ESPN Thematic Report on Access to social protection of people working as self-employed or on non-standard contracts

Romania

2017

A Luana Pop, Daniela Urse January 2017

EUROPEAN COMMISSION Directorate-General for , Social Affairs and Inclusion Directorate C — Social Affairs Unit C.2 — Modernisation of social protection systems

Contact: Giulia Pagliani

E-mail: [email protected]

European Commission B-1049 Brussels

EUROPEAN COMMISSION

European Social Policy Network (ESPN)

ESPN Thematic Report on Access to social protection of people working as self-employed or on non-standard contracts

Romania

2017

Luana Pop Daniela Urse

Directorate-General for Employment, Social Affairs and Inclusion

2017

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Social protection of people working as self-employed or on non-standard contracts Romania

Contents

SUMMARY...... 4 1 CONTEXT: SELF-EMPLOYMENT AND NON-STANDARD WORK RELATIONSHIPS IN THE NATIONAL ECONOMY AND LABOUR MARKET ...... 5 2 DESCRIPTION AND ASSESSMENT OF SOCIAL PROTECTION PROVISION FOR SELF- EMPLOYED AND PEOPLE EMPLOYED ON NON-STANDARD CONTRACTS ...... 8 2.1 Description of social protection provisions for self-employed and people employed on non-standard contracts ...... 8 2.1.1 Healthcare and sickness: cash benefits and benefits in kind ...... 8 2.1.2 Maternity/paternity cash benefits and benefits in kind ...... 10 2.1.3 Old-age and survivors’ ...... 10 2.1.4 benefits and social assistance benefits ...... 11 2.1.5 Long-term care benefits ...... 13 2.1.6 Invalidity, accidents at work and occupational injuries benefits...... 13 2.1.7 Family benefits ...... 14 2.2 Assessment of the existing social provisions and of the impact of possible extension of their coverage ...... 14 3 CONCLUSIONS AND RECOMMENDATIONS ...... 20 REFERENCES ...... 23 ANNEX 1 – SUMMARY TABLES REGARDING ‘IN PRINCIPLE’ ACCESS TO SOCIAL PROTECTION OF WORKERS IN STANDARD AND NON-STANDARD ...... 24 ANNEX 2 EMPLOYMENT ...... 26 ANNEX 3 – WELFARE INDICATORS ...... 32 ANNEX 4 – LEGAL DEFINITIONS OF AND TAXATION RULES FOR VARIOUS EMPLOYMENT CATEGORIES ...... 33

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Social protection of people working as self-employed or on non-standard contracts Romania

Summary Romania’s configuration of the labour market is unique, with a high proportion of self- employed (of which over two thirds are occupied in agriculture and many of these working informally), an overwhelming proportion of contributing family members thrown in informally, a very low proportion of employees working in non-standard conditions, and the lowest proportion of employers. Between employees (73% of all employed in 2015) and employed who are not employees (27% of all employed in 2015) there is a huge gap in terms of monetary and non-monetary welfare, which widened over the last eight years. The huge gap in welfare reflects, besides an obvious difference in income, the increasing precarious monetary situation of employed except employees (EEE1) (59% of these were at risk of poverty in 2015). The gap in social protection is far higher between employees and non-employees than between employees in standard employment and non-standard employment. Social protection of the employed is mainly delivered through the three social insurance systems: pensions, health and unemployment – with the exception of child rearing leave/benefits, which are conditional on employment but not contributory in nature. In principle, employees and all other gainfully independently self-employed (including their dependents working as contributing family members) have access to social protection, provided they declare their income. While in principle social protection is accessible to all employed, the access costs tend to be higher for the self-employed (especially in the case of , sickness and maternity indemnities) than for employees and, even higher for low income self-employed. Low income self-employed persons are clearly at a disadvantage compared to their employee counterparts (i.e. low income, part time employees), as the contributions to access the same benefits are linked to a minimum insured income level and not to their real income. Consequently, only a small proportion of self-employed are insured (coverage of 28% with health care, 11% with pensions and almost zero with unemployment insurance). Coverage is not 100% even for employees, for whom contributions are automatically withheld; many businesses do not pay social contributions for extended periods of time for and on behalf of their employees leaving them uncovered should a major risk occur. In the aftermath of the economic crisis, even though Romania significantly deregulated labour relationships in 2011, the labour market did not respond to the loss of a significant number of employees as expected, by using non-standard formal work forms (such as temporary and part time contracts) as a safety valve. Instead, due to very high labour costs, restrictive conditions for temporary individual work contracts and, later, due to a substantial and abrupt increase of the minimum , many businesses reverted to alternative strategies, which threw many employees into (semi)-informality, weakening their position on the labour market in terms of stability of the workplace, income and social protection. The most important among these strategies are: (a) avoiding formal hiring, and using (former) employees without a formal work contract (bogus self- employment), (b) disguising informal full-time work by means of part-time contracts, to decrease labour costs for employers, and (c) by using self-employed on a permanent basis instead of employees (dependent self-employment). Until 2015 temporary agency work also took the form of disguised self-employment (bogus self-employment); while in the case of these agencies the labour force had the status of a standard employee, the lack of regulations regarding equal payment for equivalent work made this solution appealing to employers, despite the negative impact on ‘employees’ in terms of stability, income and social protection.

1 Throughout the report we will use ‘employed except employees’ (EEE) as a means of describing three main categories of non-employees: employers, self-employed and contributing family members. The terminology is used by Eurostat as well as the Romanian National Institute for Statistics. Using a generic category of non- standard employment would not discriminate among those who are employees (even if part-time or with fixed term contracts) and those who are not. In Romania’s case, the enormous gap in protection is not between standard and non-standard workers but between employees and non-employees.

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Social protection of people working as self-employed or on non-standard contracts Romania

These mechanisms threw many employed into a precarious work situation, depriving former employees of their work security or social protection rights. Many of these problems persist, although the number of employees increased again starting in 2011. However, currently employees have a privileged status – regardless of the type of their contract or work time – compared to the self-employed. The response of the Romanian government to this situation was rather punitive in nature. Fighting informality by means of sanctions and fines is by no means enough to create incentives for the almost 1.5 million informally working employed to declare their income and make use of the opportunities offered by the main social insurance systems. Eliminating the inequities of access, introducing some fiscal facilities for low-income self- employed (possibly in the form of a basic minimum insurance package), and fiscal stimuli to ensure a higher social insurance coverage (while also motivating the self-employed to increase their income) for earners above the but below the average wage should be a priority. In addition, a more functional legal definition of work dependency and the work status associated with it would benefit a significant proportion of employees disguised as self-employed.

1 Context: self-employment and non-standard work relationships in the national economy and labour market Romania is a special case throughout Europe regarding both non-standard employment and self-employment. Two factors concur. The first one is the high proportion of employed except employees, of whom most are occupied in agriculture and a significant part of these are contributing family members. Thus, most of these are not in formal employment (around 9% of total employed in 2016). The second factor is the deregulation of the labour relationships in the immediate aftermath of the economic crisis (the amendment of the through L40/2011, and the law on occasional work, L52/2011). Yet the increase in flexibility did not have the expected consequences: temporary contracts and part-time work did not act as a safety valve or compensate for the significant drop in the number of employees (2009/2010). While the number of temporary (fixed-term) contracts increased significantly, and at a higher rate than the open-ended contracts, the number of part-time employees did not. First, Romania has – after Greece – the highest proportion of employed except employees across Europe, almost double the European average (15.2% in 2015): ranging from a peak of 32% in 2010 to 27% in 2015 (Figure1, Figure2). This high proportion is mostly due to the category of contributing family members and the self- employed occupied in agriculture (Figure 3-5, table 4). While the proportion of self- employed is also among the highest across Europe (i.e. 18%-20% for 2008-2015 - that is above the European average of 14-15%, after Greece and Italy, and at the same level with Poland), the proportion of contributing family members is overwhelming and by far the highest across Europe: dropping from 12% in 2010/2011 to 9% in 2015, compared to 1% at the European level. Greece, with a higher proportion of employed except employees than Romania, follows Romania with only 4% of contributing family members. One third of Europe’s contributing family members are Romanians, while only 5% of the European self-employed live in Romania. This latter category, along with the self- employed in subsistence agriculture, make employed except employees by far the most vulnerable category in Romania: with a risk of poverty 10 time higher than employees, and a risk of poverty and social exclusion 4 times higher than employees, and a proportion of severe material deprivation 3 times higher among these compared to employees (Figure 13-15). Self-employment in Romania is less a disguised form of self-employment or dependent self-employment than a form of under-occupation in a rural subsistence economy. In 2015, while only 45% of all employed were residing in rural areas, 83% of the self- employed and 95% of the contributing family members were living in rural areas. Most of the self-employed in Romania are occupied in subsistence agriculture or run small family businesses (construction and small trade see Figure 6). In 2015, 86% of the rural self-

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Social protection of people working as self-employed or on non-standard contracts Romania

employed were occupied in agriculture and 7% in construction, while two thirds of the urban self-employed were occupied in agriculture, construction, small trade and manufacturing. Only 10% of the urban self-employed, and less than 0.5% of rural ones, were occupied in professional, scientific, and technical activities or , health and social work (about 2% of the overall self-employed, i.e. about 31,000 persons, see table 4). This profile is also supported by the age structure of the self-employed: overall, 80% of the self-employed are aged 35 and over, with 13% of the total population being 65 years and older (Figure 7). In terms of gender, while the difference in the proportion of employees among men and women is small (2% in favour of women), the proportion of self-employed men is almost double that of women: 23% vs. 12% in 2015. In addition, the proportion of contributing family members is almost three times higher among women (15% of employed women in 2015) than among men (5.5% in 2015 according to TEMPO-online database, NIS). The fiscal legislation (by means of the fiscal code) does, to some extent, define a few categories of self-employed. The categories are derived from the way the independent income is earned. Thus, the fiscal code acknowledges: (a) authorised private persons, individuals, enterprises or family enterprises – registered as such at the chamber of commerce; (b) liberal (physicians, lawyers, notaries public, architects, actors etc.), authorised by the professional body, and (c) persons who receive an income from author’s rights. In addition to these, a category of unskilled day-labourers who undertake occasional activities (for less than 90 days/year) is regulated by a special law (L52/2011, amended by L18/2014 and L254/2015), along with the fields/sectors where these activities can be performed. The fiscal legislation also distinguishes between independent and dependent self-employment (see section 2.2). The number of individual work contracts (IWC) and employees decreased significantly during 2009-2010: a decrease of 31% in individual work contracts compared to 2008 and a decrease of 8% in the number of employees over the same period (Figure 8, table 5). The ‘absolute loss’ in the number of employees during the two years following the economic crisis was 500,000. In 2011 both the number of employees and contracts started to increase, yet the recovery was slow, slower than expected after the amendments to the in 2011. In June 2016, the number of individual work contracts and employees was still a little below the 2008 values. The difference between the number of officially registered active contracts and the number of active employees (electronic registry of employees - REVISAL) almost doubled during the last four years, from 446,000 in 2012 to 835,000 in 2015. The difference cannot solely be justified by employees on maternity leave or any other kind of leave, sickness or incapacity. Neither can it be explained by the number of employees holding a second , as the proportion of these decreased from 4.1% in 2008 to 2% in 2015 (Figure 12). In 2015 only 120,000 employees held a second job, 240,000 less than in 2008. However, there is also a significant difference between the number of registered employees (in REVISAL) and the number of employees resulting from the labour force survey (Figure 8). The 2011 amendments to the Labour code were meant to increase flexibility of the labour market, by deregulating labour relationships; temporary (fixed-term) contracts and part-time work were thought of as important safety valves in a more volatile economy, outweighing – at least partially – the effects of the crisis. Yet the legal status of temporary contract holders is still defined as ‘exceptional’. The Labour Code strictly regulates the situations in which a temporary work contract is permitted, limiting these to (a) the replacement of a temporarily inactive open-ended employee; (b) seasonal activities or temporary expansion of activities; (c) hiring of a vulnerable person on the labour market; (d) hiring a person with less than 5 years to the pensionable age. Labour Force Survey data (LFS, Eurostat) show a small increase in the proportion of employees holding a fixed term contract: from 1% in 2010 to 1.4%-1.5% over the last five years (a percentage a little over the 2008 value of 1.2%, see Figure 11). The proportion of employees taking up part-time seems to be even smaller, swinging during the entire period between 0.6% - 0.8% of total employees (Figure 10).

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Social protection of people working as self-employed or on non-standard contracts Romania

Yet official data seems to present a slightly different story. First, throughout the last five years, the proportion of fixed-term individual work contracts was constant and reached approximately 8% of total contracts. This is a 5 times higher proportion compared to the Eurostat data. Secondly, the proportion of part-time contracts is far higher than the Eurostat data would suggest, reaching in 2015 25% of the fixed-term contracts and17% of the open-term contracts (table 3). All these mixed and somewhat contradictory data regarding salaried employment seem to suggest that: (a) informal employment was a preferred mechanism of coping with the consequences of the economic crisis and changes in legislation; (b) there is a significant proportion of employees working half formal- half informal – i.e. with part time contracts and working in fact full time, in order for employers to decrease the cost of their employee social protection (supported also by the high proportion of persons who work part time involuntarily: 60% in 2015, see Eurostat, lfsa_eppagai). The only available social protection for the employed is insurance based, plus child rearing benefits which, while conditional upon gainful taxable employment, are not contributory. While all employees are automatically covered by social insurance (pensions, sickness, health and unemployment), irrespective of the work form - part- time or full time employees, with a fixed-term or an open-ended contract -, the self- employed are in principle obliged to pay pension insurance (if their income is over 35% of the national average / month) and , yet they are not protected against unemployment (insurance is elective and conditional on the former ones). While employees share the payment of social contributions with employers, the self-employed must pay the employer’s share for both pension and unemployment insurance (see section 2.2 table 8). Dependent self-employed people fall under the same category as employees with regards to social insurance rights and obligations. These are required to be insured and the beneficiaries of their services act as employers – required by law to pay a share of their contributions to pension, health and unemployment funds. The most exposed remain the contributing family members, for whom insurance is elective and overall unaffordable. Overall, employees are the best protected among all working categories in terms of income (this category has the lowest risk of poverty) as well as coverage by pension, unemployment and health insurance. At the other extreme are contributing family members and the self-employed – with the highest risk of poverty, even higher than for the unemployed or those out of work (58.5% in 2015, compared to a mere 5.2% among employees, see Figure 13). The gap between employees and the generic category of ‘employed except employees’ persists also with regards to the risk of poverty or social exclusion: 64% among the employed except employees, and only 16% among employees in 2015 (Figure 14). These categories still rely on an informal labour market, being mostly uncovered by social insurance.

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Social protection of people working as self-employed or on non-standard contracts Romania

2 Description and assessment of social protection provision for self-employed and people employed on non-standard contracts

2.1 Description of social protection provisions for self-employed and people employed on non-standard contracts

There are no special social protection benefits/ rights for the self-employed and non- standard employees. Lawyers are an exception, as they are covered by their own occupational pension scheme, and maternity and paternity leaves are granted through different rules enacted by their specific professional body. In Romania, a burdensome fiscal context encourages tax non-compliance, avoidance or mystification of the labour legislation, whereas a high level of social contributions leads to a developed hidden economy (Dumitru, 2015). Social contributions are one of the key revenue sources for the Romanian government, as the general is rather low (i.e. 16 %). Labour taxation is higher than most European countries (Rogers and Philippe, 2015, pp.5-6), especially because of a high level of social contributions payable by employers. The level of social contributions did not change dramatically during the last years. The introduction of the flat-rate income tax in 2005 did not help decrease their level. Between 2008 and 2016, practically all social contributions, except for the pension contributions (i.e. for health insurance, unemployment, medical leaves etc.) remained unchanged, even though their level was somewhat critical from the perspective of the financial burden on labour. On the contrary, the onset of the financial crisis brought an increase of the social contribution for pension, reaching 31.5% of gross wage in 2009 from 27.5 % in 2008. Only in 2014 did the government manage to decrease it again by 5 % from the employer's part. Yet, according to Rogers and Philippe (2015), “Romanians are working a full week less to pay their taxes than last year, and can anticipate additional tax cuts in 2016” (p.4).

2.1.1 Healthcare and sickness: cash benefits and benefits in kind

In Romania access to health care is conditional upon being insured in the public system, requiring the payment of social contributions by individual persons, or shared by employees and employers within a contractual employment relationship. Insured persons have access to a basic package of medical services, while the uninsured population benefits only from a minimum package which includes mainly emergency care, pregnancy services and the treatment of several infectious diseases (L95/2006). In order to become insured, individuals in gainful employment must pay 5.5 % of their gross income as an individual contribution (with a minimum insurable income for self-employed equivalent to a minimum monthly salary). However, a free basic minimal medical service package is in place, addressing all those without insurance2. Public medical insurance is mandatory (L95/2006), but an important part of the population is exempted by law from paying contributions (in fact more than 50% of the insured persons were not contributing to the medical insurance system, due to the many exemptions – e.g. children up to 18 years old or 26 if in education, pensioners, unemployed, beneficiaries of minimum insertion income, parents on child rearing leave, refugees/ asylum seekers, convicted persons in detention, spouses of self-employed who are not gainfully employed). Though the overwhelming majority is covered – at the end of 2015, about 80% of the entire population was registered with a primary care

2 This covers emergency interventions, pregnancy monitoring, treatment of epidemic diseases, prevention of some chronic diseases and support services.

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Social protection of people working as self-employed or on non-standard contracts Romania

physician. Coverage was higher in urban areas – 86%, while the population in rural areas was covered in a proportion of 66%3. The health contributions are automatically withdrawn from employees and dependent self-employed (5.5% of the gross salary/income) and paid, by the employers, along with their own contributions (5.2%of the gross salary) to the health insurance fund (Tables 2 &3). For any other category, self-employed or those not in employment (except for unemployed and beneficiaries of minimum insertion income for which contributions are paid), an individual health insurance contract is signed, with a minimum insured income equivalent to a gross minimum wage. The reference base for calculating the social contribution cannot exceed 5 times the value of 12 gross average / month, for both self-employed and employees. For the self-employed the health contributions are added up to the deductible share of their income. Persons without an income - among which most contributing family members are counted- are equally obliged to pay contributions for health insurance, though the methodological norms were rather unclear for this category. Consequently, the fiscal administration did not collect contributions for many years, especially since it lacked a comprehensive data base for this category. However, in May 2016 the Government issued a bill increasing the access of persons without income to public medical services, allowing these to opt for paying for insurance only in case of medical need (L112/2016). Therefore, persons without an income can opt for paying a monthly insurance contribution of 5.5% of the minimum gross salary (RON 68.75/month, i.e. €15/month, for at least 12 months before accessing medical services) or for a lump sum payment, whenever they access the medical services, of 5.5% of 7 times the minimum gross salary (equivalent to RON 481.25, i.e. €105). The high level of the minimum insurable amount represents a disincentive for low income self-employed. However, employees working part time with an IWC benefit from medical insurance and access to the full basic medical package through their , even though their monthly income is below the minimum gross wage. Access to paid medical leave and sickness benefits (GEO 158/2005 and fiscal code) is subject to a different contribution. The contribution for leaves and medical indemnities – compulsory for employers, and optional for the self-employed – is 0.85% of the salary fund (Tables 2 & 3). Eligible persons are employees or persons assimilated to employees, authorised private persons and their spouses (L44/2008) along with several other categories4 (if they are insured). The insurance grants five type of medical leaves: (1) paid medical leave for temporary work incapacity, (2) paid medical leaves for preventing sickness, (3) paid maternity leaves, (4) paid sick leave and (5) paid maternal risk leave. Given that the prerequisites for receiving these benefits are rather minimal (at least one month of contribution in the 12 months preceding the risk occurrence) and that the costs are deducted from the taxable income, the medical leaves granted under this type of insurance are quite accessible for the self-employed and their (insured) spouses. Despite the low costs compared to the benefits, according to the National Health Insurance House (NHIH) data, in 2015 the expenditure for allowances was 8 times higher than the revenues obtained within this category5), coverage among the self-employed is not high

3 National Health Insurance House, Medical services annual report, available at http://www.cnas.ro/media/pageFiles/SINTEZA%20%20an%20%202015.pdf 4 The law specifies also the unemployed, associates, and elected persons among the eligible categories (GEO 158/2005). 5 In this respect, the National Health Insurance House reports an expenditure of RON 21,041.72 thousand as compared to revenues of RON 2,589.38 thousand registered during 2015 (NHIH, 2015).

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Social protection of people working as self-employed or on non-standard contracts Romania

(only approx. 6,300 persons were insured by means of an individual insurance contract at the end of 2015).

2.1.2 Maternity/paternity cash benefits and benefits in kind

Insured pregnant women and women with children are entitled to maternity leave and sick child care leave for children under 7 years, or children under 18 years of age in case of more severe diseases. The maternity leave amounts to 85% of the previous gross earnings6 and is granted for up to 126 days before and after giving birth. To benefit from it, a special contribution- different from the contribution for health insurance- must be paid. These benefits, along with paid sickness leave, are subject to an additional insurance7. Employers must pay for this insurance – for leaves and medical allowances – an extra contribution of 0.85 % of the salary fund (up to a limit of 12 minimum wages per employee), which are transferred to a national health fund that covers the payment of all medical leaves. Usually the benefit is limited to employees, due to the compulsory nature of the contribution for employers. While the contribution is not mandatory for the self- employed, these may opt for paying this contribution (Tables 2 & 3). The rights can be extended to the spouses as well (L44/2008). The contribution is not mandatory for employers entering a dependent work relationship with a self-employed person. The child rearing leave/ benefit and labour market insertion stimulus is another benefit package, that is broader in scope, and – even though it is linked to employment - it is not contributory (paid from the state budget, through the MLSPFE). The benefit is granted to any person with a history of 12 months of gainful taxable income during the preceding 24 months. It is granted to any parent until the child turns two years of age, followed by a work stimulus awarded until the child's third birthday (GEO 111/2010 amended by L66/2016). The child-rearing benefit is calculated as a percentage of previous earnings (i.e. 85% of the average net income earned during the 12 months preceding birth), yet its value cannot be lower than 85% of the minimum gross wage (i.e. €235 in 2016). With a new minimum value established at 85% of the minimum wage (according to previous legislation the minimum threshold equalised the value of the social reference index- i.e. €133 in 2016), the child rearing benefit ensures adequate incomes for parents with earnings lower than the minimum gross wage, resulting from self-employment (especially those occupied in agriculture) or part time employment contracts.

2.1.3 Old-age and survivors’ pensions

Old-age and survivors’ pensions are granted through the public pension system. Social insurance for pensions is compulsory for all employees holding an IWC, as well as for any self-employed with a taxable income of at least 35% of the average gross salary/ month. Exceptions to this rule are lawyers, for which an alternative occupational pension scheme is in place (more recent reforms have restored some special service schemes, but none of these impacts self-employment). However, lawyers are allowed to participate in the main public scheme as well, by signing an additional insurance contract. The public pension system is structured along three pillars: a pay-as-you-go pillar which is also the most important one in terms of contributions due and pension benefits (pillar I), one pre-funded pillar mandatory for people under 35 years insured in the main PAYG pillar (pillar II, according to L 411/2004) and a third private one (L 204/2006), which is

6 The base for calculating the benefits is represented by the gross monthly income earned during 6 of the 12 months preceding childbirth 7 Women who lost their insurance 9 months before child delivery are also eligible for maternity leave.

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voluntary and supported by some fiscal incentives aimed at stimulating participation. The PAYG pillar grants benefits based on a pension point system, in which the pension value is the result of the number of pension points accumulated throughout their work life divided by the length of the complete contributory period and multiplied by the value of one pension point (currently amounting to approximately 190 EUR). Also, the law establishes a minimum pension benefit (amounting to approximately 88 EUR), aimed at compensating short work and extremely low incomes. Minimum contribution period is 15 years, and a complete contributory period is 35 years. The second pillar will grant defined-contribution benefits starting in 2030, when it will reach its maturation. For employees in standard as well as in non-standard employment forms, the contribution is divided between employee (10.5% of the gross salary) and employer (15.8 of the salary fund for normal working conditions, 20.8% for difficult and 25.8% for special work conditions). 5.1 % out of the employee's part are transferred to the pre- funded mandatory accounts (pillar II). Employees working part time will pay contributions according to their income (Table 3). All self-employed (including the workers in agriculture) are required to be insured in the public pension system if their income exceeds the minimum insurable threshold (of 35% of the average gross salary at the national level per month, or roughly 4 average gross annually) (Table 2). The self-employed are only required to pay the individual part of the contribution (10.5%), whereas paying the entire contribution (an extra 15.8%, which would have been the responsibility of the employer) is optional for them8 (L 227/2015, art. 151, 4-5). Yet the pension benefits will be comparable to those for employees only if the entire contribution is paid. The minimum insurable income is 35% of the average gross national salary/ month, while the highest insurable amount is 5 times the average gross national salary/ month. Contributions for the self-employed are higher compared to employees, in terms of equivalent benefits. In addition, the self- employed for whom insurance is optional due to an income below the minimum insurable income (less than 35% of the average gross salary monthly), must pay contributions according to the minimum insurable income; this places low income self-employed in a disadvantaged situation compared to part-time employees, who pay contributions only according to their real income. For those self-employed under 35 years, like employees, part of the individual contribution is directed towards the second pre-funded pension pillar. If the self-employed choose to pay contributions to voluntary pension schemes, an amount limited to a maximum of €400 per year is deductible from their taxable income. The survivor pension is granted to all dependents (spouses or children) of an insured person, provided that certain conditions regarding age or the length of marriage are fulfilled. Any insured person's pension rights can be transferred to his/her dependent survivors for both pillar I and pillar II. However, the dependent spouse of an authorised private person (PFA) can conclude her/his own pension insurance contract (L4/2014), being thus less dependent on the provision of a derived survivor’s pension.

2.1.4 and social assistance benefits

Self-employed and contributing family members. The law on unemployment insurance (L76/2002) grants the right to all individuals – i.e. Romanians who work in or outside the country and foreigners who reside and work in Romania - who are not employed by means of an individual work contract (IWC) to insure themselves against unemployment, although this is not compulsory. Unemployment insurance is voluntary for these. However, the law specifies a prerequisite for those who want to enter into such

8 Until recently, the self-employed were asked to pay the entire contribution payable by both employer and employee (i.e.26.3%), being in turn allowed to choose the insurable amount, provided this was higher than the minimum insurable threshold. However, given that most pension insurance contracts/declarations were standing at around the minimum insurable threshold, the new fiscal code (L 227/2016) introduced the obligation to use real (net) incomes as a reference base for social contributions.

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a contractual relationship of their own will: they must be insured for old age, sickness and health (that is, to contribute to both social insurance and health insurance funds). In 2014, a governmental decision (HG 119/2014) modified to some extent the insurance conditions, specifically defining as eligible also the spouses of sole associates, authorised private persons (org. PFA – Persoana fizica autorizata), independent managers, Romanians who work abroad and other persons who make a lawful income: all can make unemployment insurance contracts with the regional Employment offices. The requirement to hold a pension and health insurance applies to them as well. For the self-employed, contribution to the unemployment insurance fund is 0.5% of income (equivalent to the individual contribution of an employee), with a minimum insured income of a gross minimum salary per month and a maximum insured income of 5 times the gross national average salary per month (Table 2). In addition to these, there are some benefits available, in principle, to the families of the self-employed. As many of these run family businesses or are occupied in agriculture, many of the family members, especially spouses, are contributing family members, with no formal employment status. Thus, they have no access to any direct work-related benefit. The law grants them the right to sign up for a social insurance against unemployment (besides the pension and health insurance to which they already had access). In practice, the number of self-employed or contributing family members signing an unemployment insurance contract is extremely low (most probably since (1) it requires pension and health insurance and (2) the benefits are rather small and employment services not perceived as effective. Being insured (for at least 12 months out of the last 24 months) guarantees the right to unemployment benefits (not granted to some of the categories who are not insured but considered at risk of marginalisation), free programmes, work subsidies, entrepreneurial counselling (on demand), free assessment and certification of informally acquired work competences. Not being insured, but considered at risk of marginalisation, such as persons who are employed in agriculture and have a work-related income below the social reference index (currently RON 500, i.e. €115) per month grants individuals free access to a series of services within the framework of the employment programme (excluding assessment and certification of informal competencies) but not the right to unemployment benefits. Most of the services provided are free, yet some of these are not free of charge for those who are not considered at risk or are not insured – such as professional training/ qualification programmes, competence certification or individualised counselling. Insured persons who are eligible for unemployment benefits are also covered – during the periods for which unemployment benefits are granted – with pension and health insurance. The unemployment benefit is calculated the same as for any employee – a fixed amount, to which a percentage of the former income is added, according to the length of the contribution period. In addition, the benefit can be granted for a shorter or longer period (up to 12 months) depending, again, on the contribution history. Non-standard workers – temporary individual work contracts/ part-time individual contracts/ dependent self-employed – are covered, and have all the rights and benefits associated with a full-time open-ended contract (Table 3). First, they are compulsorily enrolled in the unemployment insurance system and contributions are shared – in an equal amount – by employer and employee. The employer is responsible for withholding the contribution due by the employee and transferring it, along with their contribution, to the unemployment insurance fund. The rights and benefits are the same, if the employees respect the required minimum contributory period. As the length of the period for which the unemployment benefit is granted (between 6 and 12 months) depends on the number of working years for which the contribution was paid, part-time workers receive the benefit for a shorter period than full-time workers. Social assistance benefits are not specifically targeted towards any employment category. Yet there is a privilege granted to day-labourers (who undertake occasional activities, under the conditions specified by the law 52/2011) with regards to the

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minimum insertion income. The income made from occasional activities is not taken into account when assessing eligibility/ income base for granting the minimum insertion income benefit; the only conditions for these is to be registered with the unemployment office and provide proof of actively looking for a job.

2.1.5 Long-term care benefits

Long-term care benefits and services are provided in Romania within 3 different social protection frameworks, of which two are insurance based – social protection of the disabled, social insurance for invalidity and loss of work capacity and health system for in-home long term care. Because there are two main schemes which acknowledge the lack of functional capacity, many on the benefits overlap, as is the case with invalidity pension and benefits granted to the severely disabled; in these cases beneficiaries must choose one of the benefits, whichever he/she considers more beneficial. The health insurance system acknowledges, thus covers, in principle, only in-home care for up to 90 days a year, for the chronically or terminally sick, or the elderly. Yet in many small cities or rural areas there are no service providers, thus access to these services is rather limited. However, health insurance has a better coverage than other social insurance systems among the employed. The pension social insurance system covers conditions such as temporary invalidity/ loss of work capacity, as well as partial or total invalidity. Invalidity pensions are granted and recovery services are provided freely to those insured. The lack of insurance leaves people uncovered if work capacity is lost. In this case, the social protection for the disabled takes over. While in the case of a temporary loss of work capacity the pension system is a better protection for the individual – as it grants paid sickness leaves and temporary support against income loss, in case of a severe disability benefits and services are more generous within the social protection system for the disabled.

2.1.6 Invalidity, accidents at work and occupational injuries benefits

Invalidity is regulated under the public pension system, which grants an invalidity pension to insured persons who have lost at least half of their working capacity, until they reach the standard age. The benefit is awarded regardless of the cause of injury (work-related or not), according to three degrees of invalidity. Romanian legislation places the responsibility for professional risks upon the beneficiary of a certain work (L346/2002, art 2). Consequently, the persons employed by means of an individual employment contract are insured by default against accidents at work and occupational injuries. Employers are obliged to pay social insurance amounting to between 0.15 % and 0.85 % of the wage fund, depending on the category of risks associated with the performed activity. The insurance for accidents at work and occupational injuries is optional for the self-employed and for all other persons interested in concluding an individual insurance contract against professional risks. Provided a certain health problem is certified by a medical institution, the injured insured persons are entitled to free medical rehabilitation services, vocational training, a series of allowances for (a) temporary disability or for (b) covering an income drop when changing jobs, (c) compensation for reduced or compensation in case of death. The granted allowances ensure a good replacement of previous work incomes9, but given that their take-up is highly restricted in time, they have a rather temporary effect, aimed at compensating medical problems for the short term.

9 Law 346/2002 on insurance for work accidents and occupational injuries establishes the level of allowance for temporary disability at 80% of the last average income, whereas those for covering an income drop when switching to a less arduous job and for reduced working time are calculated as the difference between the former and the current income. The take-up length is restricted to maximum 270 days per year (for the temporary disability allowance), and 90 days per year for the other two allowances.

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Casual work is a special case in handling the problem of work accidents and occupational injuries. Although employers of occasional workers are not obliged to pay insurance for these risks, they - as beneficiaries of that work - hold the responsibility for covering the medical expenses or the burial costs generated by the occurrence of professional risks (L 18/2014 on occasional activities and day-labourers).

2.1.7 Family benefits

Most family benefits are not directly related to employment or to any social insurance system. An exception are the benefits associated with child-rearing leave, benefits both non-contributory but conditional upon gainful employment (discussed in section 2.1.2).

2.2 Assessment of the existing social provisions and of the impact of possible extension of their coverage

Reviewing the employment structure (see Table 9), in 2015 about 74% of those employed under 65 years of age were employees, of which – according to survey data – only 1.4% with temporary (fixed-term contracts) and around 1% with part-time work. The number of employees under 65 was, in 2015, a little over 6 million. Contributing family members –732,000 – represented, in 2015, 9% of the total employed under 65 years of age, while 17% were self-employed (around 1.35 million). 77% of the self- employed were occupied in agriculture, 10% in construction and 3.4% in small trade. Around 2% of the self-employed (32,000 thousand people) can be assumed to be working in liberal professions. With regards to the social protection of the various categories of employed, there are no different policies in place for different employment categories; the only policies directly addressing those who are employed – regardless of their employment status - are the benefits and services provided within the three social insurance schemes. What really makes a difference between these groups is the differential access to, and coverage by social insurance – pension (including invalidity), sickness leave, maternity/ child rearing leave, health and unemployment. None of the non-contributory social benefits is directly targeted to any of these categories. In 2015, 74% of those employed less than 65 years of age were employees, holding individual work contracts (according to AMIGO survey); for them contributing to all three insurance schemes is compulsory. Contributions are automatically withheld from their and sent by the employer, along with the employer’s share of the contribution, to the various insurance funds. In terms of access to the social insurance systems, all employees – regardless of their type of IWC or work hours – are equal. Yet benefits – pensions, unemployment, child rearing - are proportional to salary, and in some cases (pensions and unemployment), with the length of the contribution period. In fact, the number of employees – as shown by the national labour force survey – is systematically higher compared to the number of active employees officially registered (in the electronic registry of employees, REVISAL), and – for most of the period 2008- 2015 – even higher than the number of registered individual work contracts (IWCs)(Figure 8). This seems to suggest that informal work was an important means by which employers coped with economic and high labour force costs, especially during 2009-2010. Thus, during these two years the number of ‘real’ employees decreased by 500,000, while the number of IWCs decreased by 1.9 million. In 2009 the difference between the number of employees according to the survey data and the number of officially registered IWCs was 1.45 million, a huge difference amounting to 24% of the total number of employees – hard to account for. In 2011 the labour code has been amended, with the explicit intention of deregulating work relationships. Despite the amendments – which increased the maximum length of a temporary contract from 24 to 36 months and the number of allowed successive

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temporary contracts between the same parts from 2 to 3 - the number of employees holding temporary contracts continued to be extremely low over the last five years – less than 1.5% - and their proportion increased insignificantly (Figure 11). Official data show – again – a different story, although these focus on the number of contracts (not employees). In REVISAL in 2015, on average, 537,000 fixed-term contracts were registered, while the total number of employees holding fixed-term contracts was, in 2015 according to the national survey data, around 84,000. The discrepancy is too big to be accounted for solely by the number employees holding, besides an open-ended contract, an additional temporary contract. In any case, the legal constraints make fixed- term contracts rather restrictive in nature, and the current costs associated with these are equivalent - for employers - to those with an open-ended contract. Consequently, the incentive to hire more labour force by means of temporary contracts is rather low. On the other hand, the proportion of part-time employees did not increase significantly either. While the official data (electronic register REVISAL) seems to indicate that in 2015 18% of the total number of IWC were part time contracts (table 5), the survey data tell – again - a very different story: according to the latter only 0.8% of the employees in 2015 were holding a part time job (Figure 10). The difference is extremely high (despite the fact that the survey counts employees with part-time jobs while REVISAL registers contracts with part-time work) and hard to account for. This might cast doubts on employers and suggest that at least partially the difference is due to the fact that part- time work contracts are a means of hiding partially informal work. In some cases, employers hire personnel in part-time regime, but informally they work full time. This decreases significantly the labour costs for the employers, as well as the future benefits for the employees. The fact that an overwhelming proportion of part-time workers consider themselves ‘non-voluntary’ part-time workers - i.e. 59% in 2015 (ILO, 2016, p. 80) might support this speculation. In conclusion, while all employees – regardless of their IWC or work time – have the same access to social protection, the significant increase in the minimum salary along with the high costs that employers must pay for the social protection of their employees determines, to some extent, the use of part-time work as a means to decrease the costs of employers, while decreasing – simultaneously – the future social benefits of employees. This practice was also widespread in the case of young professionals, who were paid a lower formal salary, while the rest was paid informally or disguised as non- taxable benefits. Unfortunately, there are no data available on these practices. While informal workers have no access to social insurances and are not covered against major risks, officially registered employees should be covered 100%, as contributions are automatically withdrawn. Yet data seem to suggest otherwise. Especially in the aftermath of the economic crisis, many employers accumulated high debts with the state budget, and in particular with the social insurance fund. For example, in 2012, the first ten biggest debtors to the state budget (of which 8 were state owned companies) accumulated debts of €3.88 billion (about 2.7% of the GDP) (according the National Agency of Fiscal Administration (ANAF), apud Gandul cotidian10). Data show that even in 2016 the situation was not entirely restored. The number of up-to-date payments by employers for the social contributions of their employees still represents an issue. In June 2016, the number of insured with full time contracts for which pension contributions were paid by employers was 95% of the total number of active full time IWC, while the number of insured with part-time contracts for which the contributions were paid were a mere 69% of the total registered part-time IWCs (Table 1). In September 2016, 125 big employers had debts of more than RON 3 billion to the state budget, including the social insurance fund.

10 Available at http://www.gandul.info/financiar/topul-celor-mai-mari-10-datornici-la-stat-cu-cat-s-ar-reduce- deficitul-bugetului-de-pensii-de-stat-daca-marii-contribuabili-si-ar-plati-restantele-9915463 (accessed December 2016)

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Table 1 – No. of IWC and insured with different types of work contracts – June 2016 No. of persons insured within the social No. of active IWC registered in the insurance pension system by type of work electronic registry REVISAL contract (data available from the National Public Pension House)

full time contract part-time contract full time contract part-time contract

4,885,939 764,773 5,129,713 1,107,441

Data source: National Public Pension House (https://www.cnpp.ro/indicatori-statistici-pilon-i), MLSPFE (http://www.mmuncii.ro/j33/index.php/ro/transparenta/statistici/buletin-statistic) Sometimes this does not impact employees, as debts are somehow covered in the end; yet in some situations this can become critical. In 2011-2012 many employees were faced with the impossibility of getting free health services because employers had not made the necessary payments; most of the time this happened without the knowledge of the employees. Finally, while the access of all employees to social protection is – in principle - the same, many employees are left uncovered, some even without their knowledge, either due to informal work arrangements or to accumulated debts to social insurance funds by employers; yet other employees are covered – at a lower rate – as a means for employers to reduce their social contributions. It is hard to estimate the dimension of the phenomenon. In June 2016, about 9% of all IWCs pension contributions had not been paid. But even under these circumstances, employees – followed by pensioners - are by far the category with the lowest risk of poverty: In 2015 the risk of poverty for employees was 5.2%, this is more than ten times lower than the risk of poverty for employed except employees (see footnote 1); the risk of poverty and social exclusion for employees was the lowest compared to any other category – 15.5%, this is 4 times lower than that of the employed except employees (Figure 13-15). The remaining 26% of the employed population in Romania (around 2 million persons in 2015) are self-employed (1.35 million) and contributing family members (732,000). In terms of access to social insurance protection, the legislation discriminates between independent self-employed and dependent self-employed (see table 7). All independent self-employed who make an income are required11, in principle, to pay health insurance and social contributions to the pension fund (if their annual income is higher than 12 times 35% of the gross average salary at the national level or roughly 4 gross average salaries); yet these requirements are hard to enforce. This is especially the case for those self-employed in agriculture, for which income norms are established, depending on the type of land, crop production, animals owned. In fact, very few self- employed pay these contributions. Of all self-employed under 65 years of age only around 10%-11% paid – in 2016 - their social insurance contributions (according to the data provided by National Public Pension House12 and the number of active contracts registered in REVISAL). Thus, about 90% were not insured, leaving them exposed at an older age or in case of invalidity, sickness or maternity. Overall, in the summer 2016, about 23% of the total employed population aged between 15 and 64 was not covered by social insurance (whereas 24.5% of the total employed were not employees). Unemployment insurance is elective for independent self-employed people, yet is conditional upon pension and health insurance. The estimated number of independent self-employed paying unemployment contributions is insignificant (around 1,500 persons).

11 exceptions are those categories enrolled in an alternative pension system (as lawyers for example) or those who already are pensioners but are also active on the labour market 12 https://www.cnpp.ro/indicatori-statistici-pilon-i

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The main reason very few independent self-employed contribute to social insurances is the high cost. Health insurances (introduced as compulsory in 2015 even for those without income, yet reviewed in 2016 and applied only to those who make a taxable income) costs a self-employed person 5.5% of his/her gross income, with a minimum contribution of 5.5% of the gross minimum salary. An option for those who do not pay the contribution is to pay – when they want to access the medical services – retroactively the contributions for seven months, i.e. 5.5% of seven minimum gross salaries (currently RON 68.75 or €15). Many people opt for this alternative, which might negatively impact the health of these people in the medium and long run. Pension insurance – while more appealing for many self-employed, carries even higher costs than it does for employees. Independent self-employed are required to pay both the individual’s as well as the employer’s share, which is about 26.3% of the income, in order to get the same pension benefits for the same income as an employee. The minimum insured income is 35% of the gross average salary. The gross average salary considered by the social insurance for calculating the benefits in 2016 was RON 2,681 (currently €592). This means that the minimum contribution is RON 247/ month (€55). This represents, currently, 20% of the gross minimum income. Thus, an independent self-employed person, in order to be eligible to become insured against unemployment, must pay, monthly, a minimum of €70 in contributions to pensions and health (this is 25.5 % of the minimum gross salary). Unemployment insurance, while not conferring too many benefits besides the unemployment benefit (too low to become an incentive), is not too appealing even if this would only add a monthly 0.5% of the minimum gross salary to the contribution costs. While pension insurance is more appealing, its costs are extremely high, at least for independent self-employed in agriculture, who mostly make an income below the minimum salary. Many of the independent self-employed (around 19%) work part-time, thus the burden of social contributions is even higher. In June 2016, only about 11% of the self-employed aged under 65 years were paying social insurance contributions for public pensions. In absolute numbers, 145,000 self- employed were insured by means of an insurance contract or declaration. Similar data regarding those who voluntarily insured themselves against unemployment is not available; however, looking at the income sources of the unemployment insurance fund (see the budgetary execution of the unemployment fund), one can estimate – for September 2016 - a maximum of 1,500 voluntary contributors (assuming that the contribution is paid for the minimum insurable income, i.e. the gross minimum salary). This is about 1% of those who pay social insurance contributions for public pensions. The only incentive for the independent self-employed to earn more is the child rearing leave and benefits. As of 2016, the upper cap for the benefit (amounting to 85% of former income) has been removed13, therefore benefiting high income parents. Granting parental leaves with no upper limits seems to be to the advantage of the self-employed, especially those with high incomes. It is likely that a significant proportion of the parents with high incomes claiming were self-employed14. Given the more irregular nature of their revenues, compared to employees with high incomes, the self- employed are probably more likely to interrupt their activity and to take parental leave for longer periods of time. Dependent self-employed are more fortunate in the sense that for them pension and health insurances are compulsory and the level of social contributions paid by them is equivalent to that paid by a regular employee. The beneficiary of the work is required to

13 This led to budget destabilisation along with an unequal resource allocation (http://www.ziare.com/social/indemnizatie-mame/noile-indemnizatii-pentru-cresterea-copilului-au-destabilizat- bugetul-o-persoana-primeste-si-36-000-de-euro-lunar-1435185). According to data issued by the Ministry of Labour, Social Protection, Family and Elderly (MLSPFE), less than 0.2 % of the beneficiaries were receiving approx. one third of the entire budget 14 For example, the highest parental leave in 2016 was around €35,000 and was granted to a father who worked as self-employed in the year before his spouse gave birth.

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pay the employer’s equivalent contributions. Yet, unlike regular employees (with IWC), it is not compulsory for the dependent self-employed to be insured against unemployment and their stability is not guaranteed. While their number is not clear, we can assume that for employers it makes more sense to use dependent self-employed instead of employees, as long as the work relationship is temporary and the labour costs are lower. Dependent self-employed can be found among those self-employed not occupied in agriculture or those who do not have liberal professions. This excludes, from the start, about 80% of the self-employed. Thus, the number of dependent self-employed cannot exceed 300,000 people. According to the data base of the National Public Pension House, the number of compulsorily insured without an IWC was, in June 2016, 101.500 (www.cnpp.ro); dependent self-employed fall under this category, along with the unemployed and employers. These are the most vulnerable because in many situations beneficiaries classify them as independent self-employed, depriving them from possible coverage with social insurance and making their position more precarious. These 20% of self-employed are the ones where atypical work relations emerge, and despite their small number at the moment, legislation protecting and regulating these employment forms is essential, as these categories will develop, diversify and increase over time. Another category at the border between employee and self-employed are those working for temporary work agencies. In Romania, temporary agency work (TAW) grants all the social rights awarded under a standard employment contract, and was used extensively in the aftermath of the economic crisis. In 2014 the number of employees was 2.5 times higher than in 2011, while the number started to stabilise in 2015 (Guga, 2016). Yet this was the effect of a lack of regulation with regards to the salaries granted to employees through temporary agencies. Currently the use of TAW is strictly regulated with regards to the length of the contract, reasons for use and payment conditions. The temporary work cannot exceed 36 months in length, it cannot be utilised in order to replace workers participating in strikes and the payment must be similar for equivalent work under a standard employment contract. However, although since 2015 temporary agency work must be remunerated at the same level as any equivalent work undertaken in conditions of standard employment, the temporary work agencies continue to be seen as a subterfuge for workers eager to avoid the high level of labour taxation. In 2015, almost 10% of the authorised temporary work agencies (i.e. 71 out of 735) were suspected of labour tax evasion by the National Fiscal Administration Agency (see the explanatory preamble to law 209/2015 regarding the cancellation of certain fiscal obligations). Whereas this can be advantageous for workers' incomes in the short term, the practice is hampering the prospective of consolidating the temporary work agencies as a stable employment sector in the medium and long term15.

Day-labourers undertaking occasional activities cannot work more than 90 days per year, and cannot be employed for the benefit of a third party. This category is reserved for unskilled workers, and regulated through a separate law. While the income is taxable, workers are not required to pay social contributions, but can opt to do so. In this case the costs of social contributions will be the same as for any independent self-employed. As costs are extremely high even for many self-employed working full time, the probability that day-labourers will pay social insurance contributions is almost null. The only privilege granted to this category is that the income from occasional activities will not be taken into account when assessing eligibility for minimum insertion benefits. In addition, the beneficiary of their services is required to take over any medical costs associated with work injuries. Their number was estimated, in 2014, at 221,000 (MLSPFE, Statistical Bulletin). Liberal professions and professional self-employed (many working as authorised private persons or as members of individual/ family associations) are required to pay

15 According to a recent report on atypical work in Romania, in 2015, 310 out of 716 registered temporary agencies were not fulfilling the requirements for functioning on the labour market (Guga, 2016, p 43)

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social insurance based on their declared taxable income (minimum level of income for which insurance is required is 35% of the average gross salary). In June 2016, 72,455 persons paid insurance under this category (according to the National Public Pension House). Overall, in June 2016, 320,000 persons without an IWC were insured (i.e. employed without a work contract, those who are not required to opt for insurance but do so, self- employed required to pay insurance – liberal professions and authorised professionals, unemployed) in the public pension system, a mere 5.4% of the total insured (table 10). Contributing family members, by definition lacking a formal income, are in principle entitled to contribute, but are not required to. For them social insurance - except health insurance (received automatically through the spouses or adult children, if these are insured) - is elective. The same holds true with the unemployment insurance; this is elective for all self-employed who in order to be entitled to it are also required to be insured for pension and health services. The eligibility is extended to contributing family members, without a formal income. Most of the contributing family members – 9% of the total employed in 2015 (a proportion that decreased since 2008 by 3p.p.) – are occupied in agriculture (87%). A significant proportion of this category, i.e. 10% (more than double compared to 2008!), is working in small trade and the motor-vehicle repair industry. Their position on the labour market is informal, thus they are mostly unprotected for old age, sickness, invalidity, maternity or unemployment. Self-employed and contributing family members are not only the most exposed groups to poverty and material deprivation, but also the most vulnerable in terms of current and future social protection. During the last 7 years employed except employees experienced the highest risk of poverty, compared to any other category – even higher than that of the unemployed. In 2015, 59% of the employed except employees (EEE) were living in poverty, while two thirds of this category was at risk of poverty and social exclusion. Most of these are employed in subsistence agriculture. Left outside the social insurance system, these people will continue to hold a precarious position on the labour market and to experience a degradation of their health. And many of these are ‘permanent clients’ of the minimum insertion income scheme; some of them who reached pensionable age and have a short history of being insured in the public pension system become recipients of the social pension (a minimum pension that is intended to address all those with a certain formal work history who otherwise would permanently receive social assistance benefits). Recent amendments try to grant access to those without a formal employment status (i.e. contributing family members), yet there is no study that assess some alternative intervention packages aimed at covering – to different degrees – this category. While insurance against sickness and unemployment are voluntary, pension and health insurance are compulsory for those earning a minimum of 4 average salaries per year. Yet many do not declare their income and, accordingly, do not pay insurance. This is possible as many of the self-employed are occupied in subsistence agriculture. Yet a substantial increase in coverage could be expected if the state, out of different sources – budget for agriculture, MLSPFE or regional development funds – would partially cover the contribution to the pension and health insurance funds. It is hard to estimate the financial costs associated with this approach and even harder to anticipate the proportion of people who would have an incentive to earn more and formally declare their income. The development of individual social security accounts would be an important tool for individuals to become aware of their rights and opportunities, and, at the same time, an important administrative tool to keep track and assess the costs of different programmes and policy alternatives. Yet at this moment, there is no clear knowledge, even on the part of the employees, about what money is spent for them and what are the exact benefits they can expect.

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3 Conclusions and recommendations In Romania, there is a persistent gap between employees and the self-employed, and contributing family members, regarding their work status, income and social protection. Being employed except employee (EEE) exposes a person ten times more to poverty; these find themselves in a precarious state not only due to lower work incomes, but also due to insecurity on the labour market and limited social protection against major risks. While in principle the self-employed and contributing family members have access to social protection, most of these remain uninsured. Many of the self-employed continue to work informally, not declaring their income due to a high level of taxation and lack of benefits for low income employed. In 2015 about 600,000 persons were registered as independently self-employed16 ; if this number is accurate, more than 700,000 self- employed work informally, plus another 700,000 contributing family members, mostly in agriculture, without a formal work income. While a little less than half of the self-employed seem to declare their income, only about 11% of all self-employed pay social insurance contributions. The proportion of self- employed paying health insurance was, in 2015, according to the National Health Insurance House, only 28% of the self-employed aged under 65 years, of which only 21% were occupied in agriculture (Table 9). The unemployment insurance coverage for this category is almost zero. Contributing family members can, in principle, be insured as dependent spouses of a self-employed person, but in order to access this facility the household head has to officially be registered as self-employed. Many self-employed and contributing family members are – in fact – beneficiaries of minimum insertion income benefits, thus deriving their health insurance from this status. Data seem to suggest that high labour costs (due to a very high level of contributions) and restrictive conditions for temporary IWC made many businesses cope with the economic crisis – in 2009/2010 – by (a) avoiding formal hiring, (b) disguising informal work by means of part-time contracts or (c) by using the self-employed on a permanent basis instead of employees (disguised dependent work). These mechanisms threw many employed into a precarious work situation, depriving former employees of their work security or social protection rights. Many of these problems persist, although the number of employees increased again starting in 2011. However, employees have a privileged status – regardless of the type of their contract or work time – compared to self- employed. To establish a balance between the work situation of the two broad categories - employees and employed except employees -, and to create some incentives for the self- employed to exit informality and enrol in the three major social insurance systems, several issues must be addressed. First, while in principle all non-employees have access to all social insurance systems, access costs are higher for the self-employed, and especially for the self-employed with lower incomes. Part-time employees pay their contributions according to their real income, while the self-employed with a monthly income less than the minimum insurable income (i.e. 35% of the average gross salary/ month for pension insurance and the minimum gross salary/ month for health and unemployment) will pay contributions as a percentage of the minimum insurable income. This creates an inequitable situation compared to low income part-time employees and a higher disincentive to formally declare income and acquire social insurance. Low income employed except employees bear the highest costs for accessing social insurance. Self-employed are also at disadvantage regarding the costs of pension insurance. For the same income level, independent self-employed must pay a 2.6 times higher contribution (the equivalent of the individual’s and employer’s share - 26.3% compared to 10.5% for

16 justifying document grounding the law 209/2015 on fiscal amnesty, p. 2, http://www.cdep.ro/proiecte/2015/400/70/6/em600.pdf

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employees) in order to get the same pension benefits. In 2014 a government decision was passed according to which independent self-employed and their spouses (if these want to get insurance) are allowed to pay only the individual 10.5% share; this is to say that only this contribution is mandatory, yet this will grant them a three times lower level of protection. Access inequalities are embedded in the social insurance systems, displaying three levels of access: (a) compulsory coverage and automatically withheld contributions (by the effect of the law) for employees and dependent self-employed, (b) mandatory coverage for self-employed (with incomes above the minimum insured level, in the case of pensions) but based on real income, with similar or higher costs (in the case of pension insurance, or in the case of all three insurance systems for low income self-employed), and (c) elective coverage (pension insurance for those with a lower than the minimum insurable income, unemployment insurance) and higher costs of access for low income self-employed. One of the main goals is to increase the social protection of the self-employed and to address the precarious position of many informal workers, by decreasing the proportion of informal work among the self-employed. Equal and affordable access to social protection, as well as ‘basic insurance packages’ for those with lower incomes and their dependent family members, can be a strong incentive for many self-employed to officially declare their income. In addition to these, introducing some fiscal facilities for the self-employed with a little higher income - for example, an income above the minimum gross salary/ month but below the average salary - could also become a strong incentive for the self-employed to maintain a stable position in the labour market and improve the sustainability of their activities (especially for those occupied in agriculture). These fiscal facilities could also take the form of more comprehensive insurance packages and/or discounted packages if the self-employed prove that they can uphold this income level for a few subsequent years (especially for those occupied in agriculture). Thus, eliminating the inequities of access and introducing some fiscal credits and stimuli to ensure a higher coverage with pensions, unemployment and health benefits should be a priority. Setting up ‘unified’ individual social accounts, able to keep track of all contributions and benefits associated with a person, would make both policy assessment and designing social protection measures more effective. Despite the few legislative attempts to acknowledge the work status of spouses who work as contributing family members, most of these are uncovered by any social insurance system (unless they are not beneficiaries of minimum income). Facilitating the access of these employed to social insurance – even if to a basic minimal package, could be a great incentive for them to exit informality. One of the main disputed issues is the strategy chosen by many employers in the aftermath of the economic crisis, to replace their employees with the self-employed; an effect was a weakened position on the labour market for many employed people, who found themselves overnight losing their employee status and becoming self-employed. Dependent work is defined through the fiscal code and it at the discretion of the fiscal authority to re-classify work as ‘dependent’ and treat it – from a fiscal point of view – accordingly. The legislation changed several times, and – recently – a decision was made to exclude professionals from those whose activities are subject to re-classification. Dependent self-employed benefit from a better level of access to the three main social insurance systems, similar to employees (as service beneficiaries have to pay the employer’s share of social contributions), yet this category is still not clearly defined in terms of the type of contractual relationship permitted between parts. A better legal and operational definition of dependent self-employment, which would not be subject to the discretion of the fiscal authority, would give the self-employed the opportunity to make an informed decision about their work status and plan their careers in advance. Especially in the aftermath of the economic crisis, many employees found themselves becoming self-employed ‘overnight’ due to personnel cuts and bankruptcy. While it is really important to improve and to strengthen the position of the self-employed on the

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Social protection of people working as self-employed or on non-standard contracts Romania

labour market and make it comparable to that of employees, it is crucial to make self- employment an informed choice and not a constrained choice. Thus, by facilitating the transition from being an employee to self-employment (e.g. easier access to affordable social protection, incentives to make more money for independent work), could make self-employment a viable option and a free choice, an alternative to non-voluntary self- employment or unemployment. This would not only increase the stability of a significant segment of those employed on the labour market, but would also decrease the incentives of employees to accept involuntary part time work contracts. Having a viable option for many employees would make them less willing to accept unfair work conditions. The Romanian government has acknowledged for some time that informality and labour cost evasion by employers are the most common problems, impacting both the state budget and the welfare of those employed; yet its approach is a rather punitive one (by sanctioning and applying fines). This approach, while able to enforce to some extent the law, is not enough to create incentives and opportunities for the employed with a more vulnerable position on the labour market to exit informality and become proactive. Thus, a more incentive-based approach is needed, with more fiscal facilities for low income employed and more fiscal stimuli for those who manage to make a higher income, especially from agriculture.

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Social protection of people working as self-employed or on non-standard contracts Romania

References Guga, Stefan: Atypical work in Romania from the outbreak of the crisis. An overall perspective. Report in the framework of the project “tackling the challenges of the new labour and social dialogue laws in Romania”, Bucharest: Next Publishing, 2016, p.57, available at http://asociatiaconect.ro/munca-atipica-in-romania4 Dumitru, I., Conformarea la plata taxelor si impozitelor in Romania, Consiliul Fiscal, 2015, http://www.consiliulfiscal.ro/ionut_CE.pdf, accessed on 30.11.2016 ILO: Non-standard employment around the world, Geneva: ILO, November 2016, p. 374, available at http://www.ilo.org/global/publications/books/WCMS_534326/lang-- en/index.htm National Health Insurance House : Raportul de activitate al Casei Nationale de Asigurari de Sanatate, 2015, http://www.cnas.ro/media/pageFiles/RAPORT%20ACTIVITATE%202015.pdf Rogers, James ; Cecile Philippe, The Tax Burden of Typical Workers in the EU(28), Institut Economique Molinari, July 2015, available at http://www.institutmolinari.org/IMG/pdf/tax-burden-eu-2015.pdf

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Social protection of people working as self-employed or on non-standard contracts Romania

Annex 1 – Summary tables regarding ‘in principle’ access to social protection of workers in standard and non-standard Table 2 Access of self-employed to social protection With Depend empl Liberal ent on On oyee Depen profess Contribu contrac her/hi s dent ions ting tual s own (self- on (e.g. family relation accoun empl single doctor, member ship t oyed client* notary, s with empl lawyer) client oyer)

Healthcare - cash benefits and full1 full full full1 full1 partial4 benefits in kind

Sickness - cash benefits and benefits partial2 full full partial2 partial2 none in kind

Maternity/paternity - cash benefits partial2 full full partial2 partial2 none and benefits in kind

Child rearing benefits full1 full full full1 full1 partial4

Old age pensions (preretirement partial2 full full partial2 partial2 partial4 benefits and pensions)

Survivors pensions and death grants partial2 full full partial2 partial2 partial4

Unemployment benefits partial3 full full partial3 partial3 partial4

Social assistance benefits** full full full full full full

Long-term care benefits** full full full full full full

Invalidity benefits partial2 full full partial2 partial2 partial4

Accidents at work and occupational partial3 full full partial3 partial3 none injuries benefits

Family benefits** full full full full full full

1 - assuming there is an income and it is declared 2- assuming the income is declared and above 35% of the average salary/ month; for persons with a lower income pension insurance becomes elective 3 - elective 4- elective access, but only for those with a spouse with declared taxable income from independent activities

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Social protection of people working as self-employed or on non-standard contracts Romania

Table 3 Access of standard and non-standard workers to social protection (Other ) Cas Temp perso Fixe ual Full- Part- orary On- Paid ns in d- and time time agen call Appre trai vocati term seas empl empl cy work ntices nee onal/ empl onal oyee oyee work ers* s profes oyee wor er sional kers trainin g

Healthcare - cash benefits parti full full full full full full full full and benefits in kind al3

Sickness - cash benefits and full full full full none full full full partial2 benefits in kind

Maternity/paternity - cash full full full full none full full benefits and benefits in kind

parti Child rearing benefits full full full full full full full partial1 al1

Old age pensions parti (preretirement benefits and full full full full full full full partial2 al3,4 pensions)

Survivors pensions and death parti full full full full full full full partial2 grants al3,4

Unemployment benefits full full full full none full full full none

Social assistance benefits** full full full full full full full full full

Long-term care benefits** full full full full full full full full full

parti Invalidity benefits full full full full full full full partial2 al3,4

Accidents at work and parti full full full full full full full none occupational injuries benefits al5

Family benefits** full full full full full full full full full

* Assuming these are hired with IWC in part-time regime

1 - considering that the person made a taxable income for 12 of the 24 months preceding giving birth; assimilated periods are: sickness leave, paid unemployment or child rearing leave 2 - considering the person is a beneficiary of unemployment benefits - case in which social insurance and health insurance are paid from the unemployment fund 3 - if the person is a beneficiary of unemployment benefit 4 - if the person elects to pay social insurance, even if his/her income is below the minimum insurable income and the contribution is elective 5 - while there is no insurance for this category, the beneficiary of the casual work has the responsibility to pay medical expenses in case of a work injury ** - these benefits are not conditional on employment, but are needs-based

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Social protection of people working as self-employed or on non-standard contracts Romania

Annex 2 Employment Figure 1

Figure 2

Figure 3

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Social protection of people working as self-employed or on non-standard contracts Romania

Figure 4

Figure 5

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Social protection of people working as self-employed or on non-standard contracts Romania

Table 4 Romania: Number of self-employed by activity sector

No. of self-employed 2015 total 1,560,559 agriculture, silviculture and fishing 1,202,391 manufacturing industry 24,986 constructions 150,986 small trade, motor-vehicle repairing 53,607 transportation 20,678 professional, technical scientific activities, 31,241 education and health/ social work sectors

Data source: National Institute for Statistics, Tempo-online, AMG110T (http://statistici.insse.ro/shop/index.jsp?page=tempo2&lang=ro&context=15)

Figure 6

Figure 7

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Social protection of people working as self-employed or on non-standard contracts Romania

Figure 8

Table 5 Romania: Number of employees and contracts, by type 2012 2013 2014 2015 Jun-16

Number of active 5,046,687 5,101,395 5,185,438 5,195,370 5,494,094 employees Number of active contracts 5,492,871 5,608,308 5,761,930 6,030,939 6,237,154 % active employees of 92% 91% 90% 86% 88% active contracts % of active fixed-term contracts, of total active 8.20% 8.3% 8.5% 8.9% 8.4% contracts, of which: full time 75% 75% 76% 72% 75% partial time 25% 25% 24% 28% 25% % active open-ended contracts, of total active 91.80% 91.7% 91.5% 91.1% 91.6% contracts, of which: full time 86% 84% 84% 83% 83% partial time 14% 16% 16% 17% 17% Note: data represent an annual average, with the exception of 2016, when data reflect the month of June Data source: MLSPFE, Inspectia Muncii, Yearly report regarding the activity of the Work Inspection Department (https://www.inspectiamuncii.ro/raport-anual-al-activitatii-inspectiei-muncii), MLSPFE, Statistical Bulletin – Work Conditions (http://www.mmuncii.ro/j33/index.php/ro/transparenta/statistici/buletin-statistic/4391)

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Social protection of people working as self-employed or on non-standard contracts Romania

Figure 9

Figure 10

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Social protection of people working as self-employed or on non-standard contracts Romania

Figure 11

Figure 12

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Social protection of people working as self-employed or on non-standard contracts Romania

Annex 3 – Welfare indicators Figure 13

Figure 14

Figure 15

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Social protection of people working as self-employed or on non-standard contracts Romania

Annex 4 – Legal definitions of and taxation rules for various employment categories Table 6

Category of employment Legislation Individual work contract (IWC) Is defined, through the Labour Code (L53/2003), as the basis of the contractual relationship between an employer and an employee The IWC is – as a rule – an open-ended contract and, only under special circumstances (defined by the law) it takes the form of a fixed-term contract Temporary (fixed-term) individual work An individual cannot hold more than 3 successive contract temporary contracts with the same employer; contracts are considered ‘successive’ if these are renewed within three months after the expiration of the previous one. In this case these cannot exceed 12 months. The maximum length of a temporary contract is 36 months Day-workers/ occasional activities As defined through the law L52/2011 (amended by L18/2014 and L254/2015); it basically refers to unskilled work, for not more than 12 hours a day, and not more than 90 days a year. The income is not taxable and not considered when assessing the eligibility for the minimum insertion income benefit No clear data available; for 2014 the estimated minimum number of day-workers undertaking occasional activities was about 221,000 (Work conditions, Statistical Bulletin, MLSPFE) Family associations/ enterprises These are regulated under the independent activities Authorised private person (orig. persoana It is usually a skilled professional, whose activities fizica autorizata) are regulated by a special professional body (e.g. physicians, pharmacists, lawyers, architects etc.) Currently these professionals cannot be regarded as dependent self-employed Dependent self-employed The fiscal code law (and its subsequent amendments) regulate the definition of dependent activity (see table 5 below)

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Social protection of people working as self-employed or on non-standard contracts Romania

Table 7

Dependent self-employment Dependent self-employed are a mixed category. All individuals who find themselves in a dependent work relationship (as defined by the government decision HG1/2016 regarding the methodological norms for the implementation of the fiscal code Law 227/2015) can also be assimilated – regarding their obligations and rights – to employees. If the tax revenue services re-classify an activity as dependent, the social insurance contributions – pensions, health and unemployment – become compulsory and shareable between service provider and beneficiary, similar to the obligations shared by employees and employers. According to the law an activity can be re-classified as dependent activity if at least one of the following criteria (specified in the Fiscal code) is fulfilled: (a) the beneficiary is subordinated to the income payer, and the latter is imposing work conditions on the service provider (work , work environment, activities etc.); (b) the service provider uses exclusively the work means of the beneficiary (equipment, work spaces etc.) and contributes only by using his physical and intellectual capacity; (c) the beneficiary supports all expenses associated with work travelling; (d) the beneficiary pays for the and temporary work incapacity of the service provider. An activity, to be considered as independent, thus eligible for an authorised private person registration, must fulfil at least 4 out of the following 7 criteria: (1) the provider has the liberty to choose the place, schedule and way of performing the activity; (2) the provider has the liberty to provide services to more than one client; (3) the risks are individually taken by the service provider; (4) activities are performed by using the means/ capital of the provider; (5)the activities are performed by using solely the physical or intellectual capacity of the provider; (6) the provider is part of a professional association/ body, which regulates the standards of the ; (7) the provider has the liberty to undertake the activities by himself, or with other hired personnel. While initially the government intended to re-classify some of the activities undertaken by members of liberal professions or by persons deriving income from author’s rights as dependent, finally the exclusion clause for these categories has been preserved. Thus, these categories will continue to be considered as independent self-employed.

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Social protection of people working as self-employed or on non-standard contracts Romania

Table 8 Rules regarding labour taxation: employees with labour contract and self –employed

Social insurance Health insurance Unemployment pension system insurance Employees with Employee: 10.5% Employee: 5.5% of Employee: 0.5% individual work of the gross income the gross income Employer: 0.5% contracts (standard Employer: Employer: 5.2% of and non-standard Employer: 0.15-0.85% the gross income work forms) 15.8% of the gross occupational diseases and income – normal Employer: 0.85% - work accidents work conditions contribution for leaves (respectively 20.8% and medical allowances for difficult work conditions, or 25.8% for special conditions) (20.8% for difficult work conditions Employer Dependent self- Employee: 10.5% Employee: 5.5% of Optional employed of the gross income the gross income 5.5% self-employed Employer: Employer: 5.2% of 5.2% beneficiary of work/ the gross income 15.8% of the gross income payer income – normal work conditions Independent self- 26.3% - 5.5% of the gross 0.5% - optional, and employed compulsory, if the income requires pension and annual income is health insurance as a pre- above 4 average requisite gross salaries at the national level Occasional activities/ Optional 5.5% of the gross Not applicable day-workers income

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Social protection of people working as self-employed or on non-standard contracts Romania

Table 9 Romania: Number of employed by employment categories

2015 Employees, of which: 6,050,157 employees under 65 years 73.5% of all employed under 65 years 71% of all employed Employees with fixed-term contracts, of which: 1.4% of all employees Full time employees with fixed-term contracts 79% (1.1% of the total employees) Part time employees* with fixed-term contracts 21% Employees with open-ended contracts, of which: 98.6% of all employees Full time employees with fixed-term contracts 95.8 % Part time employees with fixed-term contracts 2.2% Currently not active (0 work hours) 1.9% Contributing family members (no formal income 816,580 total and 732,388 less than 65 but working in a household of a self-employed) years (90% of the total self-employed are under 65 years of age) 9.6 % of the total employed 8.9% of the total employed under 65 years Employers 1% of the total employed Self-employed 1,560,559 persons (18.3% of the total number of employed) 1,357,221 persons under 65 years (16.5% of the total employed population under 65 years) Liberal professions (based on the 31,000 persons (2% of the total self- assumption that all those occupied in employed) professional, research or technical activities, education and health belong to this category) Self-employed in agriculture 1,202,391 (77% of the self-employed) Self-employed in construction 150,986 (9.7% of the self-employed) Self-employed in small trade, motor-vehicle 53,607 (3.4% of the self-employed) repair

* Part-time employees are considered all those who work less than 40 hours a week Data source: Tempo-online (AMIGO survey), Eurostat

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Social protection of people working as self-employed or on non-standard contracts Romania

Table 10 Insured in the social insurance system (public pensions, pillar I)

2016 May June July August

No of insured with IWC, of which: 5,528,348 5,650,712 5,601,105 5,601,863

No of insured with full-time IWC 4,809,901 4,885,939 4,875,534 4,881,161

No of insured with part time IWC 718,447 764,773 725,571 720,702

No of insured without ICW, of 323,654 319,758 316,030 343,393 which:

Insured without IWC or work 100,613 101,574 92,753 103,576 relationship with the employer

Beneficiaries of unemployment 79,843 73,242 68,997 80,512 benefits

Insured based on insurance contracts 72,212 72,487 74,799 77,232

Insured based on insurance 70,986 72,455 79,481 82,073 declarations

Note: insurance contracts are signed by those who are not required to insure (those who are already paying in alternative pension systems, those without an income or those who want to supplement their contributions); insurance declarations are filled out by all those self-employed who under take professional activities either as authorized private persons or as members of individual/ family association Data source: National Public Pension House, Statistics on Pillar I (https://www.cnpp.ro/indicatori-statistici- pilon-i)

Table 11 Number of health insured persons with different types of income

2015

Employees 5,859,328

Persons with income from intellectual property 14,437

Occasional workers/incomes 17,038

Persons with earnings from agriculture 80,790

Persons with income from independent economic activities 264,191

dependent spouses/parents 813,360

total insured population 17,191,563

Data source: National Health Insurance House, Annual Activity report, 2015, p.128 (http://www.cnas.ro/media/pageFiles/RAPORT%20ACTIVITATE%202015.pdf)

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