Measures to regularise and control undeclared work, Spain

About

Country: 
Spain
Sectors: 
All
Target Groups: 
employers/purchasersworkers/suppliers

 

Spain has a long-term problem with undeclared work, which led the former government (the Socialist Party, PSOE) to announce new legislation in order to regulate this situation. The plan was divided into two stages. The first stage granted an amnesty period, free of sanctions, allowing workers to regularise their work situation. In the second stage, more severe sanctions were imposed in an attempt to encourage employers to register their workers with the social security authorities.

 

Background

The problem of undeclared work in Spain – whereby employers and workers pay no social security contributions – has been the subject of media discussion and political debate for the last few years. Although several initiatives have been launched to combat undeclared work, none has led to any significant improvement.

The law that established sanctions against undeclared work used to be the Law of Infractions and Sanctions in the Social Order, enacted in 2000 by Royal Decree 5/2000. Other measures include the establishment of the Fraud Observatory in 2007 and the Comprehensive Plan for the Prevention of Tax, Labour and Social Security Fraud, enacted in 2010.

As for businesses, undeclared work generates unfair competition with companies that carry out their activities legally and it denies employees the social insurance protection they would receive if they were in regular employment, which is particularly important at a time when workers are becoming more vulnerable. The government has also emphasised how undeclared work will make it even more difficult for the economy to recover and for public deficit goals to be fulfilled.

Objectives

  • An in-depth review is needed of the public policies that aim to combat undeclared work.
  • It is advisable to draw up a plan comprising a number of different measures conducive to the regularisation of undeclared work.
  • There is a need to create a series of measures of limited duration that would foster the regularisation of undeclared work as an important part of the underground economy.

Specific measures

On 26 May 2011, the Spanish Parliament enacted Royal Decree (5/2011), aiming to push forward the regularisation of undeclared work. The plan has been carried out in two phases.

In the first phase, according to Royal Decree 5/2011, undeclared work is defined as paid work undertaken outside the social security system. It does not include other illegal activities or comprise the regularisation of working conditions in a broader sense (wages, working time and so on).

Under the new measures, the onus is on employers to take the initiative to register any undeclared workers they employ with the social security authorities. Then they must sign a contract lasting at least six months, regardless of whether it is fixed term or open ended.

Businesses that followed these procedures for any undeclared employees within their workforce before 31 July 2011 were not penalised and did not have to make any backdated social security contributions to cover the time that employees had been participating in undeclared work. They were only required to pay social security contributions from the point of registration onwards.

In the second phase, as of 31 July 2011, new measures and sanctions were applied to businesses employing undeclared workers. These modified the Law of Infractions and Sanctions in the Social Order (Royal Decree 5/2000) as follows:

  • It became the new obligation of all businesses to monitor the contracts of employees hired through subcontractors before they began work. Failure to do so is now considered a ‘serious infraction’, leading to a sanction for every undeclared worker.
  • Existing sanctions under the decree became stricter:
    • ‘Serious offences’ are punished with a fine of between €3,126 and €6,250 for minor infractions, €6,251 and €8,000 for medium offences and between €8,001 and €10,000 for major infringements. Previously, the penalty applied ranged between €626 and €1,250 for minor breaches, €1,251 and €3,125 for medium infractions and €3,126 and €6,250 for major breaches.
    • The fines for ‘very serious offences’ have not changed. They remain at €10,001 to €25,000 for minor infractions, €25,001 to €100,005 for medium offences and €100,006 to €187,515 for major breaches.
  • New sanctions will be linked to the financial help the government gives firms as part of its labour market policies to promote employment, such as discounts in employers’ social security contributions. Any enterprise sanctioned as a result of a very serious offence will be denied all such benefits for two years, and in the case of a serious offence, for one year.
  • Any enterprises sanctioned as a result of a serious or very serious offence will not be eligible to apply for public contracts for a period of five years.

Actors involved

Government, general administration and agent supervisors.

Transferability

Domestic service, agriculture, the hospitality industry and personal services.

Bibliography

Schneider, Friedrich G., Buehn, Andreas and Montenegro, Claudio E. (2010), ‘Shadow Economies All Over the World: New Estimates for 162 Countries from 1999 to 2007’, World Bank Policy Research Working Paper Series. Available at SSRN: http://ssrn.com/abstract=1645726

Pere Fabrés, CIREM, Praxis Centre for Policy Studies

 

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