Who falls under the self-employed scheme

Two managing directors of limited companies each pay themselves €40,000 a year. One holds 51 % of the shares, the other 49 %. The first will never receive a payslip and will pay contributions personally; the second is treated as an employee, with a payslip and employer contributions. Two points of capital separate two whole schemes.

The line turns on capital, not on the title

The title of managing director says nothing about the social security scheme. What decides it is the share of capital held by the board of directors as a body: directors fall under the general scheme provided they do not together own more than half the share capital of the company they run.

The wording matters. It covers all the directors, not each taken separately: two joint directors holding 30 % each together cross the halfway mark and both fall under the self-employed scheme, even though neither holds a majority alone.

Shares held by the spouse, by a civil partner and by unemancipated minor children are added to the count. A director at 45 % whose spouse holds 10 % is therefore a majority holder for social security purposes, even though they are not one in terms of votes.

Shares held in usufruct count, and those held as a bare interest may do so depending on the case, which is why a poorly documented estate arrangement can flip a scheme with nobody intending it. The question arises at every share movement, not only at incorporation.

What the scheme really changes

A director treated as an employee generates employer and employee contributions computed as for any member of staff, with one exception that weighs heavily: the unemployment insurance contribution is not due, for want of a contract of employment, and no entitlement opens in return.

A self-employed worker contributes on a different base and on a timetable of their own. Their overall cost measured against net income is lower, but so is their protection on several counts, notably daily allowances for the first days of sick leave and cover for accidents at work.

Comparing the two schemes on the headline rate alone is therefore misleading. The useful comparison is the cost for the same net disposable income, with equivalent protection rebuilt through optional policies, and the cash rhythm each scheme imposes on the director.

That last point is underrated. A director treated as an employee pays contributions month by month, at the same time as they draw their remuneration. A self-employed person pays instalments computed on an older income, then a balancing charge that can land at the worst moment of their trading cycle.

• Majority director of a limited company: self-employed for social security
• Minority or equal-holding director: treated as an employee, with a payslip
• President of a simplified joint-stock company: treated as an employee whatever the holding
• Sole trader and sole member of a single-member company: self-employed

A change of scheme is not decided after the event

The switch from one scheme to the other follows mechanically from the share movement that caused it. There is no election and no advance filing: the fund records the position, and adjustments go back to the date of the movement, not to the date it was noticed.

That is what makes a share sale carried out without weighing its social effect expensive. A director who becomes a majority holder mid-year leaves the general scheme, and the payslips issued since the movement have to be redone, together with the contributions that went with them.

The reverse happens just as often. A director who sells shares and becomes a minority holder joins the general scheme, while self-employed contribution demands keep arriving for as long as the fund has not been told of the change by the director in person.

The useful reflex fits in one line added to the minutes of the sale: check the social security position of the directors after the movement. Ten seconds of drafting that save months of adjustment, and a reminder that the question arises at every change of holdings.