#BTColumn – Reform NIS reforms

Disclaimer: The views and opinions expressed by the author(s) do not represent the official position of Barbados TODAY.

Members and partners of the Small Business Association of Barbados (SBA) attended a recent webinar with Professor Justin Robinson, a former chairman of the National Insurance Board, to review the Social Security system in Barbados. Under the theme Social Security and the Self-Employed – Benefit or Burden, stakeholders engaged in robust discussion on the proposed amendments to the National Insurance Scheme (NIS), particularly those aspects purporting to benefit small business owners.  

The session brought to light a number of issues earlier ventilated by the SBA on the current NIS and underscored the fact that much work was still needed in reforming the system to make it fit for purpose, for the Barbadian landscape. At the end of the webinar, it was clear that the proposed NIS reforms needed further reforming.

All right-thinking persons agree that Social Security is meant to provide individuals with a source of income when their income is disrupted for a variety of reasons including illness, injury, pregnancy, business interruption, unemployment or retirement, among others. The replacement income from a
social security scheme such as the NIS is especially important for self-employed persons who lack the support that can come from being a traditional employee. This becomes relevant during exogenous shocks on the economy, where the Government is challenged to sustain vulnerable interest groups such as self-employed persons. The recent COVID-19 pandemic represents an all too familiar example of this, as the Government was stretched to support the population to avert further declines in unemployment and the fallout from social dislocation. 

As part of the proposed reforms to the NIS, there is a move to expand the range of benefits offered to the self-employed including employment injury, and efforts to adjust the payment schedules to provide self-employed persons with a degree of flexibility in the timing of their NIS contributions and the avoidance of penalties.

Professor Robinson posited that these proposed changes addressed some of the major challenges faced by self-employed persons as they sought to utilise the NIS. However, while participants noted and welcomed the improvements, many felt that they did not go far enough and expressed several concerns including:

A lack of clarity on the proposals and how they would be implemented.

The reforms focused on self-employed persons but did not adequately consider the needs of small businesses.

The reforms did not address the needs of so-called “hybrid persons” who are shareholders in businesses as well as employees of said businesses.

Much has been said about 85 per cent of self-employed persons not contributing to the social security scheme; however, an absolute number representing the population of the “self-employed” is usually not mentioned in the narrative. It is important to the analysis to note what is this 85 per cent of?

While we await the report of the recent census, the number of self-employed persons from the 2010 census can be corroborated with the 2016 survey on the small business sector, commissioned by the SBA and conducted by the Sir Arthur Lewis Institute of Social and Economic Studies, UWI. The analysis would indicate that the number of formal businesses operating in Barbados is bigger than the informal sector. This is unique to Barbados in many respects when compared to several countries in the Eastern Caribbean, where there is a much bigger informal sector. A review of their social security systems would give an appreciation for the type of contribution rates that exist, the method of payment collection used and the maximum age for the contributor.

Barbados is somewhat different with a large percentage of small businesses being formal. The SBA projects that between 30 and 40 per cent of these businesses are incorporated companies. Some projections suggest as much as 50 per cent. Herein lies the challenge that the NIS reforms have not addressed. How do we treat those persons that the NIS defines to be self-employed but are the sole shareholder or owner of the business who happens to work in the business? In essence, the individual is also employed by the company.

It is unfortunate that consultation was not done with the sector on these reforms, as clearly demonstrated during the webinar when so many participants got the opportunity to weigh in on the proposals. Whereas every effort should be made to get the lawyers, doctors, other professionals and those in the informal sector to become compliant, a significant percentage of businesses is being disadvantaged by not addressing this “hybrid” contributor. After all, we have been encouraging firms to incorporate their businesses as a risk mitigation measure and to improve corporate governance. We do not now want to discriminate against them.

The sickness benefits and other provisions are welcome improvements, but some ambiguity still exists. The narrative should therefore be to focus on small businesses as a key demographic group of interest. As mentioned in this space in an earlier article, there is often a misconception about who is the self-employed and the small business – whereas the former can be a small business, the latter is not always self-employed.

It is appreciated that due to key issues such as a growing elderly population, slow economic growth, high unemployment rates, and increasing healthcare costs, it’s incumbent on persons to contribute to the pool of social security funds. We must, therefore, employ smart strategies to future-proof these schemes and to ensure the social protection systems’ long-term viability.

The Small Business Association of Barbados (SBA) is the island’s non-profit representative body for micro, small and medium enterprises (MSMEs). Connect with the SBA: https://www.sba.bb/sba/