At the very outset it must be stated that if Ema were to sell clothing without any permit or authorisation to do business, this would be illegal business activity. It is irrelevant whether she sells the clothing only to friends and neighbours; she will not escape a sanction any more than if she were distributing it throughout Slovakia. Such activity can be scrutinised both by the Slovak Trade Inspection and by the tax office.
So what options does Ema have? If she wants to continue making and then selling her products, she must legalise her activity. She will either become a self-employed person as a sole trader, or set up a company, ideally the best-known "sročka" (s.r.o.). Which is more advantageous and how it will affect her maternity benefit we explain below.
Can she start doing business?
Ema receives maternity benefit, the amount of which was set on the basis of the income she earned before her entitlement to maternity benefit arose. Even though Ema's employment contract with her employer continues, she has the right to start doing business or working during maternity leave. To keep her entitlement to maternity benefit, she must meet only one condition: while receiving maternity benefit she must not work for the same employer under the same employment contract. The employment relationship in which she remained before she began receiving maternity benefit is a condition of her entitlement to maternity benefit, and if she were to begin performing work in this employment relationship, she would automatically lose her entitlement to maternity benefit.
Her entitlement to maternity benefit will therefore not be jeopardised if Ema starts doing business or if she concludes another employment contract or agreement, even with the same employer, but in a new position.
Ema as a sole trader
If Ema wants to become a sole trader, she needs to file an application at the competent district office, trade licensing department, according to the address of her permanent residence. She can choose one or more free trades, for which she needs no further authorisations. Free trades include, for example, the manufacture of clothing or retail services. For each chosen trade within her trade business she will pay 5 EUR at the office, but in the case of an electronic filing no fee is payable.
An advantage of a trade licence is that she can arrange it herself without the help of experts. Another advantage is that if Ema starts doing business as a sole trader while receiving maternity benefit, she does not have to pay any social insurance; during this time the state pays it for her. Ema is also favoured in that she can choose the option of not paying advances for health insurance – she will pay any arrears only after the annual reconciliation, and by then she can gradually earn it from her profit.
In addition, Ema will be entitled to count her inputs as her expenses in her tax return, and she will pay income tax only on the amount of income after deducting expenses. She must, however, file a tax return only if her total taxable income exceeds the amount of 1 968.68 EUR this year.
A disadvantage, on the other hand, may be the fact that every entrepreneur – a sole trader – is liable for their obligations with all of their assets. In practice this means that if Ema were to incur debts in selling clothing, she would be obliged to repay them, for example, even by liquidating her personal assets, which might be, for instance, her car or her home.
Doing business in the form of a trade can, however, be regarded as a fast, cheap and simple solution for legalising one's activities while not losing maternity benefit.
Ema as a member of an s.r.o.
Ema likewise has the option of setting up an s.r.o., in which she can hold various positions. On the one hand she can be a member, who is entitled to the profit, but she can at the same time be the managing director of this company, and even its employee.
A disadvantage is clearly the more complex process of setting up the company, for which it is most advisable to seek the help of experts. Setting up a company will therefore cost you both fees for its very formation (the court fee, fees for the firm that helps you with the formation) and the payment of the registered capital, which for an s.r.o. amounts to 5000 EUR. Ema can, however, use this sum to purchase goods or other supplies for her business.
On the other hand, a member, compared with a sole trader, is liable for their obligations only up to the amount of their unpaid contribution, so if Ema were the sole member of the company and paid up the entire registered capital of 5000 EUR, she would not be liable for her debts with her personal assets.
Ema may decide to be an employee of her own s.r.o. and, similarly to doing business in the form of a trade, as an employee of her own s.r.o. she will be partially exempt from paying social insurance – she will incur only the obligation to pay accident insurance in her role as employer. In her role as employee, however, she will have to duly pay her health insurance, but in addition to the profit she will also be entitled to remuneration for the work performed under the new employment contract or agreement.
It should be noted, however, that it will be more advantageous for Ema to be a member of her s.r.o., and possibly also a managing director, but without any entitlement to remuneration. She will be entitled only to the taxed net profit and will not be obliged to pay any levies.
Even though setting up an s.r.o. is a somewhat more demanding approach, if Ema decides to pursue her hobby in a big way, it will, given the limited liability of an s.r.o., be the more suitable alternative.
Ema as an online seller
The modern age also offers entrepreneurs the possibilities of online selling. There are several portals on the internet that offer their clients the possibility of advertising the goods they have created for the purpose of sale. The rules of sale are, apart from a few variations, the same. First and foremost, you need to register on the site, which is usually free of charge, and you then have the option of advertising products. In some cases the advertising itself is charged for; in other cases the portal imposes the obligation to pay a fee representing a certain percentage of the sale price.
Many online sellers do not address the authorisation to do business when selling in this way, which is, however, a mistake. If Ema were to make a one-off sale of clothing that she originally sewed for her baby, she would not have to become an entrepreneur. If, however, she decides to sell clothing continuously and for the purpose of making a profit, this will clearly constitute business activity, and she therefore also needs the appropriate authorisation.
Online selling can have a positive effect on Ema's business – a large number of interested people from various areas of Slovakia, and perhaps abroad too, can learn about her products, but on the other hand her profit will always be reduced by the fee for using the online portal.
It is important, however, for Ema to perceive online portals only as a medium through which she carries out her business activity. Placing goods on such a portal does not cover the legalisation of making a regular profit, and it is therefore important that she also secure the appropriate authorisation.
Care allowance
Like Ema, other mothers doing business while receiving maternity benefit might think of using the allowance known as the nursery/childminder allowance. CAUTION! This childcare allowance is indeed for mothers returning to work, but only for those who receive the parental allowance, and while maternity benefit is being received the provision of this allowance is excluded.
Therefore, during your business activity you will have to arrange care for your child in your busy moments yourself and at your own expense, without any further allowance from the state.
Go into business?
Ema can combine the pleasant with the useful, and her hobby of sewing children's clothing can earn her extra money, but she must choose the right path. It is certainly not right to sell clothing "off the books", because in doing so she exposes herself to the risk of a high sanction, which may exceed her total profit several times over.
We recommend to Ema, as well as to other mothers, not to be afraid of doing business. If you have an idea, the appetite and the capacity, it is sensible to make use of the option of receiving maternity benefit, during which you can top it up with profit from your business on favourable terms, while your employment relationship with your original employer still continues. In time, a hobby can become a job and a successful business, and then nothing will prevent you from continuing to do what you enjoy.