Contractor Myth Busted: “You’ll Lose Your Social Welfare Contributions When You Move to Contracting”

When you’re considering starting your contracting career, it’s common to hear warnings like:

“If you go self-employed, you’ll lose your social welfare contributions.”

The reality? This is a myth. Understanding how social welfare works for contractors can give you peace of mind as you make the move.

Myth busted: Starting your contracting career does not mean you lose your social welfare contributions. With the right structure — whether a PAYE Umbrella, Director Umbrella, or Personal Limited Company — you can maintain your entitlements and even add additional protections for illness, retirement, and wealth management.

Your Options as a Contractor

When you start contracting, the solution you choose determines how your social welfare contributions are handled. There are two main types of PRSI (Pay Related Social Insurance) contributions relevant to most contractors:

• Class A PRSI – the contribution you pay as a standard employee.
• Class S PRSI – the contribution self-employed contractors pay on their income.

PAYE Umbrella Companies

If you operate through a PAYE Umbrella Company, you retain your Class A PRSI contributions. This is the same contribution you would make if you were employed, meaning you continue to build entitlements for social welfare benefits, just as you would in a permanent role.

Director Umbrella or Personal Limited Company

If you opt for a Director Umbrella Company or a Personal Limited Company, your contract income is subject to Class S PRSI contributions.

From a social welfare perspective, paying Class S PRSI means:

• You can still avail of multiple benefits, including: self-employed jobseeker benefits, state pension, maternity and paternity benefits and much more
• The main contribution you will not make is for illness benefit.

But here’s the key point: even if you don’t pay into illness benefit, there are ways to protect your income if you fall ill.

Protecting Your Income while paying Class S PRSI

Contracting doesn’t mean giving up financial security. One popular solution is setting up an Income Protection Policy, which can provide up to 70–75% of your income if you’re unable to work due to illness.

At Icon Accounting, we also offer access to a Wealth Management Partner as part of your contractor setup. This means from day one, you can have all your financial and insurance arrangements in place, including:

• Income protection
• Retirement planning
• Tax planning
• Investment advice

With the right setup, contracting can offer flexibility, higher earning potential, and financial security, all while keeping your social welfare entitlements intact. To learn more about how contracting works and the options available, get in touch with our business development team today!