VIII. THE SECONDARY DISTRIBUTION OF INCOME ACCOUNT
E. Social contributions (D.61)
1. Employers' actual social contributions (D.6111)
| 8.67. | These are social contributions paid by employers to social security funds, insurance enterprises, or autonomous pension funds, administering social insurance schemes to secure social benefits for their employees. As employers' actual social contributions are made for the benefit of their employees their value is recorded as one of the components of compensation of employees together with wages and salaries in cash and in kind. The social contributions are then recorded as being paid by the employees as current transfers to the social security funds, insurance enterprises or autonomous pension funds. Although it is administratively more efficient for employers to pay the contributions on behalf of their employees, this must not be allowed to obscure the underlying economic reality. The payment made by the employer to the social security fund, insurance enterprise or autonomous pension fund is not, in fact, a current transfer by the employer. The transfer takes place between the employee and the social security fund, insurance enterprise or autonomous pension fund out of remuneration provided by the employer. The situation is parallel to one in which income taxes payable by employees are deducted by employers from the wages or salaries and paid directly to the tax authorities. In this case, it is evident that the taxes are not current transfers payable by the employers. It is customary to describe the employers' social contributions as being re-routed in the accounts via the employees' primary and secondary distribution of income accounts. However, the accounts depict the various payables and receivables correctly. The direct payment of social contributions, or income taxes, by employers to social security funds, insurers or tax authorities is merely a short cut taken on grounds of administrative convenience and efficiency. |
| 8.68. | An amount equal in value to employers' social contributions is first recorded in the generation of income account as one of the components of compensation of employees and then recorded in the secondary distribution of income account as being transferred by households to social security funds, insurance enterprises, or autonomous or non-autonomous pension funds as the case may be. The transactions are recorded simultaneously in both accounts at the times when the work is carried out that gives rise to the liability to pay the contributions. The contributions paid to social security funds may be fixed amounts per employee or may vary with the levels of wages or salaries paid. The amounts paid under privately organized schemes depend on the arrangements agreed between employers and employees. When social security schemes exist the relevant employers' social security contributions are usually compulsory, but not necessarily so. A distinction is made in the System's classification between those employers' actual social contributions that are compulsory by law and those that are not. | | | Text refers to: table 8.1.  | | | Text refers to: table 8.2. |
2. Employees' social contributions (D.6112)
| 8.69. | These are social contributions payable by employees to social security funds and private funded social insurance schemes. They are recorded at the times when the work is carried out that gives rise to the liability to pay the contributions. Employees' social contributions consist of the actual contributions payable each period plus, in the case of private funded schemes, the contribution supplements payable out of the property income attributed to insurance policyholders received by employees participating in the schemes less the service charges, when appropriate. The property income accrues on the investment of reserves built up out of both employers' and employees' contributions in the past, but the reserves belong only to the employees, not to the employers. The whole of the property income from the investment of the reserves is, therefore, attributed to the participating employees who are then treated as paying it back into schemes as contribution supplements. The employees' social contributions payable into private funded schemes are recorded after deducting the associated services charges, except for contributions to non-autonomous pension funds where there are no service charges. All the service charges are treated as charges against the employees' contributions and not the employers'. The contributions to social security funds, when these exist, are usually compulsory, although voluntary contributions may sometimes also be made by employees. A distinction is made between those employees' actual social contributions that are compulsory by law and those that are not. |
3. Social contributions by self-employed and non-employed persons (D.6113)
| 8.70. | These are social contributions payable for their own benefit by persons who are not employees - i.e., self-employed persons (employers or own-account workers), or non-employed persons. They are recorded when the liabilities to pay are created. Some may consist of compulsory social security contributions, while others consist of voluntary contributions to social security or to other social insurance schemes. They also include the value of the contribution supplements payable out of the property income attributed to insurance policyholders received by participating individuals that they are recorded as paying back to the insurance enterprises in addition to their other contributions. The contributions payable to private insurance enterprises are equal to the total contributions payable less the service charges. Again, a distinction is made in the classification between contributions that are compulsory by law and others. |
4. Imputed social contributions (D.612)
| 8.71. | An entry is needed in the secondary distribution of income account for the imputed social contributions payable by employees when employers operate unfunded social insurance schemes. For convenience, the discussion of the corresponding item in chapter VII, paragraphs 7.45 to 7.47 is repeated here. | | | Text refers to: table 8.1. |
| 8.72. | Some employers provide social benefits themselves directly to their employees, former employees or dependants out of their own resources without involving an insurance enterprise or autonomous pension fund, and without creating a special fund or segregated reserve for the purpose. In this situation, existing employees may be considered as being protected against various specified needs, or circumstances, even though no payments are being made to cover them. Remuneration should therefore be imputed for such employees equal in value to the amount of social contributions that would be needed to secure the de facto entitlements to the social benefits they accumulate. These amounts depend not only on the levels of the benefits currently payable but also on the ways in which employers' liabilities under such schemes are likely to evolve in the future as a result of factors such as expected changes in the numbers, age distribution and life expectancies of their present and previous employees. Thus, the values that should be imputed for the contribution ought, in principle, to be based on the same kind of actuarial considerations that determine the levels of premiums charged by insurance enterprises. |
| 8.73. | In practice, however, it may be difficult to decide how large such imputed contributions should be. The enterprise may make estimates itself, perhaps on the basis of the contributions paid into similar funded schemes, in order to calculate its likely liabilities in the future, and such estimates may be used when available. Otherwise, the only practical alternative may be to use the unfunded social benefits payable by the enterprise during the same accounting period as an estimate of the imputed remuneration that would be needed to cover the imputed contributions. While there are obviously many reasons why the value of the imputed contributions that would be needed may diverge from the unfunded social benefits actually paid in the same period, such as the changing composition and age structure of the enterprise's labour force, the benefits actually paid in the current period may nevertheless provide the best available estimates of the contributions and associated imputed remuneration. |
| 8.74. | The two steps involved may be summarized as follows:
(a) Employers are recorded, in the generation of income account, as paying to their existing employees as a component of their compensation an amount, described as imputed social contributions, equal in value to the estimated social contributions that would be needed to provide for the unfunded social benefits to which they become entitled;
(b) Employees are recorded, in the secondary distribution of income account, as paying back to their employers the same amount of imputed social contributions (as current transfers) as if they were paying them to a separate social insurance scheme. | | | Text refers to: table 8.1. | | | Text refers to: table 8.2. |
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