Labour Inspectorate campaign, Hungary
Inspections and penalties are used in Hungary to curb the undeclared economy. The Hungarian Labour Inspectorate (OMMF) is a central agency under the control of the Minister of Employment, in charge of supervising (legal) employment and the safety of employees. The inspection campaign for 2012 aimed to spread information countrywide concerning the benefits of legal employment, to offer consultancy services for employers and potential employees and to carry out inspections with the aim of increasing legal employment figures.
The undeclared economy came into the limelight in the mid-1990s. Economists estimate the rate of undeclared economy to be 10–30% of the national economy. Many think that the undeclared phenomenon was deeply engrained into people’s consciousness; ‘skirt the norms became the norm’, declared ex-Prime Minister Ferenc Gyurcsány in 2007.
Hungary has been traditionally an agricultural country with a high number of seasonal workers. In the past incomes of employees were quite low but were at an equal level for most of people. To ensure a better income, the former regime allowed (or tolerated) people to earn money in the black economy. This tradition is disastrous for a successful fight against the black economy. Several governments have introduced measures to tackle the problem. Most were related to increasing pressure and control on employees, thus they had a deterrence approach, which seeks to increase the actual or perceived likelihood of detection and penalties; others were about controlling companies. There were only a few incentives encouraging employers and employees to state undeclared employment.
The labour inspections are carried out by the labour inspectors based on the Law on Labour Inspectorate (1996/LXXV) regulations and the annually (until 20 February for the coming year) published controlling directives. These directives include the objectives, changes in regulations and employer-employee misdemeanours on which the inspectorate must focus during the given year. The directives emphasise the whitening of undeclared employment through the detailed inspection of single work contracts, companies’ obligatory reporting about employment, and whether the employment keeps to the regulations concerning the employees’ right to wages According to the results of the inspections or changes in focus, the authority can order specific or ad hoc inspections during the year focused on undeclared employment in a specific field or sector of the labour market.
The objectives of the directive for the year 2012 were on:
- spreading information countrywide concerning legal employment and offer consultancy for employers and (potential) employees;
- inspections with the aim of securing employment rights and competitiveness, thus to achieve an increase in legal employment figures;
- ensuring the principle of serving the state;
- securing legal labour processes carried out by the inspectorate.
- aims were to ensure that 10% of the inspections were to be carried out in the processing sector and that 10% were in the private and property security sector.
The labour inspection focuses on:
- the legal formalities of declaring established employment relationships (the existence of written work contracts);
- the employers’ obligation to report employment to the authorities.
- labour inspector can hold an inspection at any site, at any time without prior notification. The inspector has to announce cases when an employer breaches the obligation employment and set a fine. The fine can be from HUF 30000 (€105) to HUF 10 million (€35,000). This fine can be doubled in cases where the employer breaches the law again within the following three years. Another penalty would be exclusion from state subventions.
- the point of view of the inspectorate, inspections and penalties are significant success in tackling undeclared employment.
- discovering new discrepancies between legal and undeclared work and imposing fines in certain companies, the inspectorate holds follow-up-inspections in around 80% of earlier fined cases.
Another measure carried out by the Labour Inspectorate is to provide information and to consult with both employers and employees on the government regulation 323/2011 (XII.28.) Gov.reg. 15. § (5). The inspectorate runs a website where a forum is available for the public and it also provides consultation possibilities via phone and in person. The Inspectorate and government offices also organise open days and legal educational programmes countrywide.
- The Ministry of National Economy (Nemzetgazdasági Minisztérium, NGM) – legislative role.
- State Secretary for Employment Policy (Foglalkoztatáspolitikáért Felelős Államtitkárság) – roles in information and consultation.
- Government agencies.
- National Tax and Customs Administration (Nemzeti Adó- és Vámhivatal, NAV, http://www.apeh.hu/) – taxation, tax administration.
Outcome of evaluations: lessons and conclusions
Achievement of objectives
The inspectorate publishes a report every year on its results and achievements, available on its website. Inspection results in the first quarter of 2010 show that the inspectorate has inspected 8,260 employers, and that there were 49.6% (4,098) labour infringements affecting 54.4% (34,790) of the controlled employees (63,950).
This represents a decreasing level of infringement in the first quarter of 2009, which can be considered partially to be a result of the inspections.
Decreasing trends are to be observed in the undeclared employment figures: 29% (9,483) of all infringements came from the missing work contract and reporting to the authorities. This is 10% less than in the first quarter of 2009.
The highest rate of undeclared employment was in the investigation/private and property security (2,886 people), which was followed by infringements in the construction (2,388 people), HORECA (682 people), commerce (613 people), agricultural (607 people) and processing (482 people) sectors.
Based on the experiences of the inspections in 2008 and 2009, inspections were only carried out in the sectors where most of the employees were exposed to risk in 2010.
Thus the rate of inspections in the given sector also influences the results. For example 25% of all inspections have been carried out in the construction sector, and 25% (the same as in the first quarter of 2009) of all infringements have been discovered in that sector.
In the processing sector the rate of infringement has risen slightly from 4% in 2009 to 5-6%, taking into account that in both years 10% of all inspections were carried out in that sector.
In the investigation/private and property security sector the inspection rate was 11%, and the rate of infringement shows a rate of 30% for the year, similar to 2009.
The most 'popular' way (25% of all kinds of infringements) to evade the law is to manipulate holiday and resting time registers, and attendance sheets, while 15% of all infringements concern payments, payroll and its deadlines.
The inspectorate imposed fines in 3,132 cases of the 4,098 employers breaching the law. These fines added up to HUF 111, 7840,000 (€4 million); 89% were imposed as labour fines (employment was not reported to the authorities, no work contract, etc.), 9% were procedural penalties, and 2 % were due to irregular employment of foreigners.
Post-inspections have been carried out in 80–90% of the previous year’s infringement cases.
The inspectors experience mostly cooperation with the companies which prefer to proceed legally. Those who avoid acting lawfully are developing work-arounds and attempts to negate the inspections.
Obstacles and problems
The main obstacles are hidden in the fact that undeclared employment often does not appear in the scope of the inspections. Employers and employees working undeclared are expecting such inspections and are prepared with dummy work contracts and attendance sheets, etc., or are running off from the scene.
From the point of view of employers/employees, when inspectors arrive at a site with the police it seems more to be a demonstration of power than as something to cooperate with.
Inspections and fines cannot be the only measure to tackle undeclared work. It is not an aim only a tool for reaching general objectives concerning legal employment.
Cooperation among authorities and institutions on information and education can also increase legal employment.
|Headcount of involved||72,743||69,075||56,206||29,869||14,216|
|Employment without work contract||Measure||13,354||12,339||6,930||330||182|
|Headcount of involved||39,125||36,486||18,257||1,389||589|
|Employment without reporting it to the authorities||Measure||2,354||2,137||5,556||6,807||2,854|
|Headcount of involved||28,679||26,424||34,703||26,797||10,464|
|Other (dummy contracts, unauthorised employment of thirds country’s citizens, etc.)||Measure||915||1,071||590||422||1,077|
|Headcount of involved||4,939||6,165||3,246||1,683||3,163|
|Number of controlled employer||32,840||36,026||31,431||25,056||21,931|
|Number of controlled employees||216,788||331,824||294,243||246,463||199,118|
Source: NMH Press office by email
The inspections are already carried out countrywide and in all sectors in Hungary even if with varying intensity. Control and supervision probably already exists in other countries, but in general the system is transferable.
- József Krisztián Járai, National Employment Office, Hungarian Labour Inspectorate.
- József Bakos, National Employment Office, Hungarian Labour Inspectorate.
- Varga Beata, National Employment Office, Hungarian Labour Inspectorate.
The inspections are only one, albeit radical, measure to tackle undeclared work. The inspections are carried out regularly and with always higher intensity adjusted to the recent results, but their direct effect to the level of undeclared employment cannot be safely stated. Undeclared work is more likely hidden from any eyes or measures of inspections. Education about employment rights and duties should be implemented in basic education and should accompany inspection. The experience of a project run by social partners about employees education on labour rights (www.jogpont.hu) has shown that a huge number of people of working age are not aware of their basic right concerning employment.
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Ildikó Krén, Rindt Zsuzsa, Solution4.org