New rules for marginal employees, Germany
The federal government introduced new regulations for marginal part-time employment, specifically lower tax and insurance contributions, in an effort to boost employment in the low-wage sector and tackle undeclared work. In addition, a Mini-job Centre was set up with responsibility for the registration of mini-jobs and the collection of contributions.
As a result of the so-called HARTZ reforms (DE0401205F, DE0302105F), regulations concerning marginal part-time employment were revised. Special privileges concerning tax and social security contribution payments were introduced for certain marginal employment contracts.
New rules on marginal part-time employment were introduced in order to create additional employment in the low-wage sector and to tackle undeclared work.
Marginal part-time employees: those earning not more than €400 a month are exempt from paying social security contributions, i.e. contributions to the statutory health, pension and unemployment insurance. In the case of the statutory pension scheme, the employer pays all of a reduced contribution of 15% (as opposed to half of the regular 19.6%) of the monthly gross wage. Marginal employees earn correspondingly lower pension entitlements but can bring this up to the full entitlement by voluntarily paying the remaining sum (4.6%) into the pension scheme. Employers also pay the full amount of a reduced contribution (13% as opposed to the regular 15.5% for dependent employees) into the statutory health insurance scheme.
Marginal employment of short duration: Employees are exempt from paying social security contributions regardless of the level of their pay. Employers have to pay the same contributions as in the first case. ‘Of short duration’ is defined as 50 days or two months of work during one calendar year. The two-month rule applies to employees working five or more days a week. If employees work fewer days per week, the 50-day rule applies.
Special regulations were also introduced covering marginal jobs carried out in private households. Employees earning a maximum of €400 a month or taking on a mini-job for a short duration (see above) are exempt from paying social security contributions. Employers’ rates are reduced: 5% is paid into each of the statutory health and pension insurance systems. However, employers in this sector can set off some of these wage costs against their tax liability.
As part of the above-mentioned reforms, a single responsible authority, the Mini-job Centre (Minijob-Zentrale), was set up. It is responsible for the legal administration of mini-jobs, e.g. registration of mini-jobs and the collection of contributions.
Outcome of evaluations; lessons and conclusions
Achievement of objectives
Schneider (2007) shows that the introduction of the mini-job regulations led to a decrease in illegal work in 2004 and 2005 worth about €9 billion. He points out, however, that these effects depend on the current level of social security contributions. For example, when social security contributions were raised from a total of 25% to 30% payable by employers for commercial mini-jobs, Schneider estimated that undeclared work would spread again – by a volume of between €400 million and €700 million (Schneider, 2007). These effects might be offset to some extent by lower social security payments for regular employment (e.g. contributions to the statutory pension scheme decreased from 19.9% to 19.6% at the beginning of 2012).
With regard to mini-jobs in private households, Gottschall and Schwarzkopf (2011) hold that the introduction of the household cheque scheme led to more registration of marginal employees. The service by the Mini-job Centre makes it easier to register domestic help with the authorities.
Obstacles and problems
In 2011, the Bundesrechnungshof (BRH) evaluated the effectiveness of the tax reduction for marginal employment contracts, services related to household activities and tradesmen’s services. With regard to mini-jobs, the BRH conceded that not enough people had applied for the tax reduction for it to be able to make a judgement on the effectiveness of the whole scheme (BRH, 2011).
Initial studies on the introduction of lower tax and social security contributions for mini-jobbers indicate a decrease in undeclared work. However, this development might depend on the current level of social security contributions.
The Mini-job Centre publishes quarterly data. According to these figures, the number of registered commercial mini-jobbers fell from 6,837,866 in December 2004 to 6,760,039 in March 2012. The opposite trend is apparent for mini-jobbers in private households: numbers rose from 102,907 in December 2004 to 234,453 in March 2012. Figures refer to the reporting dates 31 December 2004 and 31 March 2012.
Apart from these registration figures, little data is available on the reduction of undeclared work as a result of the mini-job regulations (see above).
The scheme is not easily transferable to other European states, since it was designed for the German tax and social security system.
Sandra Vogel, IW Köln: http://www.iwkoeln.de/de
Bernhard, S. and Wolff, J. (2011), ‘Förderinstrument im SGB III. Der Gründungszuschuss aus Sicht der Praxis’ [‘The start-up premium from a practical perspective’], IAB Kurzbericht, No. 22.
Boockmann, B., Dohrn, R., Groneck, M. and Verbeek, H. (2010), Abschätzung des Ausmaßes der Schwarzarbeit. Eine Untersuchung im Auftrag des Bundesministeriums für Arbeit und Soziales [Estimation of the extent of undeclared work: An analysis on behalf of the federal Ministry of Labour and Social Affairs], Tübingen/Essen.
Bundesrechnungshof (BRH) (2008), Bericht nach § 99 BHO über die Organisation und Arbeitsweise der Finanzkontrolle Schwarzarbeit (FKS) [Report on the organisation and operation of the Tax Enforcement Unit for Undeclared Work according to Article 99 of the Federal Budgetary Regulations].
Bundesrechnungshof (BRH) (2011), Bericht nach § 99 BHO über die Steuerermäßigung für haushaltsnahe Dienstleistungen und Handwerkerleistungen nach § 35a EStG [Report by the Federal Audit Court on tax reductions for services related to household activities and tradesmen’s services].
Caliendo, M. et al (2011), ‘Alte Idee, neues Programm. Der Gründungszuschuss als Nachfolger von Überbrückungsgeld und Ich-AG’ [Old idea, new measure: The start-up premium as successor to the “bridging grant” and “Me PLC”’], IAB discussion paper no. 24, German Federal Employment Agency, Nürnberg.
Deutsche Bundesregierung (2009), Elfter Bericht der Bundesregierung über die Auswirkung des Gesetzes zur Bekämpfung von Schwarzarbeit – BillBG.
Feld, L.P. and Larsen, C. (2012), Das Ausmaß der Schwarzarbeit in Deutschland, University Press of Southern Denmark, Odense.
Gottschall, K. and Schwarzkopf, M. (2011), Legal and institutional incentives for undocumented incentives in private households in Germany, Hans-Böckler-Stiftung, Düsseldorf.
Schneider, F. (2007), Reducing the shadow economy in Germany: A blessing or a curse?, Discussion Paper, Department of Economics, University of Linz.
Schneider, F. (2009), ‘Size and development of the shadow economy in Germany, Austria and other OECD countries: Some preliminary findings’, Revue économique, Vol. 60, No. 5.
Sandra Vogel, Cologne Institute for Economic Research, IW Köln