Regulations for legalising domestic work, Poland
Domestic work is one area of the Polish labour market which is particularly prone to undeclared work. In 2005, new regulations creating conditions for legalising this form of employment were introduced. However, the initiative failed to produce the desired results, as those targeted by the regulation simply ignored its provisions; as a result, the regulations were eventually repealed by the government in 2006.
In Poland, the phenomenon of undeclared work is particularly prevalent in domestic services. Research on the informal economy repeatedly confirms that householders frequently use the services of domestic workers without reporting it to the social insurance authorities. For instance, according to a 2004 survey conducted by the Central Statistical Office (Główny Urząd Statystyczny, GUS), more than one million householders used undeclared work that year. Furthermore, demand for undeclared work by householders is estimated to exceed the demand by business enterprises.
While the widespread existence of informal, paid domestic work has been broadly acknowledged, it is generally not perceived as a form of serious misconduct by either the employer or workers. Rather, it is usually rationalised on the basis of the complexity and rigidity of the legal framework.
In an effort to provide an incentive for both domestic service workers and their employers to enter the formal economy, the Polish government introduced a regulation seeking to legalise such forms of employment. In 2005, a package of amendments to the Act on employment promotion and labour market institutions was adopted, according to which a household wishing to hire a domestic service worker would be able to do so under certain conditions. The new regulations came into force in November 2005 and were included in a separate Chapter 11a, entitled ‘Supporting paid work in households’.
The regulations were devised by the Ministry of Labour and Social Policy (Ministerstwo Pracy i Polityki Społecznej, MPiPS). The ministry also prepared the amendment repealing the regulations. Under the regulations, District Labour Offices (Powiatowy Urząd Pracy, PUPs) were responsible for registration of the ‘activation employment contracts’. The offices were also required to assist both parties in the process of establishing a new employment relationship, including the provision of a standardised form of contract.
The main objective of the new regulations set out in Chapter 11a was to encourage householders, on the one hand, and unemployed persons either already performing informal housework or considering such an option, on the other, to formalise their employment relationship. Under the regulations, employing households could claim tax deductions, while domestic workers were to benefit from social and health insurance contributions. It was also hoped that the new provisions would help to reduce the unemployment level, which was extremely high at the time.
Under the new regulations, a person wishing to avail of external labour – such as housekeepers, babysitters or gardeners – was asked to notify a District Labour Office of their plans. In order to hire an unemployed person, a prospective employer was required to establish an ‘activation employment contract’ with the domestic worker and then to submit a copy of this contract to the local employment office.
The regulations laid down a number of conditions to be met by the prospective employer as follows:
- only unemployed persons could be hired on the basis of an ‘activation employment contract’;
- while employed as a domestic worker in one particular household, such workers were not allowed to enter into another contract of this type with anyone else;
- close relatives, such as an aunt or brother-in-law, could not be employed under this type of contract;
- pensioners and persons drawing disability benefits could not be hired under this type of contract;
- the contract had to be established for at least one year;
- only people registered with the financial authorities as payers of personal income tax (PIT) could employ another person under this type of contract. Self-employed individuals who had chosen to pay corporate income tax (CIT) were excluded.
In recognition of their effort to legally employ a formerly unemployed domestic worker, the employer was entitled to deduct from their income tax all documented expenses borne with respect to the domestic worker’s social and health insurance contributions.
Evaluation and outcome
Achievement of objectives
The government’s legislative proposals met with a wave of public criticisms. Firstly, critics of the scheme pointed to the restrictive conditions under which the conclusion of an ‘activation employment contract’ was to be permitted. Moreover, as the incentives offered by the government were considered quite modest, the forthcoming regulations were predicted to discourage rather than promote the legalisation of domestic work.
Once the new regulations came into force, it became obvious almost immediately that the reservations expressed by the critics were justified. While no exact data on this issue is available, the vast majority of potential beneficiaries of the regulations allegedly remained in the informal economy.
Obstacles and problems
As noted, the major obstacle hampering the adoption of ‘activation employment contracts’ in practice was the complicated conditions which both sides of the employment relationship had to meet, along with minor incentives which were offered to justify this effort. Householders were put off by the bureaucratic conditions required for the formalisation of domestic workers’ employment. At the same time, the workers themselves preferred to continue engaging in undeclared work under a special understanding with the householder. In addition, the exclusion of certain categories of workers acted as a further disincentive regarding the ‘activation employment contracts’. Pensioners often work for households as housekeepers or babysitters, for instance, while relatives and cousins may help out on family farms.
A comprehensive study on undeclared work was commissioned by the MPiPS and carried out in 2007, using combined qualitative and quantitative methods. In spite of being performed after the aforementioned regulations had been repealed, the research revealed numerous motives behind the reluctance of both householders and domestic workers to formalise such employment relations. It can be assumed that these motives did not change significantly between 2005 and 2007, so these results may be helpful in understanding the position of both householders and domestic workers.
In particular, the results highlighted how householders did not perceive any financial benefit from formalising the employment of domestic workers and believed they should not be forced to bear any fiscal or similar burdens related to this work, such as social and health insurance contributions. Another problem concerned the cultural barrier: in Poland, domestic work is often perceived more as of a form of ‘help’ provided on a routine basis rather than a regular ‘job’. The research also confirmed people’s widespread resistance to the bureaucratic burden entailed in the formalisation of employment. Moreover, the risk of illegal employment being discovered by the authorities is not considered serious, as there are numerous techniques used to cover the practice.
Owing to the poor results, the government proposed to abandon the much criticised regulations. Less than a year after the regulations came into force, in October 2006 the government proposed another package of amendments to the Act – including the complete abandonment of Chapter 11a. On presentation of these proposals to the parliament, the government claimed that the removal of the regulations was due to pressure from the Ministry of Finance (Ministerstwo Finansów, MF), which disfavoured the tax incentives allowed under the ‘activation employment contracts’. Thus, the failure of the concept itself was not explicitly referred to by the government. However, the media coverage regarding this decision was more circumspect. Even the Ministry of Finance rejected these claims in its formal opinion on the draft legislation, suggesting that the regulations simply did not function as originally expected. Eventually, the draft legislation on the repeal of Chapter 11a was submitted to the parliament in early 2007 and adopted in August 2007.
Although the regulations were deemed a failure, numerous voices objected to the idea of removing the entire Chapter 11a. It was argued that the underlying concept itself was worthwhile, as supported by the bulk of evidence from other European countries, where legal instruments allowing householders to legally employ domestic workers exist. Only the specific solution devised by the government proved inefficient. During the legislative process for repealing the regulations, official opinions were presented to the lawmakers stating that the regulations should be retained and corrected rather than simply done away with.
While debating the draft legislation in 2005, the government estimated that the number of people performing domestic work amounted to between 70,000 and 100,000 persons. No precise statistical data regarding the number of ‘activation employment contracts’ actually concluded has been published, although the regional employment offices were obliged to register such contracts.
The idea of legalising the employment of domestic workers has recently resurfaced. Notably, research commissioned by the MPiPS in 2007 strongly recommended certain forms of legalisation of domestic work, including temporary agency work, or the issuing of special vouchers for remunerating domestic workers. Despite its lack of success, the government initiative in 2005 might serve as a signpost for future solutions.
The first institutionalised attempt to entice domestic workers into the formal economy has failed. Nonetheless, repealing the regulations and not replacing them with any new policy generated widespread criticism. Interestingly, the recent research on this issue recommended the legalisation of domestic work. Therefore, it is likely that the issue will re-emerge in the public debate in the future.
Main organisations responsible:
Ministry of Labour and Social Policy, Website: www.mpips.gov.pl
District Labour Offices, Website: www.psz.praca.gov.pl
- Statistical Office, Unregistered work in Poland in 2004 [Praca nierejstrowana w Polsce w 2004], Central Statistical Office, Warsaw, 2005.
- of Labour and Social Policy, The reasons behind unregistered work in Poland [Przyczyny pracy nierejstrowanej w Polsce], Ministry of Labour and Social Policy, Department of Labour Market, Warsaw, 2008.
Jan Czarzasty, Institute of Public Affairs (ISP)