities created by new forms and patterns of work, new working relationships with employers, growing career transitions as well as self-employment. Social security systems thereby fulfil important functions for individuals, labour markets as well as at macroeconomic level, where they act as automatic stabilisers dampening welfare-reducing economic cycles. This initiative addresses the problem that a significant and increasing share of people in the EU's labour market has insufficient social security coverage due to their employment status, in particular non-standard workers and the self-employed. This development impedes social security systems from fully fulfilling their multiple functions outlined above. Such gaps increase risks to the welfare of the affected individuals and their families who endure greater economic uncertainty. The accumulated effects of such disparities in entitlements 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. Women may also be more disadvantaged by social security systems still geared towards linear full-time employment as they are more exposed to non-standard employment, particularly to part-time work, but also to temporary work and to fragmented careers due to interruptions related to children or caring for dependent relatives. Negative consequences are also felt at the aggregate level, including in terms of higher labour market segmentation and unfair competition between firms employing staff on non-standard contracts exempted from social security contributions and those not doing so. Further, there can be effects on the financing base of social security systems, and labour market dynamism to the extent that mobility and transitions between different employment forms are hindered by differences in social security coverage. In the long run, it is the social and economic sustainability of national social security systems that is at stake. Gaps in access to social security for growing groups of the workforce will lead them to take recourse to safety nets of last resort in the case of social risk while the number of people contributing to social security systems will be proportionately smaller. 2.1.A first look at how many people are potentially not covered by social security Social security systems were primarily developed for and remain geared towards workers in ‘standard employment relations’, implying a long-term, full-time work relationship . Recently developments towards social security systems with more incentives to work have taken place, but the systems were not tailored to the specificities of people in different forms of employment, creating deficiencies in the way they are protected. This potentially concerns a large share of people in the EU's labour market since the share of people in non-standard employment relationships and dependent self-employment has been increasing . In 2016, 14% of the total 219 million people employed 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 (Figure 1). Altogether, people in all categories of non-standard employment and self-employment constitute around 39% of the employed population. In addition to the increasing diversity in employment forms, careers are also becoming less linear. In the space of a generation, the average European worker has gone from having a job for life to having more than ten in a career. People are frequently moving between different employment statuses and/or combining salaried employment and self-employment. Moreover, transitions from school to work are taking more time than before, and many young people accumulate several traineeships in the process, which in many Member States’ social security systems implies delaying the start of the payments of contribution and thus has an impact on the building up of entitlements. In general, evidence shows that the crisis has led to rising involuntary temporary and part-time work and to increased perceptions of job insecurity overall , which may have been accentuated by the existing deficiencies in protection (further information on the levels and the observed trend increase in non-standard employment and on self-employment are presented in Annex 4). Figure 1: Extent of different types of employment relationship in the EU28 in 2016 Matsaganis et al. (2015) estimated the risk for non-standard workers and the self-employed of not being covered by three social benefit schemes: sickness, unemployment and maternity benefits. Their results show a significant risk of not being covered by benefits for non-standard workers and the self-employed in relation to these three benefit schemes.

As shown in Figure 2, two million people employed on non-standard contracts in the EU could be at risk of not being covered by sickness benefits, with a significant variation across Member States. In particular, this risk concerns 5.1% of temporary full-time workers and 9.7% of temporary part-time workers in the EU. Concerning the risk not to be covered by unemployment benefits, eight million people in non-standard contracts are at risk: 31.9% of temporary full-time workers and 38.7% of temporary part-timers are at risk, against 0.1% of the standard workers (Figure 3). When it comes to maternity benefits, the proportion of non-standard workers at risk of not being covered is 1.8% for permanent part-timers, 8.5% for temporary full-time workers and 12.7% for temporary part-timers. As will be shown later, in general, the existing rules do allow non-standard employees to adhere to the corresponding social security schemes ("formal coverage"), although some specific categories may be excluded. The estimated figures thus also reflect the fact that despite being members, non-standard employees may often not be able to build up and access benefits ("effective coverage"). Figure 2: Distribution of people in employment aged 15-64 at risk of not being entitled to sickness benefits by type of employment, 2014 (% of the total in employment) Figure 3: Distribution of people in employment aged 15-64 at risk of not being entitled to unemployment benefits by type of employment, 2014 (% of total in employment) Among the self-employed in the EU, about 12 million are estimated not to be eligible for sickness benefits, again with a wide variation between countries (Figure 2). The risk of not being covered by unemployment benefits for the self-employed is as high as 54.5% (corresponding to ca. 17 million), again with significant cross-country differences (Figure 3). In both schemes the variation across Member States relates to the fact that insurance is mandatory in some Member States, voluntary in others and non-existent in another group of countries. The proportion of the self-employed who are estimated not to be covered by maternity or paternity benefits is much higher: 46.1%. These figures illustrate the problem for three branches of social security. A qualitative mapping by Member State, by social security branch and by employment category carried out for the purposes of this Impact Assessment (see Section 2.2.2 and Annex 6) shows that similar problems also exist for other branches of social security even if data limitations prevent the presentation of corresponding quantitative estimates. Complementary evidence is available from a survey commissioned for this Impact Assessment. Considering the self-reported rates of coverage by key social security branches, large gaps emerge between standard employees on the one hand and the self-employed and non-standard workers on the other (see Figure A.28 in Annex 16). These gaps are particularly pronounced when considering unemployment benefits and sickness benefits. Compared to standard employees, the incidence of self-reported benefit coverage in case of need is 50 percentage points (pps) lower for the self-employed and 29 pps lower for non-standard employees regarding unemployment benefits. For sickness benefits, self-reported benefit coverage is 35 pps for the self-employed and 33 pps for non-standard employees. Differences are less pronounced in the case of old-age benefits between standard employees and the self-employed non-entrepreneurs (6 pps), while there is a difference of 22 pps between standard and non-standard employees. Similar gaps were registered in case of maternity, invalidity and accidents at works and occupational injuries. It is important to notice that such gaps in self-reported coverage may reflect existing real limitations, but also reflect a lack of transparent information allowing people to be aware of benefits they are entitled to. 2.2.Problem drivers The gaps of access in social security affecting non-standard workers and the self-employed are the result of external drivers to social security (like changes in labour markets, technological progress, globalisation and demographic change) as well as intrinsic ones. They are now reviewed according to the structure outlined in the problem tree shown in Annex 5. 2.2.1.External drivers Several factors are shaping developments in the EU labour market(s) contributing to an increasing share of people being outside standard employment and thus potentially affected by gaps in social security coverage.

Intensifying globalisation has changed production processes and increased competition for firms . Resulting needs to increase cost efficiency have, among others, been addressed by firms by lowering their labour costs – by offshoring and also by containing domestic labour costs and making it more flexible. As part of these efforts, employers may call in self-employed workers or hire temporary staff as well as people in new forms of work. Such flexible forms of labour can at the same time be more compatible with the above-mentioned requirements of production in a global economy. Moreover, there is an ongoing shift in the sectoral structure of the EU economy from manufacturing towards an increasing role of services. Since non-standard employment is more prevalent in the services sectors, this shift also implies an increase in this kind of employment , including non-standard jobs in some high-skills service areas . The increasing recourse to existing forms of non-standard work as well as the emergence of new ones is also closely linked to recent technological developments transforming the world of work in unprecedented ways. New IT technologies, automation and digitalisation are changing the production and delivery of goods and services while technologies such as increased robotisation of standardisable tasks or the development of digital platforms are also having important impacts on the organisation of work . These developments are giving rise to such phenomena as platform work, crowdsourcing and the collaborative economy. In conjunction with the above-mentioned changes related to globalisation, these technological transformations also resulted in higher use of traditional non-standard employment and self-employment and to the development of new atypical working arrangements , such as workers with no employment contract (casual workers; "zero hours" contracts), workers who report working a very small number of hours (< 8 hours a week) or who hold a temporary contract for less than 6 months. At the same time, an increase in non-standard forms of work may result from policies in response to population ageing, which is weighing on the size of labour forces and putting financial pressure on social security systems, both on the expenditure side (healthcare, pensions) and on the financing side (shrinking workforce). Offering flexible working practices may play a key role in encouraging more people to enter the workforce (including women, low-qualified people and migrants), and may imply increasing the number of non-standard workers and expanding the diversity of new forms of employment. The additional pressures of the recent economic crisis may have further contributed to the increasing use of new arrangements instead of traditional forms of work and contracts. While such new forms of work in relation to the developments outlined above respond to flexibility needs of (public and private) employers and workers, and have supported the integration of people in the labour market who otherwise risked to stay in unemployment, increases in labour flexibility may be associated with higher levels of job insecurity, as reflected in the emergence of unstable and informal jobs, with irregular salaries and reduced social security. Effective welfare policies are thus needed to accompany the changes to avoid larger inequalities within countries and heightened fragility of employment . Changes in labour markets institutions can mediate the effects of globalisation and technological progress on work and employment relations . The ongoing rise of new working arrangements poses some challenges to the existing framework of employment legislation and, more broadly, of welfare policy – from minimum wages to benefits and pensions – which remains structured around the concept of standard employment contract. Furthermore, the employment/self-employment binary approach of employment legislation is no longer clear in labour markets. New forms of employment have blurred the boundaries between the two groups creating legal loopholes and leaving many people in the labour market unprotected. The observed decrease in collective bargaining coverage implies a loss of protection of working conditions for a growing number of workers . Moreover, the instability of employment relationships, the fear of reprisals and the limited opportunity to join a union could sometimes hamper the "de facto" exercise of collective rights which are often being defined with reference to an open-ended contract model , affecting especially non-standard employees. These developments thus imply an additional, complementary lack of protection. 2.2.2.Internal drivers Alongside the external drivers, there are factors intrinsic to the social security systems which are root causes for the lack of access for non-standard workers and the self-employed. They regard the rules governing formal coverage, effective coverage, transferability and transparency. A summary overview of these drivers is presented in this section; Annex 6 provides more detail and background. It should be noted that, although principle 12 of the European Pillar of Social Rights refers in general to social protection as an instrument to support fair and well-functioning labour markets and welfare systems, the internal drivers presented here relate only to a subset of social security branches. A comprehensive mapping of gaps in access for all branches – unemployment benefits, sickness benefits, old age benefits, benefits related to accidents and injuries at work, invalidity benefits, healthcare, family benefits, maternity/paternity benefits and long-term care - has been conducted. The mapping clearly showed that not all social protection areas are affected by labour market evolutions. The mapping showed that the areas where the type of work contract or employment status has a strong influence on the social protection coverage are unemployment benefits, sickness benefits, maternity and equivalent paternity benefits, invalidity benefits, old-age benefits, benefits in respect of accidents at work and occupational diseases; the analysis on these branches will thus be presented in more detail below. The common element among these branches is that the benefits they provide have a function of income replacement in case the associated risk materialises and interrupts the person's work. For instance, sickness benefits provide income replacement in the case of prolonged illness. While healthcare also involves some cash benefits, these relate to the provision of services rather than to the replacement of income, and it has not been possible to identify a strong impact of a person's labour market status on the corresponding coverage. This branch is thus not included it in the scope of this initiative. Another important point to note concerns the personal scope of the initiative. The initiative supports workers (as defined in Annex 2) which do not have a full-time open-ended contract, and the self-employed. Both groups show a high level of heterogeneity and the current forms of non-standard work and self-employment are described more in detail in Annex 2 and Annex 4. By virtue of the residual definition of non-standard workers given above, all current forms of non-standard employment, as well as of self-employment, are included in the scope of the initiative, without further sub-classifications. This also allows the initiative to be future-proof, since labour markets are evolving fast and technologies are giving rise to many different new forms of employment not yet known. Formal coverage Formal coverage means that a person in employment or self-employment is entitled to participate in social security systems. It is a prerequisite for benefitting from the protection granted by the scheme in case of need. Limited formal coverage means that the rules governing access to social security schemes do not allow individuals from specific groups to become members. Thus individuals are neither covered on a mandatory basis nor can they opt to join corresponding schemes on a voluntary basis. Overall, people in non-standard employment usually have the same formal coverage by social benefit schemes as those in standard employment. However, in certain Member States, there are important exceptions relating to specific categories of non-standard workers, notably casual and seasonal workers, apprentices or trainees, on-demand workers, and those on temporary agency contracts as well as people working on certain contracts defined at national level, such as civil law contracts in Poland (more than half a million people) or mini-jobs in Germany (7.6 million) (see Table A.2 in Annex 6). Such coverage gaps are wide-spread geographically, they have been identified in fifteen Member States for unemployment benefits, twelve Member States for sickness benefits, twelve Member States for maternity benefits, seven Member States for accident at works and occupational injuries and thirteen Member States for old-age and survivors' benefits. The situation is more critical for the self-employed. There are fundamental gaps in formal coverage regarding three core branches, where the self-employed as a group are excluded from membership. In particular, the self-employed, or important subgroups, do not have any access to unemployment benefits in eleven Member States (see Table A.3 in Annex 6). They cannot be insured against accidents at work and occupational injury through social security schemes in ten Member States and they are not covered by sickness benefits in three. In other countries, the self-employed, or at least some categories, have formal coverage on a voluntary basis for unemployment insurance, sickness benefits and accidents at work in eleven, seventeen, nine countries, respectively. It is worth noting however that rates of enrolment in voluntary schemes are low (less than 1% to 20 %) in most Member States where this possibility exists. The low adherence of self-employed may be related to alternative individual coping strategies, affordability and financial disincentives, to unfavourable system design, lack of awareness or individual myopic behaviour. The latter may affect the individual decisions on intertemporal income distribution. This may be related to erroneous foresight, or to an unfounded fear that what has been promised for tomorrow might not materialise.

Effective coverage and transferability Even when non-standard workers and the self-employed have formal coverage, they may experience gaps of effective coverage, that is, rules of social security schemes applicable to non-standard workers and the self-employed, compared to those applicable to standard employees, embed obstacles preventing them from accruing and taking up adequate entitlements in case of need. This may be because the rules are less favourable for the self-employed or non-standard workers or because identical rules for all three groups are more difficult to meet for people outside standard employment. For instance, given that temporary employees transition more frequently into unemployment than standard employees, it can be relatively more difficult for them to accumulate a given qualifying period within the corresponding reference period to qualify for unemployment benefits. According to the expert mapping, the rules affecting effective coverage of the self-employed and of non-standard employees relate to time thresholds for contributions and entitlements (minimum qualifying period, minimum working period, waiting period or duration of benefits), to the way the income base is assessed for the self-employed or to the level of adequacy of the benefits (Annex 6). Overall, obstacles to effective coverage have been identified for at least nineteen Member States and in relation to six social security branches, notably unemployment, sickness, maternity, accidents at work and occupational injuries, invalidity and old age and survivors' benefits. Minimum qualifying periods and are particularly problematic for non-standard workers, while the self-employed mostly face problems related to longer waiting periods and shorter duration of benefits. Regarding non-standard workers, minimum qualifying periods and minimum working periods in unemployment benefit schemes have been identified as problematic in six and four Member States respectively. Minimum qualifying periods are also challenging in the case of sickness benefits in five Member States. Waiting periods are unfavourable in six Member States in the case of maternity benefits (see Table A.6 in Annex 6). Regarding the self-employed, they face longer qualifying periods for unemployment benefits in four Member States and are subject to longer waiting periods before receiving sickness benefits in eight Member States (see Table A.7 in Annex 6). The methods for calculating the income base or the reference income may also be unfavourable to them because they consider long previous periods of earnings or on future earnings instead of current earnings, not taking into account the fluctuations characterising incomes from self-employment. Moreover, in some Member States many self-employed may receive lower benefits compared to an employee with the same earnings because benefits are set at different levels according to the form of employment (e.g. pensions for the self-employed in Italy or sickness benefits for the self-employed in Belgium). Transferability may refer to the possibility of transferring accumulated entitlements to another scheme following professional transitions between sectors or employment forms. In this case a lack of transferability can hinder the building up of adequate entitlements over the course of a career characterised by frequent transitions as in the case of old age pensions. Transferability can also refer to making qualifying periods in the previous employment status (or in concomitant employment statuses) count towards the qualifying periods in the new status. This is because the entitlement to benefits in the new scheme depends on contribution history but the entitlements in the old scheme cannot be transferred. In this second case, gaps in transferability may impede individuals for example of transitioning between employment and self-employment when these two statuses are covered by different schemes (see Table A.8 in Annex 6). In view of careers that are increasingly characterised by frequent changes between jobs and employment statuses, this regulatory failure is of rising importance. Obstacles to transferability can be due to lack of regulation in this area (four Member States), to extremely high administrative costs (one Member State) or to different rules governing different schemes (two Member States) which prevent people from transferring accumulated rights. In the case of voluntary schemes, the transfer of entitlements may be influenced by behaviour of individuals. A number of factors can drive the decision to adhere or not to a voluntary scheme, including whether coverage is already available through the first job, the family context and private wealth accumulation which provide alternative means of coping with risks, as well as the individual's assessment of future risks facing them. In some Member States the time profile of replacement rates in unemployment insurance depends on the contribution history and shorter contribution histories are likely to characterise workers on temporary contracts as compared to full-time workers. Here again behaviour of individuals matter. Particularly in the case of the self-employed, where the rules for declaration of income are less stringent, or where the individual has the option to (legally) choose what level of income to be assessed upon, they may report low incomes, leading to low entitlements. The low declaration of income due to myopic behaviour has been identified as an obstacle to the adequate protection of the self-employed in at least half a dozen of Member States. Transparency Finally, there are gaps in the provision of transparent information to the general public, potential scheme members, schemes members and beneficiaries about the scheme's rules or about the individual obligations and entitlements. Transparency of information is ever more important due to the growing numbers of transitions between different employment status, contracts forms and social security schemes. A lack of simple and transparent information lowers the level of people's awareness on their rights and obligations towards social security and stops them from taking informed decisions. Indeed, a significant proportion of the population (see also Annex 6), especially among the self-employed and non-standard workers, is unaware of their social security coverage (up to 20% for some categories). If generic information about social security schemes is only absent in five Member States, personalised information, including an overview of rights and obligations and the possibility to obtain information through online simulation tools, is only available in about half of the Member States (see Table A.10 in Annex 6). Despite the general acknowledgement of the challenges at hand, corroborated by the majority of stakeholders during the consultations organised in the framework of this Impact Assessment, national reform efforts are partial and uneven across the EU Member States. In recent years, some Member States started reforms to address some of the deficiencies related to social security coverage for non-standard worker and for the self-employed (see Annex 7 for a full overview of the national reforms). These reforms have mostly concerned the extension of social security coverage to people in non-standard employment and in self-employment, in particular concerning unemployment benefits coverage (e.g. France, Lithuania, Poland, Portugal and Sweden). Only a few reforms have addressed the problems of effective coverage (e.g. Spain), transferability (e.g. France and Ireland) and transparency. Moreover, although a number of countries have developed specific guidance and start-up programmes for the entrepreneurial self-employed, this has rarely also led to a redesign of social security taking into account their special needs. The results of the implementation of already undertaken national reforms can only be evaluated in some years. However, the reforms seem partial in their scope (both regarding the branches of social security and groups of people in the labour market) and the efforts appear to be uneven across the Member States. The identified gaps in formal and effective coverage and the lack of transparency and transferability of accumulated rights and together with behavioural biases (and their influence on the voluntary take-up of social security schemes), therefore leave a large number of people in the labour market uncovered by social security. 2.3.Consequences With an increasing number of people outside the scope of the social security systems, their ability to insure people against the financial implication of social risks, to prevent poverty, to support labour market participation and act as an automatic macroeconomic stabiliser is significantly reduced. Overall, a differential coverage of social security, based on contract and status of people in employment, has previously been criticised and documented as both unfair and inefficient. It has consequences on those directly affected by the gaps but also on companies, on the economy and on society as a whole. 2.3.1.Consequences for non-standard workers and the self-employed Insufficient coverage of social security significantly raises the risks to the welfare of the affected and their families. People who earn their living from non-standard employment or self-employment and do not have sufficient social security coverage are exposed to greater economic uncertainty due to the individualisation of risk. At the same time, some of these groups may be less able to deal with these risks on an individual basis. Together, this may lead to more precarious lives. Indeed non-standard workers and the self-employed are exposed to significantly higher poverty risk in most EU countries. Non-standard employees' rate of being at-risk-of-poverty (AROP) is higher in all Member States (except in Malta) than the one for workers with a permanent and full-time job. On average in the EU28, around 15% of temporary and part-time workers are at risk of poverty, more than double the share observed for standard employees.

The significant variation that exists across Member States (see figure 5) reflects differences in both protection through the tax-benefit system and in income. Indeed, non-standard workers are estimated to have lower wages with respect to standard employees. For instance, it has been estimated that, controlling for workers characteristics, there remains a significant wage gap disadvantaging temporary employees relative to standard employees of 13% to 21% depending on the Member State . The lack of social security coverage can thus compound disadvantages stemming from lower levels of income and unfavourable social security rules. Similarly, the self-employed face a higher risk of poverty than standard employees; their AROP exceeds 20% in the EU28, nearly three times the risk of standard employees. As reflected in Figure 5, observed ratios are much more pronounced in some Member States, with a maximum of 10 reached in Romania. Moreover, there is a negative correlation (- 0.6), between the at-risk-of-poverty of the self-employed and that of the employees. This means that, in general, in Member States where employees are relatively well-protected against the risk of poverty, this is far less so for the self-employed. Where also the employees face a high risk, differences between both groups are less marked. When analysing the role of social security in alleviating poverty of both groups, it is noticeable that (see Figure 6 ) social security diminishes the poverty rate of both people in employment and self-employment in the majority of the Member States. However, across most Member States the reduction is visibly more pronounced for employees than for people in self-employment, which partly reflects the identified gaps in access for the latter group . Source: Eurostat, EU SILC data for 2016 Source: Eurostat, EU SILC data for 2016. The gaps in coverage of non-standard employment contribute to a lack of fairness within society, widening divides between generation, gender or social groups, since young people, the foreign-born and women are less frequently hired on full-time, open-ended contracts. The differences in coverage may also impede labour market mobility of these groups, which makes it even more difficult to close gaps between groups in the long-term. 2.3.2.Consequences for businesses and competitiveness Differences in treatment related to social security create bias in the level playing field relating to companies’ hiring choices: firms may overuse employment contracts exempted from social security contribution. They transfer the risks and the costs of protection through social security systems to third parties (workers, dependant/bogus self-employed and/or public budget). Such practices contribute to maximise profits in the short-term, but they also have costs in the long run: they demotivate workers, lead to higher turnover, have reputational effects, and slowdown productivity gains and innovation at the company level. They also create unfair competition with companies that continue to contribute to social security systems and they threaten to erode the economic basis for standard employment as such jobs will be subject to competition from jobs exempted from the cost of social contributions. During discussions on globalisation, business and political circles have expressed concerns that high employer contributions to social security make national economies less competitive. However, several studies have found a positive correlation between the openness and size of the welfare state, and social expenditure and competitiveness. In particular they found that social spending increases competitiveness and show that reverse causality (i.e. that higher competitiveness leads to larger welfare states) is weak. They also find that inward FDI flows in OECD countries are positively affected by countries’ expenditure on social welfare. 2.3.3.Consequences for the labour market, public budgets, the economy and society From an employment perspective, deficiencies in social security coverage increase labour market segmentation, which can be associated with higher levels of unemployment (mainly for vulnerable groups) and lower quality of skills matching . Moreover, the absence of social security make it less attractive for people to take non-standard jobs or move between and combine dependent employment and self-employment, preventing labour reallocation and hampering labour market's ability to respond to shocks as well as making segmented labour markets self-perpetuating, ultimately with negative implications on (total factor) productivity growth . Moreover, differences in social security coverage distort the playing field between people who pay no or lower social security contributions and those with full, obligatory contributions. It creates legal possibilities to avoid paying contributions and to underbid, leading to a race to the bottom and downward social convergence. Insufficient protection through social security systems for certain groups may contribute to higher spending for public budgets in other areas. In the short term an increasing share of people in non-standard work or self-employment without social security coverage does not necessarily save public money and may even lead to rising costs for (generally tax-financed) safety nets of last resort that they may then rely upon. This is because, on the one hand, even if not paying social contributions and receiving social benefits, they are entitled to social assistance, minimum income or universal minimum healthcare benefit package. Increased reliance on the latter can have an additional efficiency cost including through delays in care seeking and overuse of costly emergency services instead of primary or integrated care services.

In the longer run, the absence of benefits to facilitate social and economic inclusion may make long-term unemployment and mental health problems more likely . Therefore, if the longer-term welfare of people in non-standard work and self-employment is not secured, this will imply a social cost to be borne by these individuals and by the society, with higher costs to public budgets. Importantly, the main fiscal basis of social insurance remains, in many countries, standard work. An increasing share of people outside the systems may thus impair the fiscal sustainability of social security systems, an effect comparable in nature to the corresponding detrimental effects of population ageing and resulting increases in the dependency ratio on their sustainability. Annex 3 provides further information on the financing of social security systems and the challenges to their sustainability relating to the problem under review. 3.Why should the EU act? 3.1.Legal basis The initiative "Access to social protection for workers and the self-employed" will support the Union's aims recognised in Art. 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. Moreover, it will respond to Art. 9 TFEU, which states that "In defining and implementing its policies and activities, the Union 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". In addition, Art. 151(1) TFEU states that the Union and the Member States shall have as their objectives the promotion of "proper social protection". Furthermore, the initiative will promote the aims of the Charter of the Fundamental Rights of the European Union as reflected in its dedicated article on Social security and social assistance (Art. 34). Article 153(1)(c) and (2) TFEU enables the EU legislator to adopt measures in the field of social security 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 security 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 security and social protection for persons in non-standard employment. The Council is requested to act in unanimity. Article 352 TFEU can provide the legal basis of an initiative related to the challenges of access to social security for people in different forms of self-employment. In this case the Council is also requested to act in unanimity. The existing EU acquis related to the rights and obligations in relation to social protection is implemented through a variety of legislative and non-legislative provisions. However, none of these fully address the rights and obligations of people in non-standard employment and forms of self-employment. For an overview of available EU instruments, see Annex 8. 3.2.Results of the social partners consultations and of the public consultation The European Pillar of Social Rights was jointly proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The consultations undertaken in the context of the Social Pillar had already seen many stakeholders express concerns regarding the obstacles faced by workers in non-standard forms of employment and by self-employed in accessing social protection such as unemployment benefits, sickness benefits, disability benefits, health insurance and pensions. Relevant contributions from other EU institutions, notably the European Economic and Social Committee, the Committee of Regions and European Parliament to the Consultation also highlighted issues in this area and, in the case of the European Parliament, called on the EU to act. Article 155 TFEU requires that labour and management are consulted on a range of issues concerning employment and social affairs set out in Article 153 of the Treaty, including the area of social security and social protection. Consultation of representative social partner organisations took place prior to the presentation of the proposal regarding access to social security of non-standard workers in accordance with Article 154 TFEU. The procedure of Article 154(2) TFEU is not as such applicable to Union action to address the challenges related to the self-employed on the basis of Article 352 TFEU. It was therefore on a voluntary basis that the Commission invited the social partners to share their views as regards the self-employed. There was no agreement among social partners to enter into direct negotiations on any of the issues raised during the consultations While both sides broadly agreed with the challenges presented by the Commission during the consultations, they differ on the opportunity for EU action. On the side of labour, trade unions expressed support for a legislative action setting minimum standards at EU level. On the side of management, representatives of employers have underlined that the action should be left to Member States, given their responsibility on the design of social security systems. During the second phase of the consultation, all social partners agreed on higher transparency. Whereas trade unions call for full transferability, employers would like to limit transferability of minimum social protection rights and according to them there should not be an additional burden or cost of transferability. All trade unions favour mandatory formal coverage, equalised to those of standard workers but national traditions should be taken into account. Employers referred to subsidiarity and expressed different views on the options. Some agree that social protection should be mandatory but employees should have the right to choose the form of coverage (public or private) and the freedom of choice for the self-employed is particularly highlighted. Other employers favour voluntary formal coverage in order to take into account the diversity of forms of employment of the heterogeneity within the self-employed. The detailed outcomes of the consultation are presented in Annex 11. In order to further support the preparation of the Commission's initiative, the Commission launched an open public consultation on 20 November until 15 January 2018, available in all languages. Targeted hearings with representatives of the self-employed, social insurance organisations and civil society and the Social Protection Committee (composed by representatives of Member States) were also organised in December 2017 (see also Annex 11 for further details).

3.3.Subsidiarity: Necessity and value-added of EU action The problem of insufficient access to social security for a growing number of people in the labour market and its negative consequences on social cohesion, labour market dynamism and sustainable growth are wide-spread across Member States. In principle Member States could take measures to improve the situation and several have indeed adopted reforms or are carrying national debates on the subject. In the Member States where reforms have been implemented, those reforms are steps in the right direction, but the evidence is that they are not comprehensive and systematic, i.e. they are not closing gaps in access for all groups and all branches of social security. Nor do current debates imply that all Member States necessarily plan to take action. Individual 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. Action at EU level will support the implementation of principle 12 of the European Pillar of Social Rights so that all people in the labour market, regardless of their employment status, are protected against social risks such as unemployment or illness. Through a careful choice of the level of detail of the provisions, such EU action fully respects subsidiarity, irrespective of the specific legal instrument chosen. 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 security branches and Member States, creating a level playing field for economic agents in the internal market. The EU action can avoid short-term distortions of competition and ensure that all Member States move in the same direction at the same time promoting upward convergence, to the benefit the EU economy as a whole. In this respect, it is also worth noting that a special Eurobarometer survey on the Future of Europe shows strongly increasing support for more European level decision-making dealing with health and social security issues. EU action can also diminish the obstacles that the problem poses to the pursuit of the Union's objectives. Differences between employment statuses in access to social security can be detrimental the EU's fundamental objective of promoting full employment by hampering occupational labour mobility including towards higher productivity sectors. It can discourage workers from undertaking a certain type of employment or deter people from taking on the risks associated with self-employment, which thus hinder 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 poverty. By enhancing convergence towards robust labour market institutions and social infrastructure, EU action can facilitate resilience, social cohesion and macro-economic adjustment within the euro area and beyond. As highlighted in the Five Presidents' Report on Completing Europe's Economic and Monetary Union, in a single currency area, there is a need to build up the shock absorption capacity and labour market adjustment mechanisms of Member States. 4.Objectives: What is to be achieved? 4.1.General objectives The general objective of the initiative "Access to social protection for workers and the self-employed" is to support all people who, due to their employment statuses, are not sufficiently covered by social security schemes and thus are exposed to higher economic uncertainty. The initiative is a concrete way to fulfil the EU's objective to promote social justice and protection, as stated in Article 3 of the Treaty on the European Union. It further aims at implementing principle 12 of the European Pillar of Social Rights that 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'. It also contributes to the implementation of other Pillar principles such as those relating to "secure and adaptable employment", "unemployment benefits" and "old-age income and pensions". It will support Member States in adapting social security to present and future changes in labour markets. It will contribute to improving labour market dynamism by reducing labour market asymmetries in social security obligations and rights for different forms of employment. It will facilitate transitions between jobs, sectors and employment status by ensuring better preservation and transferability of acquired rights. Its ambition is to foster sustainable growth as well as increase fairness, competitiveness and social justice by improving adequate access to social security for those without it, including many categories of people in non-standard employment and the self-employed, thereby addressing long-standing and new gaps and inequities in access. At the same time, ensuring that more people in the labour market contribute to the financing of social security systems would enhance their financial sustainability, contributing to intergenerational fairness and promoting social cohesion in the longer run. 4.2.Specific objectives In order to reach the previous general objective, the initiative will have the following specific objectives: -Closing formal coverage gaps: ensuring that legislation and collective agreement allow everyone in employment or self-employment to participate in the social security schemes. -Addressing the problem of effective and adequate coverage and facilitating transferability of social security rights: ensuring that rules governing contributions and entitlements ensure the adequacy of protection and do not limit the accrual of entitlements and the access to benefits on the basis of employment status or type of employment relationship and do not distort the playing field between employment statuses or type of employment relationship. The initiative aims at preserving social security rights when workers or the self-employed change jobs, sectors of activity, type of employment relationship, or employment status.

-Increasing transparency on corresponding systems and rights: ensuring access to user-friendly information on rights and obligations to social security, irrespective of the employment relationship or employment status. Formal coverage is a necessary, but not a sufficient condition to ensure adequate protection through social security systems. A person may be a member of a social security scheme without de facto being able to build and take up adequate entitlements to benefits and services, notably if the rules governing contributions and entitlements disadvantage some types of employment, employment statuses or career history. The rules should, on the contrary, promote social justice and a level playing field between employment statuses and types of employment relationship. Any difference between employment statuses or types of employment relationship regarding the rules governing entitlements should reflect the situation of beneficiaries and be justified by policy objectives. This objective concerns in particular the rules governing time thresholds, i.e. minimum qualifying period, minimum working period, waiting period and the duration of benefits. It also concerns the rules determining the assessment of the income assessment base. If a person changes employment status, type of employment or economic sectors or if a person combines different jobs, the transferability and preservation of rights between the scheme available under the new status and the previous scheme covering the same risk should be facilitated. The preservation of rights should also be facilitated for persons combining different jobs and/or employment status at the same time. This is key in careers that are characterised by several job contracts and transitions. If rights are transferable, people will be more confident to make transitions, the labour market can be more dynamic and the allocation of resources more efficient. Even when they have formal and de facto coverage, people may not benefit from social security if they do not have sufficient knowledge about their rights. If the rules governing social security schemes are transparent and if information about individual entitlements and obligations are easily accessible, individuals will be in a better positon to exercise their rights to social security. Although these objectives are valid across all branches of social security, the issues have been found to be more acute in the branches that are more closely related to employment status, (unemployment benefits; sickness benefits; maternity and equivalent paternity benefits; invalidity benefits; old-age benefits; benefits in respect of accidents at work and occupational diseases). 5.What are the available policy Measures? 5.1.Baseline scenario Under the baseline scenario the existing coverage gaps in social security would continue to exist across Member States and can be expected to lead to insufficient social security coverage for an increasing number of citizens. On the one hand, external drivers like globalisation, transition towards a service economy, technological developments, demographic ageing outlined in section 2.2.1 are expected to persist. They will continue to rapidly change the European labour markets and make employment opportunities steadily more diverse. This implies that overall, employment on both old and new forms of non-standard contracts and in new forms of self-employment will likely constitute a steadily rising share of job-opportunities in the future. If observed recent trends continue, the share of traditional non-standard work in employment could rise from 25% in 2016 to 29% by 2030, while self-employed would remain broadly constant at 4 % (14% in 2016). For many individuals, most notably the young and the high-skilled, new forms of employment or own-account self-employment will represent an opportunity to be integrated in the labour market, expand choices and find a better work-life balance. On the other hand, several Member States have taken steps in the recent past (see also Annex 7) to address some parts of the problem and change the internal drivers but overall progress is uneven across Member States, social security branches and targeted groups. Existing policies and planned reforms appear insufficient to prevent gaps in formal coverage, effective coverage, transferability and transparency in the absence of further EU action. Over time an increasing share of the working population would thus be left without effective coverage under the baseline scenario. There are a few relevant initiatives at EU level which address parts of the problem, yet a more comprehensive approach is lacking. The existing EU guidance in the area of access to social protection, particularly in the context of the European Semester and the Social Open Method of Coordination, will continue to provide recommendations for Member States' in this field. These efforts have yielded results in the past by reinforcing cooperation between Member States and helping identify common objectives, but it is less likely that they could trigger the needed accelerated changes to social security systems through comprehensive action in the remaining areas, given their general nature and Member States' reservations that unilateral steps in some areas would entail risks for their competitiveness. With the European Pillar of Social Rights, Member States and the EU institutions politically committed to strengthen the social acquis and deliver more effective rights to citizens. This political commitment should encourage Member States' actions and some other recent initiatives taken in the context of the Pillar can be expected to contribute only partially to solving the problem (see below e.g. for the Commission's proposal for a Directive on transparent and predictable working conditions in the European Union regarding transparency). Regarding formal and effective coverage, the Directive 2010/41/EU 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 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. An independent expert evaluation concluded that the Directive was unsuccessful in delivering improved maternity and social benefits to the self-employed. The Commission's proposal for a Directive on Work-Life Balance for Parents and Carers provides for coverage by paternity and parental benefit and carers' benefit for all workers with an employment contract or relationship, including non-standard workers to whom the definition applies. Regarding transferability, there is no requirement in EU law to ensure the transferability of occupational pension rights but the Directive 2014/50/EU 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 addressing 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 (Portability directive) and by the recast Directive on the activities and supervision of institutions for occupational retirement provision (IORP directive). 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. 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 security 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, but not for the self-employed. According to the proposal, workers will receive information on the social security institution(s) receiving the social contributions attached to the employment relationship and any protection relating to social security provided by the employer.

This legislative proposal also allows clarifying the boundaries between workers and self-employed bringing clarity on where the status of self-employed is unduly used (bogus self-employment). In relation to access to social security, such clarity helps ensure that those people erroneously considered self-employed can now have access to the available protection as workers (which is generally higher). However the personal and material scope of the two initiatives is different as the proposed directive does not cover the self-employed. Also, the proposed directive does not determine whether workers should have access to social security. It limits itself to secure that information on acquired rights is available to employees. It could be argued that even without public intervention at EU or Member State level, the set-up of effective, efficient and accessible – in terms of prices/premiums - social security systems by social partners or professional organisation may solve the identified access problems. However, it is unlikely that such initiatives would lead to a comprehensive solution. Occupational schemes for pensions are indeed wide-spread in a number of Member States (including BE, DE, DK, FR, IE, NL, SE, SI and the UK), occupational funds may also play an important role in health insurance (e.g. IT) and social partners may be involved in unemployment insurance schemes (e.g. DK, FR). However, there is no evidence of a trend increase in such schemes despite the existing problems. The challenges that have to be overcome are among others the need to mobilise a sufficient number of members to pool risks, while there has been a general decline in most Member States in the organisation of workers in trade unions and in trade union density. Summing up, it is unlikely that the problem of insufficient access to social security will be comprehensively addressed by Member State action only with the support of the existing EU initiatives. As a consequence, it can be expected that the share of people in the EU who do not have access to social security will increase significantly under the baseline scenario. 5.2.Measures discarded at an early stage When considering the policy measures, a number of approaches have been discarded: Labour inspections: A non-legislative option to improve formal coverage that was discarded is increasing and improving labour inspections. Doing so could reduce the incentives of companies to replace employees with independent contractors not covered by social security who are in reality disguised employees to reduce the cost of labour. However, that could potentially solve only a small part of the problem of lack of formal coverage and not solve the problem of lack of coverage for the majority of the self-employed. Universal basic income: In the face of rising non-standard employment and self-employment, one popular option could be delinking social insurance from employment by providing a universal social assistance benefit regardless of income, contribution history and employment status. Firstly, the focus of the current analysis is on the effects of employment status or contract type on the available protection through social security schemes. Coverage by social assistance and similar schemes is primarily based on criteria regarding residence and income, and thus they are out of the scope of the current initiative. Secondly, while this option may be feasible for countries that are in the process of setting up their social protection system, it seems to be more difficult to implement in countries that have already a well-established welfare system (as is the case for the EU Member States) due primarily to strongly rooted traditions and preferences, the significant cost of switching from the old to the new model, and the extra cost associated with providing a comparably adequate protection for all. Such an option would therefore very likely fail to garner the necessary political support for adoption and/or implementation. Therefore, the problem of insufficient access to social security is best addressed in the framework of the existing social security systems in the Member States. Individual protection arrangements outside social security schemes: One option mentioned by stakeholders would be to restrict legislative action to demanding that all groups, notably including the self-employed, prove having some form of protection or insurance against the risks covered by social security systems, leaving to them the choice whether to arrange this via social security schemes or through purely individual private arrangements. First, private purely market-based arrangements are not available regarding all the risks under consideration (e.g. regarding unemployment), Second, where they exist, the solidarity manifested in collective schemes could be undermined, including by significant self-selection where the corresponding potentially substantial costs could possibly weaken their financial sustainability. Possible measures and options therefore refer only to social protection concluded through an employment relationship which is coherent with the EU approach used in the Directive 2014/50/EU and Directive 2006/54/EC. Benefits in kind: While benefits in kind account form an important part of the protection offered through some branches of social security, notably including health care, they are out of the scope of the current initiative. Regarding healthcare, an initial mapping did not provide sufficient evidence of significant differences in access related to labour market status. Similarly for other areas where benefits in kind are of key importance, the labour market situation is not expected to play a key role for access. 5.3.Description of the policy measures The objective to improve access to social security can be achieved by a combination of measures relating to three areas: ·Closing formal coverage gaps: · Addressing the problem of effective coverage and facilitating transferability of social security rights ·Increasing transparency on corresponding systems and rights The first dimension allows people to be member of relevant social security schemes. It is thus a prerequisite for the second dimension. We discuss measures for each of these areas. The policy measures retained are those that provide the alternatives that are most feasible (legally, technically and politically), coherent with other EU instruments, effective, relevant and proportional to tackle the problem drivers detected in section 2. In section 6.1, option packages will be built from the individual measures regarding the defined specific objectives. As explained in Section 2.2.2, the personal scope (same or different measures to apply for workers and self-employed) considered across policy measures and options will be left general enough to allow the initiative to take into account new forms of work that could arise in the future. In terms of material scope, the measures would apply to the branches of social security which have been identified as most relevant of the Commission's initiative, namely unemployment benefits; sickness benefits; maternity and equivalent paternity benefits; invalidity benefits; old-age benefits as well as benefits in respect of accidents at work and occupational diseases. The measures aim at eliminating or reducing obstacles which impair social security systems from providing people with adequate protection regardless of their employment status, while respecting Member States’ competences in design their social security systems. Dimensions of the policy options left to Member States’ discretion in view of subsidiarity and proportionality and in respect of article 153(4) TFEU include 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, which includes important design issues such as how to address the split of social contributions between employees and employers in the case of the self-employed 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 security systems across the Member.

5.3.1.Measures to extend formal coverage Formal coverage can be addressed by granting access to social security schemes to previously excluded groups on a mandatory or voluntary basis. These alternatives may reflect different levels of ambition and may strongly influence the number of additional people that would be covered by social security as a result of this initiative. i) mandatory coverage: extending coverage to groups of people previously excluded by virtue of their employment status or contract type but also reviewing minimum income levels below which individuals in some Member States currently do not have access or only have access on a voluntary basis regarding certain branches of social security. ii) voluntary coverage: previously uncovered groups would have the possibility to have join social security schemes, but the final decision on whether to use this option would be left to the individual. The approach to coverage could be the same (either mandatory or voluntary) for all groups without access to social security (i.e. non-standard workers and self-employed) or could be differentiated between non-standard workers (mandatory coverage) and self-employed (voluntary) to reflect the differences of both groups regarding the allocation of risks, discretion over their work, decision-making power, financial autonomy and responsibility. Combinations of the two alternatives could also be considered. Decisions on coverage could be linked to decisions on the level of protection (which is to be decided by Member States). In particular, a basic level of protection can be mandated and supplemented with additional coverage on a voluntary basis . Such calibration of the mandatory element can also be motivated by the observation that uncovered individuals in most Member States do have access to non-contributory safety nets of last resort. Mandating a basic level of coverage close to the one provided by basic safety nets can thus also contribute to avoiding free riding behaviour of uncovered individuals and the corresponding costs to public budgets. Decisions on additional coverage, which are not associated with the same possible externality, are left to the individual . In their replies to the second phase social partners' consultation (see also Annex 11), all trade unions favour mandatory formal coverage, equalised to those of standard workers but national traditions should be taken into account. Employers expressed different views on these options. Some agree that social protection should be mandatory but employees should have the right to choose the form of coverage (public or private) and they highlighted in particular the freedom of choice for the self-employed. Others favour voluntary formal coverage in order to take into account the diversity of forms of employment of the heterogeneity within the self-employed. Many employers referred to subsidiarity that should prevail. Regarding the open public consultation, around 2/3 of the respondents consider that social protection rights and obligations should be mandatory for every kind of job, irrespective of the type of contract. Only a small share of respondents think that social protection rights and obligations should be voluntary (5.9 % for non-standard work and 10.1 % for self-employed). 5.3.2.Measures to promote effective coverage and transferability Measures to address problems of effective coverage relate to the rules governing time thresholds (minimum qualifying periods, the minimum working periods, waiting periods ) and to rules governing transferability. The latter concerns the two cases outlined earlier in Section 2.2.2: i) the build-up of entitlements over the course of a career characterised by transitions; ii) the preservation and transfer of entitlements from one scheme to a new one where there are minimum time thresholds to be respected. During the second phase social partners consultation, views on effective coverage and transferability were mixed. Trade unions called for guaranteeing full portability by tying social protection entitlements to individuals through an equalised calculation and aggregation but without leading to an individualisation of social protection. On the other hand, some employers agree with the principle of transferability of rights but call for an impact assessment before creating legally binding realities or argue that subsidiarity prevails and that a mapping of existing transferable systems should be favoured. Others recommend the EU to limit itself to general provisions or would like to limit transferability to minimum social protection rights. The administrative cost of transferability should be kept at a minimum and no additional costs for the new employer to take on the provision of the transferred rights should occur. Rules governing time thresholds In schemes where minimum qualifying periods, minimum working periods, or waiting periods exist and are stricter for non-standard workers and the self-employed than for standard employees, or are the same as for standard employees, it can be more difficult for the two groups to fulfil them. Policy measures can adjust the minimum periods, so they are not longer than justified by policy objectives, including avoiding abuse. Time thresholds make the conditions for take-up of benefits more stringent and are used to minimise abuse, protecting the interest of the members of the scheme. The total elimination of time thresholds is therefore unrealistic because it would eliminate all disincentives to abuse embedded in the system. This hypothesis is therefore disregarded in our analysis below. Modifications regarding qualifying periods, minimum working periods and waiting periods could be made for all insured people. Alternatively, they could be adjusted only for non-standard workers and/or the self-employed in the specific cases where the time thresholds have been identified as obstacles to reach the same social protection outcomes for everyone.

Rules governing transferability i) Ensuring preservation, transferability and aggregation Preservation of entitlements can support the build-up of entitlements over the course of a career where transferring is not possible (because for instance the person will not have coverage by another scheme after changing job or sector or employment status ). The method of preservation may vary depending on the nature of the scheme. For instance, the value of pension rights may be adjusted in accordance with: inflation rate or salary levels (typically in a defined benefit scheme); return from investments derived by the scheme (typically in a defined contribution scheme). Preservation of entitlements can also mean that individuals also have the possibility of continue contributing to the former scheme . In cases where transferability is possible, then mandatory transferability ensures that all workers or self-employed leaving a scheme have the possibility to take their acquired rights with them. Conditions should also be set so that this transfer does not reduce substantially the entitlements (for instance due to unfavourable calculation of the transfer value or high administrative costs). Aggregation of contributions period records within a given social security branch can support smooth transitions in the labour market. This implies that the past periods of employment or self-employment prior to changing employment status are taken into account as if the periods were completed in the current status . Such aggregation should be made possible up to a limit justified by policy objectives, bearing in mind the need to preserve incentives for the functioning of the system. ii) Personal social security accounts This refers to disconnecting rights to protection through social security systems from professional status and connecting them to individuals, thereby providing better protection for people who change employers, jobs, sectors, employment status and even countries. Personal accounts can be set on the basis of existing schemes with a high coordination at national level among providers of all existing schemes or can be triggered through a fundamental revision of the social security system, implying a major reform effort to scale down the number of schemes related to specific employment statuses and occupational categories and to 'homogenize' their rules. Currently, only Ireland and Latvia have implemented personal accounts, while France is working to introduce them in its system. 5.3.3.Increasing transparency on social security rights and obligations During the second phase social partners' consultation, all social partners agreed with the need for higher transparency but they did not provide specific suggestions how this could be achieved. Regarding measures to increase transparency, they could explicitly define what type of information would have to be provided, whether generic and/or personalised. In both cases they are expected to be free-of charge for the beneficiary. i) Generic information on rights and obligations (broken down by employment status and contract type) could be provided, where not already done , for instance via dedicated webpages relative to each relevant social security branch. The information provided should cover differences regarding the relevant groups, notably as regards standard employees vs. relevant categories of non-standard employees and the self-employed. The information should be easy to access and understand, and updated on a regular basis. ii) Personalised information could be provided to individuals of their rights through dedicated webpages that could offer the possibility to calculate benefits (simulation tools) based on input on personal information such as income and employment situation. Other means to provide such personalised information would be via personal accounts where the personal information such as income and employment is already available and the calculation of benefits does not require any specific knowledge by the individual. Dedicated tools should be easy to find and use. 5.4.Impacts of the policy measures

The assessment of impacts of policy measures covers how the measures are likely to meet the defined objectives (effectiveness) and the key types of impacts, including economic and social impacts as well as those on national authorities. No environmental impact nor impact on fundamental rights has been identified. The assessment of impacts combines qualitative arguments with quantitative results to the extent possible. A number of limitations need to be highlighted (see Annex 9 for other methodological considerations). Firstly, the wide scope of the initiative addressing simultaneously different branches of social security in conjunction with the limitations in data available seriously constrains the possibility to provide a comprehensive picture. Available data only allow quantifications regarding some social security branches, and simulations are limited to the self-employed for the same reason. Furthermore there exists a certain asymmetry regarding the possibility to quantify costs versus – partially non-monetary – benefits. For instance, the positive impacts of reduced insecurity are hard to quantify, and neither do models allow combining micro-economic benefits of increased social security coverage with the more macroeconomic benefits of stronger economic stabilisation over the business cycle or potentially increased labour market transitions and dynamism. Secondly, as explained earlier, subsidiarity implies that a number of key policy choices on how to improve access to social security are left to Member States, including decisions on the level of protection embodied in nations' social security systems, financing choices as well as the type of schemes through which coverage is provided. These choices fundamentally determine the qualitative and quantitative impacts that can be expected, impeding a more general or comprehensive illustration in this analysis. Finally the evolving nature of the problem, as the rapid and fundamental changes in the labour market in the context of the new world of work described above, may also imply changes in the impacts. At the same time, it should also be noted that the choice of (non-binding vs. binding) legal instrument (see Chapter 8) may influence the degree of certainty with which the impacts materialise. The assessment of impacts is thus conditional on action being taken in response to the Initiative and could thus be regarded as an upper bound in this respect in case of a non-binding legal instrument. 5.4.1.Impacts of the measures extending formal coverage Effectiveness Mandatory coverage has a very high effectiveness as, by definition, it implies coverage for all previously excluded. Mandatory coverage is a key means to implement the principle of solidarity, enabling also the most vulnerable categories to have access to social security schemes . Moreover, mandatory coverage below a minimum level of benefit entitlement - corresponding to the one available from social safety nets - , can be justified by a need to limit that people would fall back non-contributory social safety nets. Voluntary coverage can have a good effectiveness. Based on available evidence on enrolment in voluntary systems it can be expected that a significant number of people would choose not to have coverage. At the same time, such an approach would respect the freedom of choice and reflects the heterogeneity of the self-employed, which were highlighted by key stakeholders during the consultation. Choices on the financing of schemes - in the remit of Member States - can impact the degree of effectiveness, especially when access is granted on a voluntary basis. Indeed the way financing is set up can entail powerful (dis)incentives to participate. There are trade-offs between encouraging higher participation through public subsidies and public finance considerations. Financing also affects the degree of redistribution of income through the social security systems. For a given rate of contribution, incentives to enrol are higher for people who face the largest corresponding risks and are therefore most likely to benefit from the system, i.e. also generate a higher cost for it. Subsidies have successfully been used in some Member States to encourage broader membership and thereby reduce problems of adverse selection; however, such measures may also entail significant costs . Alternatively, Member States could compel providers of social security schemes to offer their members identical obligatory benefits which do not depend on the amount of the contributions and by equalising risks and costs between different funds. Where individuals are enrolled by default and need to take action to leave the system (through opt-out clauses), usually leads to higher coverage than opt-in measures (see Annex 10, Section 1). Direct costs and other economic impacts The direct cost of providing formal coverage depends on the number of people newly covered and the per-capita cost of coverage. The first and likely dominant component is clearly higher under mandatory coverage than under voluntary coverage, as not everyone will choose to be covered under the latter option. Differences in the per capita cost of coverage may arise due to problems of adverse selection, i.e. self-selection, under voluntary access. Resulting budgetary costs could be accompanied by savings from lower expenditure for social assistance and other safety nets that previously uncovered individuals would fall back on. In addition to self-selection effects, moral hazard could also influence the cost of extending coverage, notably regarding unemployment insurance for the self-employed, who have more control over the relevant risk than employees do in an employment relationship. While this is correct, the successful establishment of social security schemes protecting the self-employed in case of unemployment in the majority of Member States (the mapping in Chapter 2.2.2 only established corresponding formal coverage gaps in nine Member States) implies the potential for learning from peers about the necessary control mechanisms and rules which minimise this kind of behaviour. A recent study of the Danish unemployment insurance for the self-employed indeed finds a limited risk of moral hazard . Regarding formal coverage of the self-employed, simulations (see also Annex 10 for all details) were undertaken for the extension of existing schemes of unemployment benefits for employees to the self-employed under the same rules in five Member States. Results suggest that the cost of extending coverage in terms of the corresponding total expenditure for benefits could be in a range from below 0.1% to 0.4% of GDP annually, depending inter alia on the number of self-employed in the country, the unemployment risk they face, as well as on the generosity of the system in place. Comparing the simulated cost of a similarly generous unemployment insurance system for the self-employed across all Member States results in similar limited costs, albeit with higher cross-country variation. Expressing the costs as a share of gross labour income of the self-employed, to be interpreted as contribution rates to be paid by them in a revenue-neutral scenario, results in contribution rates between less than 0.1% and up to 1.7% of gross labour income, in line or lower than contribution rates observed in many existing systems in Member States. Simulating costs for extending sickness benefits also results in limited costs in most Member States, with a significant degree of cross-country variation. At the same time, depending on Member States' financing decisions, extending formal coverage can also avoid that the financing base of social security systems is skewed because an increasing group of people on the labour market is outside the system and does therefore not pay contributions.

Similarly, other choices about the nature of schemes may have implications for their cost. For instance, under voluntary coverage giving a choice between possibly more redistributive public and more individualised occupational schemes may be costly for the public scheme due to self-selection issues. The creation of new, separate schemes specifically designed for those not currently covered can weaken the solidarity ties between the insiders (in the old schemes) and outsiders (in the new schemes). At the macro level, benefits (not simulated) from the extension of coverage can also be expected by strengthening the well-established key role of automatic stabilisers of public social insurance schemes', dampening business cycle fluctuations. These help limit the loss of economic efficiency resulting from volatility in the economy, contributing to enhanced economic performance to the extent that large output fluctuations can, notably in the absence of wage flexibility, result in a trend increase in unemployment (hysteresis effects) and erode human capital. A noticeable reduction in unfair competition between firms employing staff on non-standard contracts exempted from social security contributions and competitors not reducing costs in this manner could be expected from the extension of formal coverage. Such effects would be very pronounced under mandatory formal coverage for all groups while a voluntary approach would reduce but not eliminate possibilities for such arbitrage via contract forms. A differentiated approach extending coverage on a mandatory basis to non-standard employees and on a voluntary basis to the self-employed could incentivise a movement towards the latter. In this respect, it is important to note that the enforcement would be facilitated by the recent proposal for a Directive on transparent and predictable working conditions, which allows to clarify the boundaries between workers and self-employed brings clarity on where the status of self-employed is unduly used (bogus self-employment). In relation to access to social security, such clarity will help ensure that those people erroneously considered self-employed can now have access to social security as workers. Depending on financing decisions taken by Member States, an increase in labour cost associated with the extension of coverage could lead to a reduction in labour demand for the concerned groups, while work incentives for people paying contribution rates can also be reduced. In conjunction, both effects could imply a reduction in employment. Finally, positive effects on labour market dynamism of removing the lack of social security coverage as an obstacle to transitions between self-employment, non-standard employment and standard employment could reasonably be expected. Labour market segmentation would be reduced. Social impacts 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. Given the higher level of effectiveness of mandatory coverage, this approach is also expected to bring higher social impacts. The above-mentioned simulations regarding unemployment insurance show that there are noticeable reductions in the risk-of-poverty for the previously uncovered group of self-employed (for more details, see Annex 10). Coverage reduces the poverty risk among all self-employed noticeably (by up to 13 pps in the simulations) and softens especially the impact of job loss on poverty at household level (by up to 25 pps for household with former self-employed unemployed), even if the corresponding effects at the aggregate level are small. It should be noted that to the extent that women currently are more disadvantaged by social security systems still geared towards linear full-time employment, the improved protection through the extension of mandatory formal coverage but also better effective coverage and transferability for non-standard employees would be especially beneficial for them. 5.4.2.Impacts of measures promoting effective coverage and transferability Adjusting time thresholds Effectiveness: Time thresholds make the conditions for take-up of benefits more stringent thereby limiting inter alia fraud and budgetary costs. Nonetheless the time thresholds can be adjusted to a minimum justified by policy objectives while preserving features in the systems that avoid abuse. This adjustment can significantly reduce the barriers for non-standard workers and the self-employed to the take up of benefits in case of need.

Direct cost and other economic impacts: This measure would have a direct cost corresponding to the payment of benefits to persons who were previously unable to meet the time requirements. As this relates to persons who were already formally covered by a scheme and thus contributing to it, no increase in revenue would offset these benefit payments. At unchanged contribution rates, it can therefore result in higher costs for the provider of the scheme, notably including an impact on public budgets in the case of statutory schemes. Budgetary costs could be partly offset by the savings resulting from lower outlays on social assistance and from higher consumption-related tax revenue resulting from the improved effective coverage. As an example, the effects of relaxing qualifying periods regarding unemployment insurance (for all potential unemployed) have been quantified in dedicated microsimulations (see Annex 10, Section 3). In the simulations, the net costs for the unemployment benefit, going up by 0.13% of GDP. The initial budgetary costs are reduced due to increased tax revenues related to household consumption and positive effect on the welfare of individuals. As regards other economic impacts, carefully choosing the extent to which time thresholds are adjusted should limit – but would not avoid - further indirect costs potentially resulting from behavioural changes in response to the adjusted requirements. Such costs could notably stem from reduced incentives to work associated with less stringent and more generous unemployment insurance. Social impacts: The measure is expected to have social impacts similar to those observed for formal coverage, resulting in a reduction in the individualisation of risk, income uncertainty, precariousness and notably a lower risk of poverty. The above mentioned simulations show a positive impact on disposable household incomes on the lowest quintiles of the income distribution and would significantly decrease the poverty risk for the group of the unemployed (see Annex 10 for details). Ensuring preservation, transferability and aggregation of entitlements Effectiveness Preservation of rights can be expected to be moderately effective since it will at least allow individuals not to lose their accumulated entitlements and to preserve their value but the individual would have to rebuild his entitlements in the new schemes and re-start a contribution history. Here there is