Regularisation of undeclared work, Italy

Data from the National Institute of Statistics indicate that undeclared work represents a significant problem in Italy, particularly in the services sector and in industry, as well as in certain regions. In response to this problem, the Italian government introduced a number of measures in 2006 which seek to regularise undeclared work, as well as providing tax and social security incentives for employers to regularise such employees. A key factor has been the development of closer links between the actors responsible for employment regulation.

Background

According to the most recent estimates by the National Institute of Statistics (Istituto nazionale di statistica, Istat), the number of irregular equivalent full-time work positions (labour units) fell from 3.1 million to 2.9 million between 2000 and 2006. The highest proportion of irregular work was recorded in the services sector (2.2 million units), followed by industry (495,000 units) and agriculture (290,000 units). Between 2000 and 2006, the rate of undeclared work increased in agriculture from 20.5% to 22.7%, while it decreased in services from 15.3% to 13.7% and in industry from 7.1% to 5.7%. The 2006 data highlight how, in the industry sector, the construction industry has the highest level of irregular work (11%), followed by textiles and clothing (9.1%), and wood products and furnishings (6.8%). In the services sector, domestic work records the highest amount of irregularity, which in 2006 accounted for 53.1% of labour units. The overall rate of irregularity in 2006 amounted to 12% of total employment.

In Italy, the phenomenon of undeclared work is markedly differentiated in geographical terms. The Istat data from 1980 to 2005 show, for example, how the rates of irregularity are particularly high in certain regions – such as Calabria (26.9%) and Sicily (21.4%) in southern Italy. However, in absolute terms expressed in irregular labour units, some of the northern regions are also affected by the phenomenon – particularly Lombardy (349,000 units) and Veneto (197,000 units). In 2006, some 1,614,000 resident irregular workers were recorded, along with 352,000 irregular foreign workers and about 1,000,000 irregular multiple job-holders. The fragmentation of the production system and the predominance of small companies have hampered measures seeking to reduce the phenomenon of undeclared work, a problem which is further compounded by the difficulties encountered by the country’s inspection service.

In order to combat undeclared work, in 2006 the Italian government introduced various measures designed to encourage the exposing of irregular employment in all sectors. The measures were enacted by Law No. 296 of 27 December 2006, Article 1, subsections 1192 to 1201, entitled the ‘Regularisation of employment relationships unrecorded by accounts or other compulsory documentation’.

The measures in question only concern undeclared work. They do not relate to the standard employment of workers involving the total or partial non-payment of compulsory contributions, nor to ‘economically dependent workers’ who depend on one employer but are officially registered as being self-employment. Moreover, the measures do not concern the employment of non-EU citizens who are not in possession of residency permits at the moment when application for regularisation is made. Regularisation also concerns the employment of domestic workers of Italian, EU or non-EU origin who are in possession of permits for standard employment.

The National Social Security Institute (Istituto nazionale per la previdenza sociale, Inps) must verify fulfilment of all the requirements stipulated by law. The application is subsequently examined by a board consisting of representatives from the Provincial Labour Directorate (Direzione Provinciale del Lavoro), Inps, the National Workplace Accident Insurance Institute (Istituto nazionale assicurazione infortuni sul lavoro, Inail) and social security institutes.

Objectives

The main objective of the measures in question is to regularise all employment relations not registered by companies in their book-keeping accounts or other compulsory records, and for which social security and other payments are not consequently made. Particular emphasis is placed on measures designed to promote the spontaneous uncovering of undeclared work through the regularisation of such work via a process agreed on with the trade unions and which guarantees regular employment for the workers concerned.

Specific measures

Regularisation of undeclared work requires the signing of special conventions stipulated by Inps, Inail and the regional administrations.

In accordance with the aforementioned Law No. 296 of 2006, agreements on uncovering undeclared work – so-called ‘emergence agreements’ – must be signed by the trade unions and employer organisations, followed by individual employment contracts agreed on between the employer and worker. Employers with workers who are not recorded in their accounts or other compulsory documentation were given the opportunity to apply to Inps for regularisation from 1 January 2007 to 30 September 2007; the latter date was subsequently extended to 30 September 2008. The following provisions were also stipulated under the regulations.

• Employers applying for regularisation are exempt for one year, from the date when the application is first submitted, from inspections and controls regarding their compliance with the regulations on social security and insurance payments. However, this exemption does not apply to compliance with workplace health and safety regulations (Article 11 of Law No. 123, 3 August 2007).
• The application of sanctions on non-compliant employers is therefore suspended until effective regularisation. The application for regularisation must be preceded by an agreement at company or territorial level with the trade unions affiliated to the most representative national confederations. This agreement must then be followed by the stipulation of contracts for standard employment comprising individual ‘conciliation agreements’ (atti di conciliazione); under such agreements, the parties should undertake to respect the contractual framework in the sector and commit themselves to rectifying the irregularity.
• The employer must guarantee continuous employment for at least two years. The contracts stipulated between the employer and worker may also be for temporary or part-time work, provided that it is for more than 24 months. Work-entry contracts of 18 months’ duration and intermittent work contracts are excluded. Apprenticeship contracts may be allowed only if they aim to give the worker a qualification which is entirely different or superior to the one subject to the undeclared employment relationship.
• The agreement does not cover contributions not paid by the employer to the Inps, and it becomes invalid within five years from the date of submission of the application. In order to fulfil the social security obligations of the employment relationships subject to the regularisation procedure, employers must pay a sum equal to two thirds of the amount due for the period subject to regularisation to the social security institutes for the worker in question – this amount can be paid altogether or in 60 monthly instalments. The contributory relief for the employer is temporarily suspended to the amount of 50% and automatically granted at the end of every year of regular employment by the workers. The contributions paid are refunded to the employer – following verification of compliance with the other legal requirements – in cases where the worker resigns or is dismissed for a just cause. Conversely, in the case of ascertained non-compliance with the legal requirements, the provision adopted will only be instigated on application of the full contribution.

Evaluation and outcome

Achievement of objectives

The said regulations were included in the 2007 Budget Law but subsequently extended until 30 September 2008. The objective of the measures is to involve all actors with specific competencies regarding the regulation of working conditions in the various provinces: namely, Inps, Inail, the trade unions and employer organisations, employment centres and the provincial labour directorates. The first Inps data for 2007 reported the regularisation of some 10,000 workers through these emergence contracts.

Obstacles and problems

The biggest obstacle concerns the distinctive features of the Italian production system, whose fragmentation and high proportion of small sized companies represent major impediments to the uncovering of undeclared work. Other obstacles are more cultural in nature and constitute the same factors that have enabled the growth of undeclared work in Italy: more specifically, a widespread culture of illegality and the minor importance attached to the positive effects of dialogue between the various institutions and the social partners.

Lessons learnt

The main lesson learned is that positive outcomes derive from close links being formed between all of the actors competent in employment regulation. The trade unions and Inps assessment testify that the provision has led to positive results in the uncovering of undeclared work. Nevertheless, it has not produced an immediate change in the reduction of this phenomenon. For this reason, the provision should be flanked by increased inspections and continuous monitoring.

Impact indicators

The launch of this measure and its initial results seem to indicate that undeclared work can be progressively reduced. The most beneficial measures have been circulated for replication. Discussion has also made it possible to establish a network among the actors involved at provincial level, which was not feasible prior to adoption of the provision.

Transferability

The provision is transferable to all industry and service sectors.

Contacts

Main organisations responsible:

Inps, Website: www.inps.it

Inail, Website: www.inail.it

Istat, Website: www.istat.it

Ministry of Labour, Health and Social Policies (Ministro del Lavoro, della Salute e delle Politiche Sociali), Website: www.lavoro.gov.it

Ministry of the Interior (Ministero dell’Interno), Website: www.interno.it

Revenue Agency (Agenzia delle Entrate), Website: www.agenziaentrate.it

National Council for Economic Affairs and Labour (Consiglio Nazionale dell’Economia e del Lavoro, CNEL), Website: www.cnel.it

Research Empowering Resurfacing (Reteres)

Italian Government (Governo Italiano), Website: www.governo.it

Bibliography

Lucifora, C., Economia sommersa e lavoro nero, Bologna, Il Mulino, 2003.

Meldolesi, L., Occupazione ed emersione, Rome, Carocci, 2000.

Tania Toffanin, Università degli Studi di Milano