The boundaries between dependent employment and self-employment have increasingly become blurred in some sectors in recent years, in a context of changing labour markets and the spread of practices such as outsourcing and contracting-out. This process has led to a growing interest in ‘economically dependent workers’ – workers who are formally self-employed but depend on a single employer for their income.
In the Czech Republic, economically dependent work has been increasing across sectors over the past decade. Officially, this category of workers belongs to the category of self-employed people and they work for an employer under a contract in line with the Czech Commercial Code. However, these workers are not covered by provisions of the Labour Code but they are included in the social security system and are therefore required to pay premiums on pension and health insurance plus a contribution to state employment policy. To control the presence of economically dependent work in the labour market, debate currently focuses on how to reduce non-wage labour costs, such as social insurance, and to encourage employers to use standard employment contracts.
Employment situation
The boundaries between dependent employment and self-employment have increasingly become blurred in some sectors in recent years, in a context of changing labour markets and the spread of practices such as outsourcing and contracting-out. This process has led to a growing interest in ‘economically dependent workers’ – workers who are formally self-employed but depend on a single employer for their income.
Czech labour law differentiates between two types of worker: employees and self-employed individuals. However, another category of workers is present in the labour market, those who could be considered ‘economically dependent workers’. In the Czech labour market, employing workers who technically belong to this category is referred to as the ‘employment of self-employed persons’. These workers officially belong to the category of self-employed people, but only work for, and gain income from, a single employer. As a rule, these people work for an employer under a contract in line with the Czech Commercial Code; such a contract may even stipulate that the ‘self-employed person’ must not perform any activity for any other entity that carries on a similar or equivalent business.
Individuals who fall into the category of economically dependent workers pursue diverse occupations. They include persons from lower-paid professions, such as construction workers, retail staff, hairdressers and waiters. However, also included in this category are well-paid pharmaceuticals sales representatives and real estate agents.
The ‘employment’ of self-employed persons is advantageous for employers – these workers are not protected by labour law, primarily the Labour Code in the Czech Republic. Therefore, they are not entitled to certain typical employee benefits, for example holiday pay or severance payment. In addition, employers are not obliged to make social security payments for such workers.
Employment status
The Labour Code lays down the criteria of dependent work. The definition of dependent work is limited exclusively to the personal performance of work by an employee for an employer, according to the employer’s instructions, in the employer’s name, in return for a wage, pay or reward for the work, during working time or an otherwise stipulated or agreed time in the employer’s workplace or at another agreed place, at the employer’s expense and responsibility. Cases wherein employment agencies temporarily allocate their employees to work at another employer under arrangements in a work contract or agreement on work activity are also regarded as dependent work.
In October 2004, a new employment act was passed that prohibited the employment of economically dependent workers. This act effectively forbade employers to hire self-employed persons to perform standard business tasks on a regular basis; according to the new act, these tasks were to be performed by employees hired in line with labour law obligations. The objective was to ensure labour-law protection under the Labour Code for all workers by changing their employment status, that is, by shifting those in the economically dependent workers category into that of the dependent employee category. However, this provision quickly came under fire and, following heated debate, was repealed as of 1 January 2007 under pressure from employer and business organisations.
Employment levels
No statistical research has investigated the actual number of economically dependent workers in the Czech Republic. However, labour force surveys which have been regularly carried out in the Czech Republic since 1993, make it possible to at least take an educated guess. Before 1990, self-employment was very limited. However, legislation adopted that year created a legal framework for self-employment.
The labour force surveys reveal a major increase in the number of self-employed people from 1993 to 2003. Although the number of self-employed persons declined in 2004 and 2005, overall it rose by 310,000 individuals for the entire 1993–2005 period. It is worth noting that the total number of dependent employees declined by 417,000 for that same period. It is reasonable to contend, given these statistics, that some employees were forced out of employment and into self-employment. Although many of those in self-employment display the characteristics of economically dependent workers, it is clear that keeping these people in a self-employed status is more advantageous for employers.
A large proportion of the self-employed category comprises self-employed people without any employees, and some of these workers could be classified as economically dependent workers. Self-employed people without employees accounted for 76% of all self-employed people in 2005. This number rose throughout the 1993–2003 period, while the number of self-employed people with employees, which had been on the increase up until 1996, has since been fluctuating.
The number of self-employed people varies from sector to sector, with the largest number to be found in the commerce and construction sectors. It is also notable in these sectors that the ‘self-employed without employees’ group is very large. It is reasonable to assume that the insufficient flexibility of the labour market, resulting from a relatively high level of employment protection legislation, necessitated a response in the form of using the available workforce of self-employed persons, who are not covered by the protections laid down in the Labour Code (see Kotýnková, 2006).
In 2006, the Economic Chamber of the Czech Republic (Hospodářská komora ČR, HK ČR) conducted a survey on The social and economic status of the self-employed in society. The survey findings indicated that 50% of self-employed people did not employ and had never employed an employee; 26% of them gained their revenues in the last six months from a single customer; 39% of self-employed individuals did not regard their status with the customer as equal; and 25% stated that they have had, or felt that they may have had, problems because their customer abuses its dominant position. These self-employed people seem to occupy a ‘grey area’ between regular employment and being properly self-employed; they can thus be considered as economically dependent workers.
No surveys dedicated to economically dependent employment have been performed but the findings of the HK ČR survey make it possible to estimate that around a quarter and maybe as much as one third of self-employed persons could be classified as economically dependent workers.
Relevant research
The principal motive for using self-employed individuals in the same way as employees is that employers do not have to pay any social and health insurance contributions for these workers as they have to for regular employees. They thus save on the total cost of labour.
Another HK ČR survey ascertained that 9% of those who are self-employed resorted to self-employment as a way out of unemployment. This suggests that these workers had no opportunity to acquire a permanent employment contract, and that self-employment became or may have become a path out of unemployment, with the hope of getting a permanent employment contract in the future.
Legislative regulation and policy debate
Self-employed individuals, including those who can be considered economically dependent workers, are covered by the social security system, and are therefore required to pay premiums on pension insurance plus a contribution to state employment policy and health insurance premiums. They may voluntarily apply for sickness insurance. These workers are entitled to draw all social security benefits and are also entitled to healthcare benefits as defined by law. Under the social security system, they may draw on pension insurance benefits, unemployment benefit, provisions under active employment policy, benefits for families with children such as child and parental allowances, as well as means-tested social aid benefits in terms of material needs. If economically dependent workers voluntarily apply to contribute to the sickness insurance fund, they are entitled to sickness benefits, maternity benefits and benefits for caring for a family member. Economically dependent workers, when considered as a sub-group of self-employed people, are not covered by the Labour Code, so its provisions guaranteeing minimum wage, maximum length of working time and paid recuperation leave do not apply to them.
The contract under which self-employed persons, including economically dependent workers, perform their work is governed by the Commercial Code, which also regulates the duration of the contract.
Self-employed people, including economically dependent workers, are not represented by trade unions and are not provided with training at the employer’s expense. Collective agreements are not concluded for economically dependent workers.
The issue of economically dependent workers is not currently the subject of policy debate in the Czech Republic.
Commentary
Reducing non-wage labour costs could in future help to diminish the incidence of the category of economically dependent workers in the Czech labour market; this is currently being talked about at expert and political levels. Much attention is being given to pension reform, with the aim of separating pension insurance premiums from labour costs. However, an increase in the scale of the phenomenon could ensue if unemployment continues to rise. This could result in those who are unemployed settling for poorer working conditions if they become economically dependent workers.
Comparative overview
A comparative overview of the situation in 16 European countries (15 Member States and Norway) was published in 2003 and is available online: Economically dependent workers, employment law and industrial relations. This article, compiled from the same questionnaire, serves to highlight the situation in one of the new Member States.
References
Economic Chamber of the Czech Republic, Sociálně – ekonomické postavení OSVČ ve společnosti. Sociologické šetření [The social and economic status of the self-employed in society, Sociological survey], Prague, 2006
Kotýnkova, M., Trh práce na přelomu tisíciletí [Labour market of this millennium], Prague, Oeconomika, 2006
Kotýnkova, M., Baštýř, I., Bruthansová, D. and Novák, J., Sociálně ekonomické postavení OSVČ ve společnosti [Position of the self-employed person in society], Prague, Rilsa, 2006
Jaroslav Hála, Research Institute for Labour and Social Affairs
Eurofound recommends citing this publication in the following way.
Eurofound (2007), Economically dependent workers in the Czech Republic, article.
