Coordinated approach to fight against undeclared work, Poland
In 2007, new legislation regarding the National Labour Inspectorate (PIP) came into force in Poland. Under the law, PIP is the central institution responsible for the control of legality of employment. A number of other administrative bodies are to cooperate with PIP in this regard. Among the main violations found are avoiding or delaying social security payments through undeclared work or the misuse of employment trial periods or civil contracts.
In recent years, Polish lawmakers have focused on tightening the institutional web of control over legality of employment. Among the most significant legislative initiatives aiming to strengthen the coercive power and control prerogatives of the institutions concerned was the amendment of the National Labour Inspectorate Act (Ustawa o Państwowej Inspekcji Pracy) in 2007. The amendment explicitly assigned employment control prerogatives previously exercised by other authorities – especially the regional administration at provincial (voivodship) level – to the National Labour Inspectorate (Państwowa Inspekcja Pracy, PIP). This strategy was adopted as a means of coordinating the fight against undeclared work (koordynacja walki z pracą nierejstrowaną).
Due to these modifications of the legal framework, PIP has become the central feature of the institutional network surrounding employment control. Nevertheless, this network also includes other institutions responsible for specific tasks in this regard, thus supporting PIP in combating undeclared work. All of the main actors involved are outlined below.
- PIP – the major state agency responsible for labour law enforcement and, since 1 July 2007, employment legality control. In performing these activities, PIP is entitled to the cooperation and assistance of other institutional bodies specifically named by the Ordinance of the Prime Minister regarding cooperation of various institutions with PIP on controlling health and safety and employment legality.
- Customs Service (Służba Celna) – the new National Labour Inspectorate Act also amended the Customs Service Act of 1999. Currently, the Customs Service is entitled to control the legality of employment of foreign citizens employed not only by companies, but also by other employers, including households. In performing their duties concerning employment control, Customs Service officers are to cooperate with other administrative bodies such as the Border Guard, the police, PIP and the social security institution.
- Border Guard (Straż Graniczna, SG) – in particular, under the regulations of the Foreigners Act, SG is charged with duties such as the apprehension and expulsion of illegal foreign workers. A foreign citizen is deported by way of an administrative decision if apprehended while performing illegal work. SG cooperates with PIP in this area.
- Social Security Institution (Zakład Ubezpieczeń Społecznych, ZUS) – the national social security institution cooperates with PIP and the Customs Service in combating illegal employment. In particular, ZUS is responsible for ensuring that employers fulfil their obligation to transfer to the state the social security contributions deducted from their employees’ gross earnings.
- Fiscal Control (Kontrola Skarbowa) – this institution comprises a network of Fiscal Control Offices (Urzędy Kontroli Skarbowej), responsible for revenue control. In particular, the Fiscal Control inspects and prosecutes cases of tax evasion in business operations. As unregistered employment results in non-payment of taxes, the Fiscal Control also becomes involved in combating undeclared work.
- Police (Policja) – the police force also holds responsibilities in the area of employment control, as stipulated by the Criminal Code. The latter explicitly forbids practices in breach of employee rights, defining them as criminal offences, in particular those violating employees’ social security rights.
By amending the National Labour Inspectorate Act in 2007, the lawmakers sought to improve the efficiency of control over legality of employment. As a result of the reform, major prerogatives regarding such control were consolidated in the hands of PIP. Prior to the amendments, these competences were assigned to the local labour administration: from 1995 to 2000 to the Voivodship Labour Offices, between 2000 and 2001 to the district level administration, and from 2002 to 2007 to the voivods. The former regulations specified the extent to which the local administration cooperated within the area of employment control with other administrative bodies.
Since 1 July 2007, PIP is responsible for the entirety of control activities, and labour inspectors are equipped with legal instruments allowing them to investigate the legality of employment matters at audited sites. On 1 January 2008, the Ordinance of the Prime Minister regarding the cooperation of various institutions with PIP came into force.
Under the new National Labour Inspectorate Act, PIP is responsible for the control of legality of employment in general (Article 10.1.3) and legality of employment of foreigners (Article 10.1.4). Furthermore, in the case of unregistered employment, PIP is authorised to order the employer to duly remunerate the employee for work performed, including the transfer of social security contributions. Another innovative step taken by the legislature lay in expanding PIP’s range of control by the inclusion of business enterprises which are not employers (Article 13).
Article 23.9 specifies that, during control and audit proceedings, a labour inspector is entitled to establish the identity of persons present on the site and to investigate their status in the workplace. Labour inspectors have the right to enter any workplace upon presentation of their official identification (ID) without prior notice in order to examine the legality of employment (Article 24). PIP has also been granted the right to inspect temporary work agencies.
In addition, the National Labour Inspectorate Act amends the Customs Service Act by broadening the customs’ competences regarding control of the legality of employment of foreign citizens. While performing such control activities, customs officers enjoy exactly the same prerogatives as labour inspectors.
The Ordinance regarding the cooperation of various institutions with PIP defines the interrelations of the bodies concerned. In particular, the institutional bodies named are obliged to undertake the following measures:
- notify one another of any case of law violation determined during their control activities, and inform one another of any subsequent actions taken and any developments in the case;
- organise joint training activities;
- assist in a control at the request of any other cooperating body;
- grant one another access to documentation developed during and after inspection procedures;
- share experiences in order to improve the efficiency of control activities;
- inform one another of any facts relevant to the control, when jointly carried out by more than one body;
- pursue initiatives aiming to improve observance of the law;
- undertake legislative initiatives;
- voice and share opinions during the legislative process.
Evaluation and outcome
Achievement of objectives
As the new National Labour Inspectorate Act has only been in force since mid 2007, and the Ordinance regarding the cooperation of various bodies with PIP since early 2008, it is still difficult to assess to what extent the objectives set by the legislature have been attained. While planning its activities for 2007, PIP assumed that about 10,000 audits would be carried out.
Obstacles and problems
According to its annual report, the major obstacle that PIP encountered in its control activities is either employers acting unilaterally, or both parties to the employment relationship acting in unison, to evade or break the law with a view to profit. Practically all of the specific tactics discovered by the inspectors in their work stemmed from the general effort to minimise labour costs by keeping employment informal. Only rarely were the violations classed as merely involuntary breaches of law resulting from the legal ignorance of the parties involved. The majority of cases of ‘classic’ informal employment were discovered among small employers with up to 10 employees.
Another form of cover for illegal employment comprised ‘trial periods’, meaning initial employment of workers to determine whether they are suited for the job in an informal way while having the necessary papers already prepared for presentation to any inspectors. The execution of civil law contracts – such as commission contracts or contracts for the completion of a specific task – with persons who are in effect employees also seemed to be a persistent practice. Through the use of such contracts, employers do not have to pay social security contributions.
Withholding or delaying payments of mandatory contributions to social security and the Labour Fund is a strategy used by employers to obtain some additional capital for daily business operations. In many cases, delays in payments are short-term yet constant, which reinforces the belief that employers intentionally use these financial means as a source of free-of-interest capital.
Based on the experiences gathered so far, PIP recommends some further modifications of the legal framework, in particular:
- to the Labour Code (Article 29.2), so that an employment contract would have to be signed prior to an employee commencing work. Currently, the contract must be signed on the first day of work at the latest;
- to the Social Security System Act (Article 36.4), so that the social security administration would have to be notified of a newly hired employee prior to that employee commencing work. At the moment, employers have up to seven days for notification;
- to the Act on employment promotion and labour market institutions (Article 36.6 and 36.7), so that non-employers – that is, entities employing persons only on the basis of civil law contracts – would be obliged to obtain a written statement from a newly hired employee about his or her labour market status thus far – in other words, being employed or unemployed. They should also have to notify the local employment administration when hiring an unemployed person. Currently, only employers bear such obligations.
In the case of foreign citizens employed in Poland, PIP urges a shift in priorities of control activities so that less attention is devoted to work permit issues – as foreign access to the Polish labour market gradually opens – and more attention to the observance by employers of the same regulations as in the case of Polish citizens.
The impact indicators to hand at the time of writing are limited, since the official statistics released on an annual basis were available only for 2007, thus reflecting the first six months during which the new act had been in force. Furthermore, the Ordinance was issued in 2008. Therefore, it will only be possible to draw firm conclusions regarding the impact of the new legal regime when statistics for 2008 are completed, which should occur in early 2009.
Nevertheless, PIP’s 2007 annual report sheds some light on the efficacy of the new legal regime. The inspectorate carried out some 12,200 audits of employment legality in 2007, 58% of which concerned small operations employing fewer than 10 people. Labour inspectors approached almost 12,000 entities, at which about 800,000 persons were working; 80,000 of these workers were employed on the basis of civil law contracts and 4,400 were self-employed.
Inspectors checked the legal status of more than 100,000 persons, including some 3,500 foreign citizens, and the accuracy of social security contribution payments for about 200,000 people. Irregularities in observing regulations on legality of employment were found in more than half of controlled entities. In one of every four entities inspected, PIP revealed undeclared work. In one of every five entities inspected, PIP uncovered irregularities in social security contribution payments. Regarding cases of discovered infringements of the law, PIP issued almost 12,000 notices obliging employers to correct the irregularities.
It is relatively early to decide whether – and to what extent – the newly introduced arrangements are transferable. The efficiency of PIP under the new legal regime and its cooperation with other institutions ought first to be the subject of a comprehensive assessment, and this should not be expected earlier than mid 2009.
For countries without institutional bodies resembling PIP, this example may serve as a valuable benchmark for studying the consequences of concentration of power in the area of employment control in the hands of one central agency.
The new control regime has definitely proved to be better in practice than previous solutions, due to the fact that competences have been assigned more clearly. When PIP publishes its next annual report covering its activities in 2008 – the first whole year under the new law – a more solid basis will be available for drawing conclusions on the effectiveness of the new arrangements. It is worth noting that PIP has already outlined a number of legal regulations that, from its point of view, should be amended in the near future. Thus, it seems that the process is still far from completion.
Main organisations involved:
- National Labour Inspectorate (Państwowa Inspekcja Pracy, PIP)
- Customs Service (Służba Celna)
- Border Guard (Straż Graniczna, SG)
- Social Security Institution (Zakład Ubezpieczeń Społecznych, ZUS)
- Fiscal Control (Kontrola Skarbowa)
- Police (Policja)
Ministry of Labour and Social Policy (Ministerstwo Pracy i Polityki Społecznej, MPiPS), The reasons behind unregistered work in Poland (Przyczyny pracy nierejstrowanej w Polsce), Department of Labour Market, Warsaw, 2008 (in Polish).
National Labour Inspectorate Act (Ustawa o Państwowej Inspekcji Pracy), 2007.
National Labour Inspectorate (Państwowa Inspekcja Pracy, PIP), Annual report of General Labour Inspector on activities of National Labour Inspectorate in 2007 (Sprawozdanie Głównego Inspektora Pracy z działalności Państwowej Inspekcji Pracy w 2007 r.), PIP, 2008.
Ordinance of the Prime Minister regarding cooperation of various institutions with the National Labour Inspectorate on controlling health and safety and employment legality (Rozporządzenie Prezesa Rady Ministrów w sprawie trybu i form współdziałania niektórych organów z Państwową Inspekcją Pracy w zakresie bezpieczeństwa i higieny pracy oraz kontroli legalności zatrudnienia), 2008.
Jan Czarzasty, Institute of Public Affairs (ISP)