Registration system for work contracts, Slovakia
Since 1 April 2005, every employer is obliged to report each employment contract to the Slovakian Social Insurance Agency before the commencement of the respective work. In addition, the termination of the employment contract has to be reported not later than a day after its expiration. This registration system aims to control undeclared work; however, it is administratively demanding – some 5.4 million applications are made each year.
According to data from surveys, the informal economy amounted to about 18% of gross domestic product (GDP) in Slovakia in 2003. Experts of the Slovakian Statistical Office (Štatistický úrad Slovenskej republiky, ŠÚ SR) estimated that undeclared work represented up to 5% of total employment in that year (Bednárik, 2004). Slovakia has been struggling with high long-term unemployment for a number of years, for example at rates of between 13% and 20% in 1991–2003. One of the measures taken to prevent and combat undeclared work has been the adoption of an obligation by employers and self-employed persons to report the start as well as the expiration of any employment contract to the Social Insurance Agency (Sociálna poisťovňa, SP).
Employers’ duty to register working contracts (ohlasovacia povinnosť zamestnávateľov) was implemented by Act No. 274/1994 on the Social Insurance Agency and by Act No. 461/2003 on social insurance. At first, the registration and de-registration obligation for all cases had an eight-day deadline. This timeframe was sufficient, as the primary function of the registration was to collect contributions to individual insurance funds for sickness, old-age and invalidity benefits, as well as for pensions for a surviving spouse. Later on, the contributions also covered unemployment and occupational injuries. Since 1 April 2005, however, stronger regulations apply with regard to the prevention of undeclared work, and the rules for employers to register new employees have changed accordingly.
The registration is an administrative measure; the employer has to submit a completed pre-printed employee registration form to the relevant SP branch office. Other participants in the initiative are auditing authorities, which should be able to check the correctness of audited employee data directly and more quickly during a control as a result of the registration procedure. The latter argument is made in the Reasoning report to the bill on illegal work, document No. 2800/2004-II/1 of the Ministry of Labour, Social Affairs and Family (Ministerstvo práce, sociálnych vecí a rodiny, MPSVR SR). The National Labour Inspectorate (Národný inšpektorát práce, NIP) would be the main actor involved in such checks.
The primary objective of the registration requirement is to oblige employers to inform SP of any employees who join or leave the company; the process is usually carried out electronically. Self-employed persons have the same duty to register the start and end of their business activities.
Each employer must register the start and end of any employment contract in the register of insured persons administered by SP. The obligation to fill in the registration form and send it electronically, by fax or text message to the relevant SP branch office begins one day before the official start of working activities agreed on in any type of employment contract. It finishes one day after the end of the working activity of the employee concerned, at the latest. Self-employed people have the same obligation with the difference that the registration period to SP is up to eight days after the start and end of their entrepreneurship.
Since 1 January 2004, a heavier fine applies for breaching the registration obligation. SP is authorised, according to the seriousness of the violation, to impose a fine of up to SKK 500,000 (€16,600 as at 2 February 2009). Previously, the penalty amounted to up to SKK 100 (€3.31) per employee and per day of the delay.
The administrative obligations of the measure amounted to almost 5.5 million registrations and withdrawals in a one-year period.
Evaluation and outcome
Achievement of objectives
Stricter registration requirements and tightening of the registration deadline for reporting were implemented as a result of previous practical experience with the detection of undeclared work. Inspectors found that employers tended to delay employment reporting, with the employer concerned making excuses to the control authority that it had not yet been able to register the relevant employee with SP as the employee started to work only recently – but that it would manage to do so in the required period of eight days.
Since 1 April 2005, according to Act No. 461/2003, paragraph 231, any employer is obliged to add any employee to the SP register of insured persons not later than one day before the employee starts to work for the employer. For the purposes of the registration obligation, an employee is considered as a person working on an employment contract or hired externally on the basis of an agreement on working activity or agreement on work performance. The employer is also obliged to withdraw its employees from the register one day, at the latest, after they finish any type of employment contract.
Obstacles and problems
Technical problems arise in setting up a fully electronic registration system, such as concerning the internet connection and electronic signature of employers with a small number of employees. Therefore, at the moment, the system allows employers to legally register by means of a text message, by fax or electronically without an electronic signature, and then to send the registration form by post within three days.
Excessive administration is another barrier against an effective electronic registration. The law obliges other state bodies or authorities to participate in the registration process, such as the Ministry of Interior (Ministerstvo vnútra Slovenskej republiky, MV SR). Furthermore, the improvement of cooperation between SP branch offices is a problem that should be solved as soon as possible.
So far, the registration system has been working for more than three years and it helps mainly to verify data about the employee during inspections aiming to identify and combat undeclared work. The controls are implemented by labour inspectorates, tax offices, the Head Office of Labour, Social Affairs and Family (Ústredie práce, sociálnych vecí a rodiny, ÚPSVaR) and the Presidium of the Police Force (Prezídia Policajného Zboru). During the functioning of the system, government executive authorities have intensified their cooperation and gained new experiences of searching effectively for undeclared work.
Data provided by SP outline the following results subsequent to the stricter registration obligation:
- the average monthly number of insured people in the accident insurance fund was 1,912,375 persons in 2007;
- the average monthly number of self-employed people with pension insurance was 227,425 persons in 2007;
- insured persons in the self-governing region of Trnava (Trenčiansky samosprávny kraj, TSK) in western Slovakia represented about 4.53% of the total number of insured people in 2007;
- in June–July 2007, 23,454 registration forms and 17,701 withdrawal forms of employees and external employees working on agreements were processed in TSK;
- in June–July 2007, 781 registration forms and 260 de-registration forms of self-employed persons were processed in TSK.
The total estimated number of registration forms in SP in 2007 was 5.436 million. Moreover, in the first half of 2008, the inspection authorities checked, in relation to the detection of undeclared work, about 20,000 people and identified 971 persons who were employed illegally.
The registration system requires the coordination of a large number of state bodies. It also requires employers to be equipped with an internet connection and electronic signature, so that the efficiency of detecting and combating undeclared work can be improved. Moreover, it is important to ensure supplementary technical hardware and software equipment within the social insurance agency and among its branch offices to facilitate better internal communication and services.
Reducing the time allowed for fulfilling the registration obligation eliminated the possibility of employers applying late when undeclared workers were found on the premises. The tighter registration period also applies for different types of work contracts than standard employment contracts, which curtails the opportunity for employers to cheat by using undeclared work.
This preventive system was established after the accession of Slovakia to the EU in 2004 and in a period when the unemployment rate was decreasing. However, the administrative demands of the system raise concerns as to whether it would be as effective in a context of rising unemployment. In such a scenario, the number of registered and de-registered employees by employers, as well as the number of unemployed persons registered by labour offices, will increase significantly. This demand will require further technical requirements of the system.
Main organisations involved:
- Social Insurance Agency (Sociálna poisťovňa), Ústredie, Bratislava, www.socpoist.sk
- National Labour Inspectorate (Národný inšpektorát práce), Košice, www.safework.gov.sk
- Head Office of Labour, Social Affairs and Family (Ústredie práce, sociálnych vecí a rodiny), Bratislava, www.upsvar.sk
- Tax Directorate of Slovakia (Daňové riaditeľstvo Slovenskej republiky), Banská Bystrica, www.drsr.sk
- Presidium of the Police Force (Prezídium policajného zboru), Bratislava, www.minv.sk
Act No. 274/1994 on the Social Insurance Agency (Zákon č. 274/1994 Z.z. o Sociálnej poisťovni).
Act No. 461/2003 on social insurance (Zákon č. 461/2004 Z.z. o sociálnom poistení).
Act No. 82/2005 on undeclared work (Zákon č. 82/2005 o nelegálnej práci).
Bednárik, R., European Industrial Relations Observatory (EIRO), part of the European Foundation for the Improvement of Living and Working Conditions, Thematic feature – Industrial relations and undeclared work, Dublin, Eurofound, 2004, available online at: /ef/observatories/eurwork/articles/thematic-feature-industrial-relations-and-undeclared-work-20.
Bednárik, R., Danihel, M. and Sihelský, J., Nelegálna práca v podmienkach slovenskej spoločnosti, Friedrich Ebert Foundation, Bratislava, 2003.
Ministry of Labour, Social Affairs and Family (MPSVR SR), Informácia o vyhľadávaní a potieraní nelegálnej práce a nelegálneho zamestnávania za I. polrok 2008, Bratislava, 2008.
Rastislav Bednárik, Institute for Labour and Family Research