Mixed response to individual entrepreneur initiative

In January 2010, the Secretary of State for Small and Medium-sized Enterprises made an initial assessment of the ‘auto-entrepreneur’ initiative, one year after its creation. According to the analysis, some 320,000 persons have acquired the status of auto-entrepreneur, thus pointing to the success of the initiative. However, the social partners have made some criticisms, such as the lack of financial and job security associated with such an initiative.

In mid January 2010 – one year after the creation of the status of auto-entrepreneur following the adoption of the Law on the modernisation of the economy (in French) of 4 August 2008 – the Secretary of State for Small and Medium-sized Enterprises (SMEs), Hervé Novelli, made an initial quantitative assessment of the measure. The results show that a total 320,000 people have acquired the status of auto-entrepreneur since its creation in January 2009, indicating that the initiative has been successful.

Details of auto-entrepreneur status

The status of auto-entrepreneur, namely of becoming an individual entrepreneur, can be obtained by any persons aged over 18 years who are either:

• not economically active – for example, retirees and students;

• or economically active – that is, civil servants, employees (including in the same activity as their employment, provided that their employer agrees) and jobseekers (who can thus benefit from financial help for company start-ups that is already available for jobseekers).

The auto-entrepreneur initiative seeks to allow for:

• the creation of an ‘entrepreneurship permit’ (permis d’entreprendre);

• the possibility to supplement one’s income to create employment through a flexible method.

The status of auto-entrepreneur can be obtained through a simplified process involving an online application (see website) or by attending a Centre for Company Formalities (Centre de formalités des entreprises, CFE), a Chamber of Commerce and Industry (Chambre de commerce et d’industrie, CCIP) or Chamber of Occupations (Chambre des métiers et de l’artisanat, CMMA) – depending on whether the activity is of a commercial or craftwork nature. In the case of self-employed persons, an application should be made at an Agency for the Collection of Social Security and Family Allowance Contributions (Unions pour le recouvrement des cotisations de Sécurité sociale et d’allocations familiales, URSSAF).

Benefits of initiative

Thus, the status of auto-entrepreneur provides several simplifications:

• dispensation from becoming a registered company (immatriculation au registre du commerce et des sociétés) or registered on the trade directory (répertoire des métiers) when starting up a company;

• access to simplified regulations for micro-enterprises (régime micro social simplifié), involving simplified payment of social contributions calculated on the basis of a flat-rate percentage of auto-entrepreneurs’ turnover;

• the possibility of opting for tax deduction at source (versement libératoire), provided that income tax does not exceed a threshold that varies depending on family composition (number of children) – this payment can be made at the same time as the social contributions;

• exemption from value-added tax (VAT) and local business tax (taxe professionnelle) during a maximum of three years, provided pre-tax turnover does not exceed €80,000 for sales of goods and €32,000 for services;

• simplified accounting formalities;

• an arrangement regarding the protection of the auto-entrepreneur’s property, which will be reinforced by a text due to be presented by the Secretary of State for SMEs, Hervé Novelli, in the first quarter of 2010, aiming to protect people’s property in cases of bankruptcy.

Data on company start-ups

Out of the 575,000 companies that were created in 2009, some 320,000 were established by people who became auto-entrepreneurs – of these, 49% were previously unemployed.

According to data provided by the National Institute of Statistics and Economic Studies (Institut national de la statistique et des études économiques, INSEE) and the Company Start-up Office (Agence pour la création d’entreprises, APCE) , companies were established in the following sectors:

• services: 235,491 companies, including 35,720 involved in services to businesses;

• commerce: 195,373 companies, including 47,778 operating in personal services;

• construction: 73,417 companies;

• manufacturing: 24,118 companies.

For APCE, which is a state body, services and commerce are the sectors of activity which, in this period of economic crisis, have contributed the most to company development and start-ups. In 2009, an annual growth rate of over 135% was recorded in the arts and entertainment industry, education, personal services, and information and communication.

Reactions to auto-entrepreneur initiative

According to Mr Novelli, the turnover generated by auto-entrepreneurs will approach billions of euro in 2009. He added that ‘it will be good for the state as tax and social income will amount to €200 million’. Moreover, Mr Novelli wants ‘para-agricultural activities’ – such as landscaping and the sale of products collected in forests – to be able to adopt the status of auto-entrepreneur.

Employers’ view

On the employers’ side, the General Confederation of Small and Medium-sized Enterprises (Confédération générale des petites et moyennes entreprises, CGPME) firmly supports the measure, which, in its view, encourages ‘each French person to become an entrepreneur, which is the best way of promoting entrepreneurship’. Moreover, it considers that ‘this mechanism is part of the battle against undeclared work’, while at the same time indicating that ‘the CGPME that brings together very many craftworkers will, however, be careful to ensure respect for precautions taken to avoid any form of distorted competition’.

Conversely, although the Craftwork Employers’ Association (Union professionnelle artisanale, UPA) appreciates the measure’s aim to simplify company start-ups, it wants ‘craftwork to be excluded from the field of application of the status of auto-entrepreneur’, along with agriculture.

For its part, the National Association of the Self-Employed (Union Nationale des Professions Libérales, UNAPL) has identified several inherent risks regarding the status of auto-entrepreneur.

Trade union concerns

On the trade union side, reactions are varied and mainly concern the risks that people who take on the status of auto-entrepreneur may face. The General Confederation of Labour (Confédération générale du travail, CGT) has expressed concerns that for many auto-entrepreneurs ‘little and often very little income is generated’ and that, taken together with the Active Solidarity Income (Revenu de solidarité active, RSA) (FR0811029I), ‘auto-enterprises run the risk of locking people in permanent insecurity’. CGT contends that many jobless people are encouraged to become auto-entrepreneurs, which is a way of removing them from the unemployment statistics, ‘but unfortunately not giving them the necessary means for living decently’.

While the Confederal Secretary of the General Confederation of Labour – Force ouvrière (Confédération générale du travail – Force ouvrière, CGT-FO), Didier Porte, observes ‘the success of this measure’, he ‘notes that government encouragement promotes opting for this new form of exploitation, which forces people to work without any legal duration of working hours, solid social protection or favourable working conditions’. Mr Porte also notes that ‘in this period of economic difficulties, employees, who are victims of the crisis, seek in every way possible to get out of an insecure situation in which the capitalist system has put them’. He also warns auto-entrepreneurs about the risks: ‘Watch out for solutions which will lead them into a more free-market and destructive system’.

Commentary

The latest figures seem to point to the success of the auto-entrepreneur initiative. However, it will only be possible to properly assess the success of this measure in the long term, on the basis of the number of auto-entrepreneurs who will remain in operation and also on the number of auto-entrepreneurs who will significantly increase their activities and created jobs. In addition to these quantitative aspects, it will also be important to compare qualitative aspects with the insecure situations previously experienced by auto-entrepreneurs and their families, especially regarding income and social security protection. Moreover, it would be necessary to see whether the status of auto-entrepreneur leads to abuse regarding subcontracting by creating a ‘hierarchical’ relationship between contractors and auto-entrepreneurs who carry out the work, taking on board the risks involved.

Benoît Robin, Institute for Economic and Social Research (IRES)