This chapter analyses challenges and policy options for extending social insurance coverage in Paraguay. It examines coverage gaps among employees and independent workers, with particular attention to the high minimum contribution threshold. The chapter reviews recent reforms, including targeted schemes for youth, domestic workers, microenterprises and small businesses, and outlines further reform options. It also discusses additional measures to strengthen compliance and enforcement of social security contributions.
Financing Social Protection in Paraguay
The Role of General Revenues and Social Security Contributions
Abstract
More than three-quarters of Paraguay’s workforce remain outside the social insurance system. Among non-contributors, employees account for the largest share, followed closely by independent workers (Figure 6.1). Despite mandatory participation for employees, more than half do not contribute to social insurance. For owner-managers and own-account workers, participation is voluntary; however, take-up remains marginal. This underscores the limited effectiveness of voluntary arrangements in extending social insurance coverage.
Social insurance coverage as a percent of the total labour force by employment status in Paraguay, 2024
Notes: Social insurance coverage is defined as individuals who contribute to a pension fund for their primary job. Private sector employees make bundled health and pension contributions, whereas for self‑employed and public sector workers, health insurance arrangements operate separately from the pension system. Less than 0.2% of workers contributing to social insurance contribute to a private pension fund. Contributing family members are persons who work in family businesses without remuneration and have a family relationship with the owner of the business.
Source: OECD based on EPHC (2024[1]).
About two-thirds of workers without social insurance work in non-tax registered businesses (Figure 6.2). Among non-contributing private sector employees, 51% work in tax-registered firms according to information from the Encuesta Permanente de Hogares Continua (EPHC). The remaining work in unregistered firms (29%) and in the household sector (20%). Among owner-managers and own-account workers who are not covered by social insurance, 79% work in businesses that are not registered for tax purposes (see Table 6.A.2 in Annex 6.A).
Source: OECD based on EPHC (2024[1]).
Informality remains widespread across Paraguay’s workforce (Box 6.1 and Table 6.1). Around seven in ten individuals aged 15 or above are employed, while just under one-third are economically inactive and only a small proportion are unemployed. However, among those in employment, informality is the norm rather than the exception. According to the National Institute of Statistics (INE) definition, 63% of workers hold informal jobs when agricultural occupations are excluded. This share rises to 68% under the ILO definition, which includes agricultural workers. Informality is particularly prevalent in the private sector, where 59% of the private sector workers are classified as informal according to the INE definition.
Informal employment, according to the 20th International Conference of Labour Statisticians, is defined as comprising all economic activities by workers and economic units that are, in law or in practice, not covered or insufficiently covered by formal arrangements (ILO, 2018[2]). The INE in Paraguay follows the ILO definition of informality, however it excludes agricultural workers. Public and private sector employees as well as domestic workers are defined as informal if they do not contribute to a pension fund, despite legal obligations in Paraguay. Own-account workers and employers are defined as informal if their business is not registered with a taxpayer identification number (RUC). In practice, this means that own-account workers and employers can be classified as formally employed even if they do not contribute to social security, a situation consistent with Paraguay’s legal framework, where these groups are not obliged to contribute to social security. Family members who work in a family business without formal remuneration are by definition considered informally employed.
Informal workers differ from formal workers in many dimensions:
In Paraguay, 68% of all workers are informal according to the definition of the ILO (63% if agricultural workers are not considered according to the INE definition). The following figures reported in this Box are based on the ILO definition.
Working hours: Informal workers work shorter weeks on average, around five hours less than formal workers. Part-time employment affects roughly one-third of informal workers, compared with one in seven formal employees.
Multiple jobs: informal employment in Paraguay is predominantly characterised by single-job arrangements with 89% of informal workers holding a single job.
Gender gaps: 67% of men work informally and 69% of women (61% of men and 65% of women if we exclude agricultural workers). Women in informal employment work about six hours less per week than men and are nearly twice as likely to hold part-time jobs.
Earnings gaps: Informal workers earn about 40% less per month and per hour than formal employees. This earnings gap reflects informality’s concentration in smaller, lower-productivity firms and sectors. About two-thirds of informal employees earn below the legal minimum wage, compared to one-third of formal workers.
Informality and household poverty: Over half of all households (54%) rely exclusively on informal employment, and nearly four in five (77%) include at least one informal worker. Fully informal households face a 31% poverty rate, compared with 7% among formal households and 3% among mixed ones. Informal workers earning less than half the median wage are among those with low education (no schooling or only primary education), limiting their access to formal, better-paying opportunities.
Source: OECD based on EPHC (2024[1]).
Distribution of workers by employment formality and social security status, 2024
Note: (*) In this table the ILO definition of informality is applied (see Box 6.1). Agricultural workers that are not covered by social insurance are considered informal under the ILO’s definition of informality, while the INE in Paraguay excludes agricultural workers from the definition of informality.
Source: OECD based on EPHC (2024[1]).
Independent workers often operate businesses that are formally registered but do not contribute to the social security system. These businesses are typically very small and family-based, and are concentrated in commerce, services, and professional activities. While some independent workers comply with business registration and tax obligations, they nonetheless remain outside the social insurance system.
The presence of envelope wages and partial social insurance coverage further undermines the effectiveness of the social security system. Most workers hold a single job (89%); however, among those with multiple jobs, 30% contribute to a social security fund for only one position, resulting in the underreporting of income. In addition, preliminary evidence suggests wage underreporting among formally insured workers affiliated with the IPS. These issues are examined in greater detail in Chapter 2 and point to persistent gaps in compliance and enforcement, even within the formal sector.
Around 61% of private sector employees do not contribute to a pension fund. Approximately 32% of these workers are employed in informal firms, where the lack of business registration precludes participation in the social insurance system altogether. The remaining 68% are employed in tax-registered firms, indicating the presence of informal employment relationships within businesses that are visible to the tax authorities and integrated into the formal economy. For instance, 32% of informal private sector employees work in tax-registered firms that have a firm size larger than ten employees. Furthermore, among the non-contributing employees 20% work as domestic workers (Table 6.A.1 in Annex 6.A).
Employees working in tax-registered firms who are not covered by social insurance represent a group with strong potential for formalisation through enhanced enforcement. These workers share many characteristics with contributing employees, including similar education levels and economic sectors in which they work. Targeted enforcement efforts, combined with simplified administrative procedures or contribution incentives, could therefore yield substantial gains in coverage.
Social insurance coverage also varies significantly by income level. Employees with higher earnings are more likely to contribute to social insurance. As shown in Figure 6.3, contributing employees earn higher net incomes on average than their non‑contributing counterparts. Contributing employees in formal firms are concentrated in the upper half of the wage distribution, while non‑contributing employees in formal firms are clustered around the middle of the wage distribution. Domestic workers and employees in informal firms, by contrast, are disproportionately concentrated at the lower end of the wage distribution.
Note: Formal sector refers to individuals working in enterprises registered with a RUC (taxpayer ID number). Contributing indicates that contributions are made to a public or private pension fund. Net labour income comprises self-reported wages and self‑employment earnings received by an individual after the deduction of taxes and SSC. The monthly net minimum wage for employees is approximately PYG 1.9 million. The displayed median incomes (vertical lines) indicate the median primary labour income of the total labour force, which is about PYG 2.4 million per month. The distribution is capped at the 95th percentile.
Source: OECD based on EPHC (2024[1]).
The average tax wedge for salaried workers in Paraguay is relatively flat across income levels above the statutory minimum wage.1 This reflects the high-income threshold above which PIT applies to total earnings. For a single private-sector worker earning between one and 2.2 statutory minimum wages, the average tax wedge amounts to 25.5% of total labour costs (Figure 6.4). In Paraguay, SSCs apply to all earned income, subject to a floor set at the minimum wage but without an upper contribution ceiling. Paraguay’s SSC rates are broadly in line with the LAC average (Figure 3.5 in Chapter 3) and are higher than those observed in OECD countries on average. By contrast, the PIT accounts for a significantly larger share of total tax revenues in OECD countries than it does in Paraguay.
The tax wedge is particularly high for individuals earning below the minimum wage. This reflects the application of the minimum contribution base for SSCs, which is set at the legal minimum wage. Under the general scheme, SSCs are calculated on at least the monthly minimum wage, regardless the actual earnings. Given the observed wage distribution, this minimum contribution threshold seems relatively high and may act as a barrier to formalisation (Figure 6.3). This effect is particularly pronounced for low-income workers, such as domestic workers. By contrast, workers in microenterprises and apprentices benefit from reduced contribution bases, set at 80% and 60% of the minimum wage, respectively (Figure 6.4). These reduced bases result in a lower tax wedge for these groups, who typically earn income below the statutory minimum wage (Figure 6.3).
The average tax wedge rises sharply to 33.5% of gross income once taxable income exceeds PYG 80 million per year. This threshold corresponds to approximately 2.3 times the minimum wage. The sharp increase in the average tax wedge above this threshold reflects the fact that, once income exceeds the threshold, all of the income will be taxed under the PIT (Figure 6.4). As a result, the marginal tax wedge rises sharply at the threshold where PIT starts being levied. These estimates, however, do not capture the effect of the extensive range of PIT deductions. In practice, these deductions substantially reduce taxable income and may, in some cases, eliminate PIT liabilities altogether (see Chapter 5).
Employee and employer SSC rates and PIT rates as a share of gross income across multiples of the minimum wage
Note: The horizontal axis presents multiples of the legal minimum wage (PYG 2 899 048 per month) in Paraguay as of 1st July 2025. The vertical axis measures the tax wedge as a sum of employee and employer SSC and PIT for a single taxpayer who is an employee in the private sector and insured under the IPS. Exemptions and deductions to the PIT are not considered in this figure.
Source: OECD.
In recent years, legislative reforms have aimed at incentivising formalisation among certain occupational groups. Certain professional categories benefit from reduced contribution bases under the IPS (Table 6.2).
Note: The legal minimum wage is updated yearly in July and specific minimum wages exist for some professions or sectors (see MTESS Resolution No. 677/2025). The health benefit includes health insurance, sickness and maternity leave, as well as work accident insurance.
Source: IPS, MTESS.
Paraguay’s statutory minimum wage is relatively high when compared to the average wage of formal sector workers. When expressed in USD, the minimum wage is broadly comparable to minimum wage levels in Colombia and Mexico. However, measured as a share of the average annual wage of formal workers, it is considerably higher than in OECD countries in the region (Figure 6.5). A substantial proportion of workers earn below the statutory minimum wage, pointing to both a misalignment between the minimum wage level and underlying productivity and limitations in the capacity of labour and tax authorities to enforce the minimum wage across the economy.
Note: The gross average annual wage is calculated for all formal full-time workers in the private sector as reported in OECD Taxing Wages (2025[3]). For Paraguay, the average annual wage for all workers insured under the IPS in 2023 is used.
While contribution floors based on the minimum wage support financing and compliance objectives, they can also create significant barriers to formalisation when the minimum wage exceeds productivity‑aligned earnings. Levying SSCs on at least the minimum wage can be justified on the grounds that a minimum level of social protection requires a minimum level of financing, and that a contribution floor helps ensure a basic contribution is made. This approach also limits opportunities for wage underreporting, as SSCs are levied on no less than the minimum wage. However, when the statutory minimum wage is set above the actual earnings of a large share of workers, the resulting contribution base may discourage formal employment. In such circumstances, a contribution floor tied to the minimum wage may inadvertently undermine efforts to broaden social insurance coverage.
The extension of social insurance to domestic workers is limited
Domestic workers account for approximately 7% of Paraguay’s workforce, yet only 5% contribute to the IPS pension fund and health insurance. According to the EPHC (2024[1]), around 90% of domestic workers lack health insurance. Female domestic workers account for 24% of all female informal workers, according to the INE definition of informality. For many years, Paraguay subsidised social insurance coverage of domestic workers through a reduced contribution rate and lower contribution base. Since 2019, however, domestic workers have been subject to the full SSC rate of 25.5%, calculated on at least the minimum wage, replacing the previous reduced contribution base of 60% of the minimum wage. This increase in contribution requirements was followed by a decline in the registration of domestic workers and in contribution payments to the social insurance system.
A key barrier to the formalisation of domestic workers is the combination of low earnings in the sector and a relatively high statutory minimum wage. An estimated 82% of domestic workers earn below the minimum wage, limiting their capacity to contribute to the IPS (Figure 6.6). More broadly, the average worker in Paraguay earns less than twice the minimum wage, which constrains the ability of many households to pay domestic workers at the statutory minimum level. Paraguay could consider reinstating reduced contributions for domestic workers to support their formalisation. However, a major challenge arises from the entitlement allowing insured workers to include their dependants in health coverage at no additional cost. This feature places considerable pressure on the financial sustainability of the IPS health fund, making subsidised contribution schemes for low‑earning workers particularly costly.
Note: The displayed gross minimum wage is PYG 2 543 816 per month, the average of the 2023 and 2024 minimum wages. The distribution shows monthly net salaries of domestic workers and the variable is winsorised at the 95th percentile.
Source: OECD based on EPHC (2024[1]).
Paraguay could consider introducing complementary measures to support the formalisation of domestic workers. Subsidised SSCs, as discussed in the previous paragraph, could be combined with measures that strengthen compliance incentives, such as facilitating wage payments through free bank accounts, as implemented in Uruguay under the Financial Inclusion Law (Law No. 19.210, Articles 10 and 11). This mechanism is attractive for workers, as it promotes financial inclusion, while increasing incentives for employers to register domestic workers with the social security system as it would increase the risk of detection if the employer would not pay SSCs. In addition, allowing employers to deduct employer SSCs paid on the salary of domestic workers from their PIT liabilities – an option that already exists in Paraguay – could further encourage formalisation. The effectiveness of this measure would likely increase if other PIT deductions were eliminated or significantly reduced, as discussed in Chapter 5.
A new programme seeks to expand social security coverage among the youth
To address high levels of informality among young workers, the Paraguayan government has launched a new initiative, EmpleaPY Joven. Informality is particularly elevated among young workers, amounting to approximately 81% of young employees aged 18-23 (Figure 6.7). Jointly implemented by the IPS and the Ministry of Labour, Employment and Social Security (MTESS), and phased in between 2025 and 2026, the programme targets individuals aged 18 to 29 entering their first formal job. Its primary objective is to expand social security coverage among youth by offering a temporary reduction in employer and employee contributions: participating employers are required to contribute only 2.5% of the minimum wage, while employees contribute 5%. The remaining 18% of contributions are subsidised by the MTESS for a period of one year, after which standard contribution rates apply. Young workers enrolled in the programme receive full IPS health and pension benefits for themselves and their dependants, as well as access to free training and labour market orientation services. The contribution subsidies are fully financed from the general government budget for the 2025–2027 period. However, the entitlement allowing coverage of dependants at no additional costs once again raises concerns regarding the financial sustainability of the IPS health fund.
It is recommended to assess the programme’s medium-term effectiveness in enrolling and retaining young workers into the social security system. Evidence from a comparable reform implemented in Sweden between 2007 and 2009 suggests that reductions in SSC rates for young workers can yield positive employment effects. In Sweden, a 50% reduction in SSCs for workers aged 19 to 25 increased youth employment by around 2 to 3 percentage points (Saez, Schoefer and Seim, 2019[5]). The positive employment effects were found to persist beyond the period of eligibility, with employment levels remaining at the post-reform peak among cohorts that had previously benefited from the subsidy (Saez, Schoefer and Seim, 2021[6]).
Share of workers in the total labour force by age group and contribution to social security, 2024
Note: The data labels in the bars indicate the share of workers contributing to social security or not within each age group.
Source: OECD based on EPHC (2024[1]).
The majority of workers in micro and small enterprises are informal even if they work for tax-registered businesses. While 72% of workers or owners of micro and small enterprises report that their primary workplace is registered and holds a taxpayer identification number (RUC), only 20% contribute to a pension fund and are registered with the social security system.
Low wage levels combined with relatively high SSC rates and a high minimum contribution base contribute to the low formalisation of workers in micro and small enterprises (Mipymes). Figure 6.8 illustrates the wage distribution of salaried workers in microenterprises with ten or fewer employees. Among these workers, 57% earn less than the statutory minimum wage. Tax-registered microenterprises tend to pay slightly higher wages than unregistered ones. Informality remains widespread even within tax-registered microenterprises: 79% of workers in tax-registered microenterprises do not contribute to social insurance. This suggests that informality among Mipymes workers is not driven solely by the tax and contribution burden, but may also reflect other factors, including limited access to information, short‑term decision‑making, and low levels of trust in the social security system (Apella and Montt, 2024[7]).
Note: The definition of microenterprises used in this figure is solely based on the number of workers in the company (up to 10 workers), as the EPHC does not provide data on the turnover of the company where people are employed. This definition might falsely categorise some firms as microenterprises due to their number of workers, but regarding their turnover they would not be classified differently. The graph includes only respondents who reported being employed in the private sector employees. The displayed gross minimum wage is PYG 2 543 816 per month, the average of the 2023 and 2024 minimum wages, and the net minimum wage is subtracted social security contributions. Net labour income comprises self-reported wages received by workers after the deduction of taxes and SSC, where applicable. The salary variable is winsorised at the 95th percentile.
Source: OECD based on EPHC (2024[1]).
The primary objective of the recent reform of the Mipymes Law (No. 7444/2025) is to promote formalisation among micro and small enterprises by offering targeted tax incentives and labour-regulated reliefs. Key provisions include:
Social security contributions: The law mandates participation in the IPS system, with reduced contributions applying for the first 36 months after registration as Mipymes. For microenterprises, contributions can be made on a reduced base amounting to 80% of the legal minimum wage. The reduced contribution base applies only to workers hired after the law entered into force; all other workers in the micro‑enterprise continue to contribute on the full contribution base, even if their salary falls below the minimum wage. Small and medium-sized enterprises need to contribute to the IPS at the general contribution rates, i.e. at least 100% of the minimum wage or the actual wage if higher.
Labour regulation: Micro enterprises may hire workers under fixed-term contracts of up to 12 months, renewable for a cumulative maximum period of 36 months (Article 45, Law No. 7444/2025). Upon completion of this period, wages must not fall below 100% of the statutory minimum wage.
Simplified accounting practises: Microenterprises are only required to maintain records of income and expenses.
Other tax incentives: Microenterprises are fully exempt from commercial licence and municipality fees for the first three years and then benefit from a 75% reduced rate. Small enterprises receive a 75% discount for the first three years after which they are eligible for a a 50% discount. Medium-sized enterprises are subject to the standard tax obligations as defined in the legislation.
Access to credit: The law also mandated the creation of a trust (FONAMIPYMES), approved by decree in January 2026, to facilitate access to finance and trainings for Mipymes.
Eligibility criteria: To benefit from the Mipymes law, eligible firms are required to register their business at no cost and are issued a unique taxpayer identification number (RUC). Upon registration, the Ministry of Industry and Commerce (MIC) automatically grants the Mipymes certificate (Cédula Mipymes), which is updated every year to monitor transitions of firms across the schemes and ensure continued benefit eligibility. According to decree 4535/2025, firms are categorised into microenterprises (annual turnover up to PYG 1 000 million, up to 10 workers), small enterprises (annual turnover up to PYG 5 000 million, 11-30 workers) and medium enterprises (annual turnover up to PYG 10 000 million, 31-50 workers). The MIC maintains a comprehensive registry of certified Mipymes, which is cross-checked with taxpayer data from the DNIT, labour statistics from the MTESS and social security data from the IPS.
Reducing the minimum contribution base to 80% of the statutory minimum wage, as introduced under the recent reform, has the potential to broaden social insurance coverage among workers in microenterprises. Currently, 16% of workers in microenterprises earn between 80% and 99% of the minimum wage. The new contribution rules may therefore encourage the formalisation not only of workers earning below the minimum wage but also those with slightly higher incomes. However, the inclusion of workers, and their dependants, who contribute on a reduced contribution base may place additional pressure on the financial balance of the IPS health insurance fund. This underscores the importance of carefully assessing the long‑term sustainability implications of expanding coverage to low‑income workers. In addition to tax reliefs, stronger enforcement of the social security law is needed, particularly among small firms (11-30 workers), although this entails significant costs for the IPS. The combination of stricter enforcement and lower contributions could help formalise more workers in microenterprises. If successful, a similar reform strategy could be gradually extended to other categories of workers.
Eligibility for owners of microenterprises for subsidised social security schemes is currently being revised. Prior to the Mipymes Law, the IPS-MIC scheme (Law No. 5741/2016) offered voluntary social security coverage exclusively for owners of microenterprises and their dependants, with contributions set at 23% of the minimum wage. The Mipymes Law (No. 7444/2025) foresees a reduced contribution base exclusively for employees of microenterprises while owners of microenterprises will be required to contribute on the basis of at least 100% of the statutory minimum wage.
Empirical evidence on the impact of reduced SSCs on the formalisation of low-income workers remains limited and mixed, with substantial variation across country contexts. In Turkey, reforms that reduced SSC rates for employees in selected regions were associated with increases in formal employment of 5% or more (Aşık et al., 2022[8]; Betcherman, Daysal and Pagés, 2010[9]). Similarly, evidence from Colombia suggests that the 2012 reduction in SSC rates for most workers – those earning below ten times the minimum wage – contributed to higher formal employment in the months following implementation (Morales and Medina, 2017[10]; Kugler, Kugler and Herrera-Prada, 2017[11]). Evidence from France further indicates that substantial reductions in payroll taxes for low-wage workers in the 1990s significantly increased employment among low productivity‑ workers (Breda, Haywood and Wang, 2024[12]). However, the study also underscores that sustained formalisation gains depend on the interaction between labour taxes and minimum wages. By contrast, empirical evaluations of payroll tax reduction reforms in Chile and Argentina do not find significant impacts on formal employment (Cruces, Galiani and Kidyba, 2010[13]; Gruber, 1997[14]).
Most owner-managers and own-account workers operate in the informal sector, where low earnings and poverty significantly limit access to social insurance. Around three-quarters of independent workers are informal, meaning they operate in non-registered firms. Nearly half of these workers earn less than half of the median wage and 18% live in monetary poverty. This suggests that the lack of social insurance coverage is, in many cases, associated with low productivity and subsistence-level activity (Figure 6.9).
Even within the formal sector, most own-account workers and owner-managers do not contribute to a pension fund, despite having the financial capacity to do so. This highlights the limited attractiveness of current social insurance arrangements for independent workers. Overall, fewer than 0.5% of owner-managers and own-account workers are active contributors to the social security system. Most independent workers operating in the formal sector earn incomes above the net statutory minimum wage, indicating that they have the financial capacity to contribute but opt out voluntarily.
Distribution of net labour income of owner-managers & own-account workers from their primary occupation
Note: Formal sector refers to individuals working in enterprises registered with a RUC (taxpayer ID number). Contributing indicates that contributions are made to a public or private pension fund. The displayed median incomes (vertical lines) indicate the median primary labour income of the total labour force, which is about PYG 2.4 million per month. Net labour income comprises self-reported earnings of owner-managers and own-account workers after the deduction of taxes and SSC. The distribution is capped at the 95th percentile.
Source: OECD based on EPHC (2024[1]).
The lack of social insurance coverage among own-account workers and owner-managers is strongly associated to low education levels, enterprise characteristics and geographic location (Annex 6.A, Table 6.A.2). Most independent workers operating in the informal sector do not have upper-secondary or tertiary education and are concentrated in craft and elementary occupations, which constrains productivity and compliance capacity. Around one-third of informal independent workers are employed in agriculture, while another third work in small-scale commerce. For own-account workers in rural areas, barriers to formalisation are likely driven by multiple structural factors rather than tax or contribution requirements alone. Limited earnings potential, restricted access to productive markets, and lower skill levels reduce their capacity to engage in formal employment. Addressing these challenges requires broader economic development and sustained investment in skills and productivity, rather than adjustments to social insurance design alone.
Independent workers could be gradually required to contribute to social security, starting with selected liberal professions where contributory capacity is stronger. Figure 6.10 presents the occupational distribution of own-account workers and owner-managers who do not contribute to a pension fund, distinguishing between those earning below or above the national median income. Independent workers with limited capacity to contribute are predominantly farmers, service sector workers, vendors, unskilled workers and craftsmen (Figure 6.10, Panel A), while higher-income independent workers are more likely to be employed in the public sector or engaged as academics, technicians, service sector workers and officers (Figure 6.10, Panel B). This heterogeneity suggests scope for a differentiated approach to extending, at least in the short run, mandatory social insurance coverage among independent workers.
Note: The group of own-account workers and owner-managers is split at the median primary labour income of the total labour force, which is about PYG 2.4 million per month.
Source: OECD based on EPHC (2024[1]).
Contributions to social insurance by independent workers in liberal professions could be made mandatory. At present, participation for these workers is voluntary, with contributions to the IPS pension fund set at a rate of 13% of gross income. One reform option would be to require compulsory health insurance coverage by linking professional licensing to IPS affiliation (see Chapter 2). With respect to old-age protection, workers in liberal professions could retain the option to contribute either to the IPS pension fund or to a private pension scheme (see Chapter 3). This would allow individuals already affiliated with private pension funds to preserve their existing arrangements while ensuring minimum coverage. Offering a combination of mandatory short‑term health protection and flexible long‑term pension options could enhance the attractiveness of IPS participation for independent workers and support a gradual extension of social insurance coverage.
There is scope to strengthen monitoring and enforcement to ensure that independent workers with a de facto dependent employment relationship – often referred to as bogus self-employment – are appropriately reclassified as employees and receive social insurance coverage. While these workers are typically registered with the tax authorities, they are not enrolled in the IPS scheme, as SSCs remain voluntary under their formal status as independent workers. This practice is also observed within the public sector. The DNIT could leverage tax administrative data to identify potential cases of misclassification, for example by flagging independent workers who derive most of their income from a single client through regular payments. Sharing such information with the IPS would enable systematic cross‑checks of social security registration and support targeted interventions to extend coverage to this group.
Salaried workers:
Strengthen compliance and monitoring of compulsory SSCs, before pursuing further reductions in contributions for low-income workers.
Consider lowering the minimum contribution base for domestic workers to improve affordability and support formalisation.
Assess the effectiveness of the EmpleaPY Joven programme in promoting formal employment among young workers.
Evaluate the impact of the reduced contribution base for microenterprise workers on formal employment and social insurance coverage.
Improve coordination across social insurance schemes for owners of Mipymes to prevent overlap, gaps in coverage and fragmentation.
Facilitate wage payments through the provision of free bank accounts for all salaried workers to support formalisation.
Preserve incentives for PIT taxpayers to deduct SSCs paid for domestic workers, including by limiting access to alternative PIT deductions.
Independent workers:
Consider introducing mandatory social security contributions for independent workers in selected liberal professions, where contributory capacity is stronger and enforcement is more feasible.
Strengthen data-sharing between DNIT and IPS to better detect non-compliance and cases if bogus self-employment, and to enforce social security contributions for workers with de facto dependent employment relationships.
Improve the attractiveness of social insurance for voluntary contributors by expanding access to short-term benefits and enhancing the perceived value of participation.
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[5] Saez, E., B. Schoefer and D. Seim (2019), “Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers’ Tax Cut in Sweden”, American Economic Review, Vol. 109/5, pp. 1717-1763, https://doi.org/10.1257/aer.20171937.
Note: The data do not include the departments of Boquerón and Alto Paraguay, indigenous communities, and collective housing. Domestic workers who contribute to social security are excluded as their sample size is too small.
Source: OECD based on EPHC (2024[1]).
Note: Formal sector refers to individuals or enterprises registered with a RUC (taxpayer ID number), and informal sector indicates the absence of a RUC. The statistics displayed refer to owner-managers and own-account workers who do not contribute to any public or private pension fund.
Source: OECD based on EPHC (2024[1]).
← 1. The statutory monthly minimum wage is set at PYG 2 899 048 (approximately USD 370) as of 1st July 2025.