Definition

Subsidised access to social insurance aims to extend social protection coverage by encouraging formal job creation and affiliation to the social security system for specific groups of workers who are frequently over-represented in the informal economy, such as youth and workers in micro, small, and medium enterprises (MSMEs). This is typically achieved through simplified administrative procedures and/or reduced contribution rates.

Rationale

Subsidised and tailored access mechanisms address the structural barriers that may prevent many self-employed workers, small-scale farmers, youth, and MSME employees from contributing to and benefiting from social security systems, such as high contribution rates, complex administrative procedures, and limited incentives to formalise.

Countries that introduced monotax schemes were able to increase the number of registered businesses and workers, particularly among the self-employed, thereby broadening social protection coverage and drawing on their contributory capacity. These schemes have also contributed to closing the gender gap in social protection coverage, given that the majority of workers registered under monotax arrangements are women.

Also, explicit subsidy mechanisms further reinforce coverage expansion by targeting low-income workers, for whom reduced contribution rates provide stronger incentives to formalise their economic activity.

Key Features

• Eligibility criteria: Schemes typically target small, one-person, or family businesses, often subject to a revenue threshold. In some cases, newly established small enterprises are granted a grace period under the single-contribution schemes before gradually increasing contributions to the full rate. Schemes may also vary depending on the life-cycle risks or family members covered.
• Types of subsidies: Subsidies may be:
  • Implicit: A common method for implicitly subsidising access to social insurance is the "monotax" mechanism, i.e., a unified contribution scheme primarily designed for self-employed workers and MSMEs. Monotax schemes simplify tax obligations through a fixed, reduced monthly fee that combines income taxes, value-added tax (VAT), and social security contributions for pensions and health into a single, flat-rate payment. This approach has been widely adopted in Latin America and the Caribbean countries and it has contributed to substantially increase social protection coverage in the region.
  • Explicit: For instance, reduced contributions for low-income workers such as small-scale farmers, or decreased employer contributions for some categories, such as young workers, taxi drivers and platform workers. (e.g., monotax schemes) or explicit (e.g., ). As a general principle, subsidy levels are inversely proportional to workers' income, in order to promote affiliation to social insurance for workers with low earnings. Explicit subsidies are typically financed through general taxation, or through a combination of general taxation and social insurance revenues.