EurWORK European Observatory of Working Life

Romania: Efforts to fight undeclared work continue

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New laws have defined undeclared work, introduced new obligations on employers, and increased the sanctions for employers who employ workers without the correct contracts. The Labour Inspectorate is continuing its fight against undeclared work, which has fallen significantly since 2011.

New legal provisions

In August 2017, the Romanian government adopted  Emergency Ordinance no. 53/2017, amending the country’s Labour Code. The ordinance defines which situations can be considered as undeclared work and introduces new sanctions for employers who fail to make the proper declarations.

Until now, the law did not contain an exact definition of undeclared work, and sanctions applied only when an employee did not have a written work contract. Under the new provisions, the following situations are now defined as undeclared work:

  • employing a person without submitting an employment report to the General Register of Employees no later than the day before the start of the activity;
  • employing a person without an individual written employment contract, which must be in place no later than the day before the start of the activity;
  • employing a person when their individual employment contract is suspended;
  • employing a person outside their contracted part-time working hours.

The new provisions set out employers’ obligations and the sanctions for failure to comply, as follows.

  • From August 2017, each employer must keep a copy of each employee’s individual employment contract in the respective workplace. The fine for failure to comply with this legal provision is RON 10,000 (approximately €2,200).
  • In order to avoid employing a person outside their contracted part-time working hours, the employer must keep records of the hours worked by each employee, showing the starting and ending hours of the work schedule.
  • For part-time contracts, employers must now pay pension and healthcare contributions at the level of the minimum wage, even if the paid salaries are below the minimum wage. There are about 500,000 part-time work contracts in Romania, according to the government’s estimate. The government expects to collect additional revenues of RON 600 million (€131 million) this year by enforcing this provision. It also hopes that this provision will reduce the incentives for undeclared work and will reduce the number of employers using part-time contacts for full-time employees.
  • The ordinance increases the fines for employers using undeclared workers to the maximum level (RON 20,000 or approximately €4,500). It also gives the Labour Inspectorate the power to temporarily cease a company’s activity. The employer can resume activity only after the fine is paid and the anomalies rectified.
  • Employers who employ people who are victims of human trafficking can now be jailed for a period ranging from three months to two years.

The ordinance also repealed the criminalisation of the act of employing more than five people without an individual employment contract. The government considered that this law was inefficient and did not discourage undeclared work.

Continuous efforts to fight undeclared work

Despite the new rules, the fight against undeclared work does not seem to have intensified. In the month from 16 August to 15 September 2017, the Labour Inspectorate initiated 1,724 inspections against undeclared work and identified 122 people working without a legal contract. In the first six months of the year (January to June 2017), however, the Labour Inspectorate made 37,315 inspections (approximately 6,219 per month) and identified 3,033 people working illegally (around 500 people per month).

The Labour Inspectorate’s efforts against undeclared work had intensified during the economic crisis years. In 2011, a series of amendments to the Labour Code introduced severe sanctions for employers who used undeclared workers. As a result, the number of checks increased in 2011, reached a peak in 2014 and started to decrease in 2015. From 66,736 inspections in 2004, the number increased in 2011 to 97,889, reaching 127,903 in 2014 and declining to 70,976 and 76,690 inspections in 2015 and 2016 respectively.

The number of people identified by the Labour Inspectorate as working without legal employment documents was 29,095 in 2011. In 2014 – the year the Labour Inspectorate inspections reached a peak – the number of people found working without legal documents was 14,096 – less than half of 2011’s total. This fell even further to 9,936 in 2016. The figures suggest a possible fall in undeclared work as a result of increased inspections.

Data from the National Institute of Statistics (INSEE) show that more than 700,000 new formal jobs were created between 2011 and 2017. It is likely that this resulted from a combination of factors, including the economic recovery and more flexible labour relations after changes to labour legislation in 2011, as well as the new sanctions.

Commentary

Informal employment in Romania remains largely higher than in other countries in the region, with figures ranging from 20% to 50% of total employment. Informal employment has most probably increased due to the recent financial crisis.

Informal work takes various forms, from subsistence agriculture and false self-employment, to workers without labour contracts and under-declaration of earnings. If the self-employed or non-remunerated family workers are excluded and reference is made only to those employees without a contract, undeclared work in Romania looks atypical compared with other EU Member States. Evidence shows that, in all parts of Europe, informal work is strongly correlated with low skills; the groups most likely to work informally are people with less education, young people, older people and people with permanent health problems. In Romania, however, a substantial proportion (approximately 35%) of people employed informally work in non-manual, high skill jobs. Similarly, more than one-third of informal workers in Romania have high levels of education – a higher proportion than most EU countries. Nonetheless, the Romanian Fiscal Council’s Annual Report 2003 identified that the sectors with the highest concentrations of informal workers are well-known for high labour concentration and low skilled work, such as construction, retail, transport and textiles.

In its most recent country report on Romania, the European Commission estimated that undeclared work represents 15%–20% of Romania’s gross domestic product. The European Commission warns that, despite reinforced joint controls, undeclared work remains prevalent, reducing both labour supply and fiscal revenue.

Bibliography

Albu, L. (2011), Informal economy and its impact on the labour market, National Trade Union Bloc, Bucharest.

Drechsler, D. and Xenogiani, T. (2008), The two faces of informal employment in Romania, Policy Insights No.70, OECD Development Centre, Paris.

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