Extending social security to workers in the informal economy ilo.org Lessons from international experience International Labour Organization Route des Morillons 4 1211 Geneva 22 Switzerland X Extending social security to workers in the informal economy Lessons from international experience Copyright © International Labour Organization 2021 First published 2019 Second (revised) edition 2021 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to ILO Publishing (Rights and Licensing), International Labour Office, CH-1211 Geneva 22, Switzerland, or by email: [email protected]. The International Labour Office welcomes such applications. Libraries, institutions and other users registered with a reproduction rights organization may make copies in accordance with the licences issued to them for this purpose. Visit www.ifrro.org to find the reproduction rights organization in your country. ISBN: 978-92-2-034225-1 (print) ISBN: 978-92-2-034226-8 (web PDF) Also available in French: L’extension de la sécurité sociale aux travailleurs dans l’économie informelle: Leçons tirées de l’expérience internationale, ISBN: 978-92-2-034227-5 (print), 978-92-2-034228-2 (web PDF) The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its frontiers. 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Code: SCR-REP X Contents List of abbreviations xv About this guidebook xvii 1 Introduction: Challenges and opportunities in extending social security to workers in the informal economy and promoting their transition to the formal economy 1 1.1 Informal employment and social protection coverage gaps 1 1.2 A closer look at the relationship between employment patterns and social protection coverage 8 1.3 What are the barriers to the extension of social protection to workers in the informal economy? 11 1.4 How do workers, employers and societies at large benefit from the extension of social protection coverage? 14 1.5 How can the extension of coverage be achieved? 16 1.5.1 Extending social security coverage and facilitating transition to the formal economy: a two-track approach 16 1.5.2 Key lessons learned on the extension of coverage 23 2 Formulating strategies for the extension of social protection coverage 27 2.1 Formulating strategies based on an evidence-based and participatory approach 28 2.1.1 From diagnosis to monitoring: A stepwise approach 28 2.1.2 Addressing the extension of coverage in assessment- based national dialogues on national social protection systems 31 2.1.3 Ensuring the participation of all relevant stakeholders: Voice and representation 32 2.2 Identifying social protection coverage gaps and priority needs 33 2.2.1 Identifying social protection gaps and barriers to coverage 33 2.2.2 Identifying priority needs 36 2.2.3 Taking into account the diversity of situations and needs of workers in the informal economy 38 2.3 Achieving universal coverage through a combination of contributory and non-contributory provision: policy choices 41 2.3.1 Combining contributory and non-contributory schemes 41 2.3.2 Mandatory versus voluntary coverage 43 2.3.3 Progressive extension of coverage: Sequencing and time frames 46 iv X Extending social security to workers in the informal economy 2.3.4 Building integrated social protection systems 47 2.4 Monitoring and regular reviews 51 3 Raising awareness and building trust 53 3.1 The importance of raising awareness, ensuring good governance and building trust 54 3.2 Raising awareness through better communication and social security education 55 3.2.1 Informing workers and employers about their rights and obligations 55 3.2.2 Individualized information on social security entitlements 61 3.2.3 Educating youth about social security and building a social security culture 62 3.2.4 Promoting “social security literacy” in entrepreneurship and business development programmes 63 3.3 Strengthening transparency, accountability and good governance 65 3.3.1 Enhancing delivery 66 3.3.2 Strengthening transparency and accountability in social protection systems 67 3.3.3 Effective and efficient procedures (“value for money”) 68 3.3.4 Access to complaint and appeal procedures 69 4 Extending legal coverage: Bringing previously uncovered workers under social security legislation 71 4.1 Bringing previously uncovered workers under the scope of social security and labour legislation: What are the challenges? 72 4.2 Extending legal coverage to workers in micro and small enterprises 74 4.2.1 What are the specific challenges with regard to including workers in micro and small enterprises under social security legislation? 74 4.2.2 How can workers in micro and small enterprises be included under social security legislation? 75 4.2.3 What else needs to be considered when aiming to include workers in micro and small enterprises in social protection schemes? 77 4.3 Extending legal coverage to domestic workers 78 4.3.1 What are the specific challenges with regard to including domestic workers under social security legislation? 78 4.3.2 How can domestic workers be included under social security legislation? 80 4.3.3 What else needs to be considered when aiming to include domestic workers under social security legislation? 83 4.4 Extending legal coverage to agricultural workers 84 4.4.1 What are the specific challenges with regard to including agricultural workers under social security legislation? 84 4.4.2 How can agricultural workers be included under social security legislation? 85 X Contents v 4.4.3 What else needs to be considered when aiming to include agricultural workers in social security legislation? 87 4.5 Extending legal coverage to self-employed workers, including own-account workers 88 4.5.1 What are the specific challenges with regard to including self-employed workers under social security legislation? 88 4.5.2 How can self-employed workers be included under social security legislation? 90 4.5.3 What else needs to be considered when aiming to include self-employed workers in social security legislation? 93 5 Removing administrative barriers: Facilitating access and simplifying procedures 95 5.1 What are the administrative barriers faced by workers and employers in the informal economy? 96 5.1.1 Lack of information and awareness 97 5.1.2 Geographical barriers: access to social security offices 98 5.1.3 Barriers due to complex registration procedures 98 5.1.4 Cost of compliance 98 5.1.5 What are possible options for overcoming administrative barriers? 99 5.2 Reaching out to workers and employers: Registration campaigns and other outreach measures 100 5.2.1 Reaching out, raising awareness and disseminating information through different channels 100 5.2.2 Actively reaching out to individuals, communities and employers 101 5.2.3 Involving employers’ and workers’ organizations 103 5.3 Facilitating access to benefits and services 103 5.3.1 Facilitating physical access 103 5.3.2 Facilitating access though digital services (phone and online services) 109 5.4 Simplifying procedures and improving services 112 5.4.1 Reducing the need for supporting documents and simplifying other procedures 112 5.4.2 Facilitating labour market mobility, ensuring portability and transferability of entitlements 114 5.4.3 Coordinated ICT solutions 115 5.4.4 Integrated service delivery mechanisms (single-window services, one-stop shops) 117 5.5 Collective registration or insurance agreements 121 6 Facilitating contribution collection and financing mechanisms 125 6.1 What are the main challenges with regard to contribution collection and financing mechanisms? 126 vi X Extending social security to workers in the informal economy 6.1.1 Low incomes and limited contributory capacity 126 6.1.2 Volatile incomes 127 6.1.3 Double contribution challenge 127 6.1.4 Multiple employers 127 6.1.5 Possible solutions 127 6.2 Adapting the way contributions are determined 128 6.2.1 Redefining reference earnings 129 6.2.2 Uniform contributions (capitation payments) 130 6.2.3 Contribution categories 131 6.2.4 Simplified contribution and tax payment mechanisms (monotax mechanisms) 134 6.2.5 Considering alternative reference values (other than earnings) for the determination