Millionth Sole Trader draws Left-led Attack

As the millionth sole trader enterprise – a home service mobile  beauty parlour — tricycles its way around Bordeaux, vested interests led by the Left strongly attack the innovative scheme, urging it be curtailed or abolished.

If Bayrou, Mélenchon and Hollande have their way business startups will be more difficiult – (Credit: Wikipedia)

Their call comes despite the fact that more than half France’s new firms — dubbed “autoentreprise” –  are today established under the autoentrepreneur scheme. Furthermore French voters told pollsters TNS Sofres that the scheme “was the best thing to emerge out of the Sarkozy presidency”, according to a report in Rue 89.

Indeed Nicolas Sarkozy — as of March 19 officially president-candidate and on the electioneering trail — told TF1, that if re-elected he will amend the regime to favour more flexibility. He pledged to ensure that all artisans running their own business (artisans  account for 49% of the French workforce) will be released from paying social charges in any month in which they generate no income, bringing them in line with one of the biggest attractions of the sole trading scheme.

Enterprises established under other regimes are, in virtually all circumstances after start-up, obliged to pay the relatively heavy social charges that fund health care, social welfare pensions, unemployment and other benefits,  irrespective of whether they have made any money in a particular month. In bad times this can be a significant burden.

On Sarkozy’s left however, candidates for election are calling for restrictions and outright ban. François Bayrou the centrist MoDem candidate wants autoentrepreneurs restricted to “the initial incubator period for a start up, say three years.”

The Socialist challenger François Hollande has promised more radical change involving a “return” to a regime that “supports the creation of what he calls ‘true’ SME (small and medium enterprise) and discourages part time or temporary work, a large part of the attraction of the autoentrepreneur scheme. Jean-Luc Mélenchon, the ex-socialist and present leader of Front de Gauche, essentially a rebranded Communist party, states simply he will abolish this “scam of the first order.”

A number of reports published since the scheme was introduced in 2009 suggest that it has encouraged flexible part time work tailored to the needs of families by allowing say a wife  to help top up her husband’s earnings through work she would otherwise have been unwilling to do because of the fixed burden of social charges under other business incorporation regimes.

Trades unions, the social security machinery, shopkeepers and small business associations have all expressed growing concern that in escaping the usual bureaucratic strangleholds, the autoentrepreneur regime is competing unfairly with traditional artisans and others.

However government insists the scheme has had a significant impact on releasing entrepreneurial energy in France. More importantly it has reportedly helped to free risk takers from concerns over the costly requirements of formalized regimes allowing them to try and fail, try and fail again, with reduced exposure to personal ruin and bankruptcy.

One million sole traders now operate in France

The Rue 89 report sets out the pros and cons of the scheme, as it sees it, here.

Strong Points:
Allows innovators quickly to create a business –  Since January 2009 any user has  been able with a few clicks on a website to become an sole trader (autoentrepreneur). Once registered and equipped with the requisite Siret number and affiliation to  the appropriate social security caisse (or contributions office) the sole trader reports his sales via internet every month. Social security contributions are deducted automatically and paid by bank transfer in a  process that takes perhaps 10 minutes. The charges are a flat percentage of total sales and no deductions for associated inputs or expenses are permitted. A significant added advantage is a VAT exemption in all cases.

The basic principle is: no sales, no social charges (although the trader must declare each month/quarter even if it is a nul return, or face heavy fines). According to INSEE, the National Statistics Agency  more than half those signed up as autoentrepreneurs use it to generate additional income for the family. Four in 10 autoentrepreneurs held another job at the time of enrolling in the scheme, most have retained them. One in 10 of the new traders are full time students or retirees. On average 1 000 autoentrepreneurs  set up each month says INSEE.

According to a report for the Secretary of State for PMEs, and quoted by La Tribune in September 2010, “23% of all auto entrepreneurs reported that they took advantage of the opportunity offered by the autoentrepreneur scheme to formalise (or bring an  end to working on the black) a business or activity they were already doing.”

Rue 89 spoke to Xavier a computer engineer who lost his job. The website says that at 28 Xavier started his own autoentreprise selling website development. His only obligation under the regime is that his turnover must not exceed 81 500 euros for commercial activities and 32,600 euros for services. This allows Xavier to make 2700 euros worth of sales a month,  which he considers a perfect way to begin a new career: “Once I deduct my charges and expenses – telephone, computer equipment, travel, etc.. – I am left with1500 euros a month. This is too low to support my family, but it has allowed me to test my project. I will now be taking steps to move the operation up a notch and register as a SARL”.

Weak Points:
Some 300,000 auto entrepreneurs have been delisted since 2009, according to Urssaf, which administers  the social charges. Most have gone out of business or failed to report any revenues for eight successive quarters (which leads to automatic delisting).

The scheme say critics leads people to think that starting a business is safe. Three out of four sole traders would not have embarked on the venture if the new regime had not been introduced says INSEE. Simplifyied procedures and easy accounting were factors that convinced them.

Rue 89 interviewed Ingrid an autoentrepreneur adviser at one Chamber of Commerce and Industry who said: “It is not enough to be competent in one’s job you still have to learn how to canvass for customers and manage a sustainable business, this is something that has to be learned.” But she said under the pretext of simplification, no other information is given to sole traders, and one aspect is that they have to watch is their backs. Anyone who is self-employed, a sole trader, making no contribution to unemployment insurance will, according to the Job Centre, not be entitled to benefits if they cease trading. The sole trader’s own property can also be at risk, she warned . If a trader  fails to repay a large debt, his house, his car, etc, may be seized. However he can make a special declaration at a notary to protect such assets from seizure.

Labour inspectors complain that the sole trading scheme has led to abuses on the part of existing PMEs. Unscrupulous employers will tell would-be staff that they must register as sole traders and they will be paid as consultants through their companies. This practice which aims to reduce PMEs social charges is illegal and subject to heavy fines.

Story: Ken Pottinger

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