EurWORK European Observatory of Working Life

Undeclared work

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Despite the absence of a unique, official definition, there seems to be a broad consensus in Europe – evolving over time – on what constitutes undeclared work.

The European Commission defines undeclared work in its 2007 Communication Stepping up the fight against undeclared work’ (COM/2007/0628) as ‘any paid activities that are lawful as regards their nature but not declared to public authorities, taking into account differences in the regulatory system of Member States’. This definition links undeclared work with tax and/or social security fraud and covers a range of activities, from informal household services to clandestine work by illegal residents, but excludes criminal activities.

The 2007 Commission definition takes into account the following three forms of undeclared work:

  • undeclared work within a formal enterprise – or what might be termed ‘undeclared waged employment’: this work can be either wholly undeclared (whereby all of the person’s wages are paid ‘off the books’) or partially undeclared (whereby a portion of the wage from one’s formal employer is paid officially and the remaining portion is paid off the books – ‘envelope wages’);
  • own-account undeclared work – work for a formal enterprise or another client, such as a household, conducted under social relations akin to self-employment;
  • socially embedded own-account undeclared work – work involving the delivery of goods and services directly to consumers who are neighbours, family, friends or acquaintances.

Undeclared work remains a widespread phenomenon around the world. European Institutions underline that it is a concern for policymakers and citizens, as it has serious budgetary implications through decreased tax and social security revenues, thus undermining the financial sustainability of social protection systems. It has negative impacts on employment and productivity and distorts the level playing field. As a consequence, there have been a range of initiatives at EU level to try to reduce the incidence of undeclared work.

In its 2007 Communication, the Commission identified the main drivers for the informal economy, set out ways to reduce it and proposed a series of concrete follow-up actions at European and national levels.

Assessing the scale of undeclared work is inherently difficult, although estimates can be made based both on direct methods (survey-based) and indirect methods (interpreting observable phenomena as a sign of the invisible economy). While direct methods probably underestimate the phenomenon, and indirect methods have been criticised for over-estimating it, it seems clear that it remains a widespread issue across Europe. According to 2013 Eurofound research, it represented around 18% of GDP in 2012, with important differences across Member States. The research identified two broad policy approaches at national level:  

  • deterrence-based – improving detection tactics or increasing penalties; 
  • compliance-based – by preventing people from taking up undeclared work, enabling the legitimisation of previously undeclared work, and changing attitudes.

However, despite the existence of various policies, it is clear that the fight against undeclared work is on-going and that a holistic approach is needed.

In its April 2012 Employment Package, the Commission stated that transforming informal or undeclared work into regular employment could help to reduce unemployment in the European Union. The Employment Package highlighted the need for improved cooperation on undeclared work between Member States and called for the creation of an EU-level platform for labour inspectorates and other enforcement bodies to combat undeclared work.

In July 2013, the Commission launched a formal consultation of the EU social partners  under Article 154 of the Treaty on the Functioning of the European Union (TFEU) on ‘enhancing EU cooperation in the prevention and deterrence of undeclared work’. It highlighted the three main issues surrounding undeclared work:

  • abusive behaviour regarding working conditions and/or health and safety norms, leading to the involvement of labour inspectorates;
  • fraud regarding social insurance contributions, involving social security inspectorates;
  • tax evasion, mobilising tax authorities.

According to the Commission, enhanced cooperation at EU level between these enforcement authorities would greatly improve the situation. One way of achieving this would be to set up a European platform comprised of representatives of the Member States and other stakeholders. The social partners were consulted on whether membership of the platform should be mandatory or voluntary, whether it should deal with cross-border issues alone or with national issues too, whether its work should be limited to labour inspections, and what form it should take. The social partners might decide in future to launch their own negotiations in the area of undeclared work.

In January 2014, the Commission launched a second-stage consultation of the social partners on this issue. However, the social partners decided not to negotiate on this topic, stating that as the proposed EU initiative concerned cooperation between national enforcement authorities, the main responsibility for tackling undeclared work lies with national public authorities.

Therefore, in April 2014, the Commission released a proposal on the creation of an EU Platform against undeclared work. This resulted in March 2016 in the adoption of a Decision on establishing a European Platform to help tackle undeclared work. The objective of the platform is to enhance cooperation in tackling undeclared work. The text underlined several features to be taken into account to successfully address the issue:

  • the fact that the 2007 Commission definition excludes all illegal activities (recital 5);
  • the cross-border dimension (recital 6);
  • the abuse of the status of self-employed persons, which is ‘a form of falsely declared work that is frequently associated with undeclared work’ (recital 8);
  • the various effects on ‘different social groups, inter alia, women, migrants and domestic workers, some undeclared workers being in a particularly vulnerable position’ (recital 11).

The Platform aims to contribute to the strengthening of cooperation between Member States, by facilitating innovative approaches to cross-border cooperation and enforcement as well as by evaluating Member States' experiences of such cooperation. Timely exchanges of information are deemed essential to curb undeclared work. The Platform was launched in Brussels by the Commission on 27 May 2016. 

See also: Contract of employment; employment relationship; proof of employment.

 

Please note: the European industrial relations dictionary is updated annually. If errors are brought to our attention, we will try to correct them.

 

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