Joint effective control on undeclared work, Bulgaria

About

Country: 
Bulgaria
Sectors: 
All
Target Groups: 
employers/purchasers

 

Since 2008, a number of legislative measures have been introduced in Bulgaria aiming to enhance the detection and prevention of undeclared work, including the adoption of a new Labour Inspection Act and changes in the labour code. The legislation on labour inspection provides for stricter control of undeclared work and extended powers of the General Labour Inspectorate. The coordinated inspections and exchange of information of the General Labour Inspectorate with other control bodies and trade unions proved to be an important factor for increased detection of labour legislation offences and for transforming undeclared work into formal employment.

 

Background

While the first stages of the crisis were associated with a quick shedding of undeclared labour as companies dismissed workers without contracts immediately, the last few years have seen new developments related to wage arrears and under-reporting actual wages, rather than avoiding labour contracts.

The crisis generated a new type of labour legislation violation: registering employees on part-time contracts (four working hours). According to the National Revenue Agency (NRA), there are 164,000 part-time contracts. However, the employees on this type of contract continue to work eight and more hours, but only the lowest social insurance contributions are paid.

Given this background, the proposed and adopted measures for reducing undeclared work during the crisis have been particularly focused on stricter administrative control and the enforcement of labour, social and tax legislation.

Latest legislative developments equipped the labour inspectors with stronger sanctioning tools aiming to force companies to comply with the laws. The new Labour Inspection Act aims to strengthen enforcement and compliance in times of crisis. It also stresses the need for a more effective labour inspection system based on the cooperation and partnership of the General Labour Inspectorate (GLI) (the main institution of labour inspection) with other control institutions and trade unions.

Objectives

The tightened GLI control and the increased number of joint inspections of the GLI and NRA and other institutions aim at more effective detection and prevention of undeclared activities and at transforming undeclared work into formal employment.

Specific measures

The control of undeclared work is the responsibility of the GLI. Since 2008, a number of legislative measures have been introduced in Bulgaria aiming to detect and prevent the incidence of undeclared work, including the adoption of a new Labour Inspection Act and changes in the labour code.

Under these regulations, the labour inspection authorities can impose substantial fines on those violating the law. Control is carried out mainly on the basis of planned activities or information from trade unions and employees (through a hotline).

The new Labour Inspection Act, which has been in force since the beginning of 2011, aims to establish conditions for the effective and efficient control of compliance with labour legislation by improving the coordination and cooperation of activities of the relevant control bodies.

The legislative changes also provided for increased penalties and sanctions when an offence is committed, thus giving GLI and other enforcement agencies stronger sanctioning tools. For the employers who hired workers without an employment contract, the penalty is BGN 15,000 per worker (the previous penalty was BGN 1,000). The labour inspectors have the right to temporarily stop the activity of the offending companies.

Before 2011, the law did not hold workers responsible for undeclared work. In 2011, the legislation was amended to include financial sanctions for employees working without a labour contract, but in 2012 the Constitutional Court voted down these provisions.

While in previous inspections the GLI paid special attention to those sectors where violations of the labour legislation occur quite often (construction, tourism, trade), in the last few years inspections targeted all economic activities. The focus now is on wages and labour contracts and also on working time, namely those on part-time labour contracts.

Actors involved

General Labour Inspectorate – Executive Agency (GLI-EA)

National Revenue Agency (NRA)

Confederation of Independent Trade Unions in Bulgaria (CITUB)

Confederation of Labour Podkrepa

Outcome of evaluations; lessons and conclusions

Achievement of objectives

The new legislative provisions have led to better functioning of the national system of labour inspection and the involvement of all control bodies and trade unions. The coordinated approach (based on GLI’s cooperation agreement with the trade unions and joint inspections with the NRA) to detect and prevent undeclared work proved to be successful.

In light of a growing informal economy and continuing violations of labour law, in 2009 the trade unions and the GLI Executive Agency signed a cooperation agreement seeking to better protect, enhance and enforce workers’ labour rights.

It also now cooperates with other control bodies, namely the NRA. The stricter joint control is based on annual agreements for joint activity against legislative offences and is supported by the mutual exchange of information, including direct access to registers and databases managed by another national body, communication of relevant information on a regular basis and upon demand, etc.

The GLI and NRA have set up hotlines to encourage the reporting of fraudulent practices and the number of calls and signals increased. To respond to these claims, GLI increased the unplanned inspections.

In 2010, the GLI organised a three-month national campaign on labour contracts, aiming to increase awareness on the impact of undeclared work, with broad media coverage. Over 4,200 joint inspections with other bodies and trade unions have been held.

In 2011 and 2012, joint inspections related to the legality of employment relations continued and the detection rate increased. According to the GLI director, one could observe a process of disciplining employers, who increasingly move from part-time to full-time contracts, conclude and register written contracts and pay the delayed wages as a result of the GLI and NRA’s joint inspections.

Obstacles and problems

GLI and other control bodies encounter numerous difficulties when implementing measures against undeclared work.

In Bulgaria, there is a widespread culture of tolerance that accepts undeclared work due to the financial interests of both actors in undeclared employment relations. It is supported by the low living standards and the opportunity for higher income that the undeclared work economy gives.

An additional hindering factor is the low trust in institutions and social systems.

A big problem is that during the inspections, the workers do not always cooperate and even lie about the real situation (contract and wage).

The control bodies also suffer from insufficient human and financial resources.

Lessons learned

Social partnership of the labour inspectorate with trade unions and the coordinated, integrated control of all administrative bodies responsible for the enforcement of the labour, social security and tax legislation are the two very important pillars of any successful action against undeclared work.

However, the tightening of administrative control can only have a temporary effect on reducing undeclared work if it is not supported by other economic and financial policy measures and by a change in attitude among employers and at-risk workers to encourage voluntary compliance with the rules.

Impact indicators

The tightened GLI control carried out in cooperation with other control bodies and trade unions has a greater impact with fewer resources. In the period July 2009 to June 2012, GLI:

  • made 149,525 inspections, of which 30,960 were to investigate claims and signals from individuals and organisations;
  • carried out joint inspections with representatives of other supervisory authorities, namely with the NRA (6,755), Ministry of Interior (3,502), National Social Security Institute (1,298), Employment Agency (662) and others;
  • inspected enterprises – 104,538 enterprises with 1,848,097 staff (representing more than half of all employees);
  • constantly increased the detection of work without labour contracts – 3,000 people without a written labour contract were detected in 2010, increasing to 6,319 in 2011; the total for the period in consideration was 10,361 people;
  • delayed wages paid amount to BGN 190,056,636.

As a result of the joint inspections of the NRA and GLI-EA, over 30,000 people have passed from a part-time (four-hour) contract to a full-time labour contract, and 10,361 workers detected to be working without a contract have signed written contracts. Social security contributions made as a result of the joint inspections of the NRA and GLI are over BGN 20 million.

Transferability

This practice already exists in many countries, but it depends on the system of labour inspection. The integrated inspection provides for better transferability of this measure.

Contacts

Executive Agency, General Labour Inspectorate

National Revenue Agency

Confederation of Independent Trade Unions in Bulgaria (CITUB): http://www.knsb-bg.org

Confederation of Labour Podkrepa

Commentary

Undeclared work is a complex phenomenon with multiple drivers. It is difficult to combat because it is often rooted in a striking consensus of employer and employees. Joint inspections of the GLI with the participation of other control bodies and trade unions create conditions for better enforcement of legislation and encourage the formalisation of labour relations.

Nadezhda Daskalova, ISTUR

 

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