Economically dependent workers in Cyprus

The issue of economically dependent workers has not yet come to the fore in Cyprus, and only some aspects of the issue, which are usually not related to industrial relations, emerge in public discussions. However, from the statistics available, it is clear that there are workers in Cyprus who fall into the category of economically dependent workers.

The boundaries between dependent employment and self-employment have become increasingly 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.

Nature and extent of economically dependent work

As far as the extent and nature of economically dependent work are concerned, to date no relevant studies or research have been carried out in Cyprus. Despite this knowledge gap, it appears to be difficult to define the employment status of a rather large proportion of workers in the labour market.

Such cases usually fall somewhere between the two concepts of work as an employee in a position of subordination and independent self-employment, but labour law does not provide for any clear distinction between these two employment situations. As a result, working people falling within this grey area are usually included in the broader category of self-employed people.

According to the Department of Labour Inspection (τμήμα Επιθεώρησης Εργασίας) of the Ministry of Labour and Social Insurance (Υπουργείου Εργασίας και Κοινωνικών Ασφαλίσεων, MLSI), the most common form of economically dependent work encountered in Cyprus is that of false or bogus self-employment. This comprises all cases where a person works as a paid employee for an organisation despite being registered as self-employed. In most instances, this is done to conceal the individual’s actual employment status and in particular for tax and social insurance reasons. Another form of economically dependent work refers to borderline self-employment, cases where the limits of subordination are difficult to determine, most often occurring within the context of provision of services on the basis of a specific project or a fixed time period.

No statistical data are available on the extent of the phenomenon. However, given the importance attached to the connection between self-employment and economically dependent work, it is useful to take a look at the available statistics on the extent of self-employment. Specifically, according to official data from the Statistical Service of Cyprus (Στατιστική Υπηρεσία της Κυπριακής Δημοκρατίας, CYSTAT) and the Labour Force Survey (LFS) for 2005, the category of self-employed people represented 13% of total employment, meaning a total of 45,461 individuals. In 2004, this number stood at 34,953.

It should be noted that, for the purposes of statistical distribution and analysis, the status of self-employment also comprises the following three categories: people working as employed wage earners, employers and people working without pay in family businesses. In 2005, these three categories represented 76.8%, 7.4% and 2.8% of employment respectively. However, as CYSTAT has pointed out, MLSI is not in a position to identify cases of bogus self-employment, and as a result all such cases are registered as self-employment. This weakness in the system is attributed to the lack of adequate monitoring mechanisms.

When examining the situation on the basis of occupational status, no particular distinction emerges between occupations. As a result, economically dependent work occurs in all occupations and sectors of economic activity. On the basis of individual cases, as lodged with the Pancyprian Federation of Labour (Παγκύπρια Εργατική Ομοσπονδία, PΕΟ) in the form of personal complaints of bogus self-employment, a number of the recorded cases refer to highly-skilled occupations, such as civil engineers, architects, teachers and journalists.

Regulatory framework

The absence of any special statutory framework on the regulation of economically dependent work is not surprising, considering that, when it comes to the defining and formulating of even basic concepts, legislation in Cyprus is quite poor. The most characteristic example of this is the absence of an adequate definition of the concept of employee. This plays a decisive role in increasing the risk of bogus self-employment. For example, in accordance with the provisions of the Termination of Employment Law 24/1967, an employee is defined as:

any person who works for another person, either under a contract of employment or apprenticeship or in circumstances where a relation of employee and employer is understood to exist.

However, the legislation does not define any individual circumstances provided for by the law.

More recent legislation, in particular the Equal Treatment in Employment and Occupation Law 58(I)/2004, which transposes EU Directives 2000/78/EC and 2000/43/EC into Cypriot legislation, extends the concept of employee to include:

all persons working or apprenticed full time or part time for a fixed or indeterminate period, continuously or not, irrespective of the place of employment, including home workers but not including self-employed persons.

By and large, and irrespective of the interpretation problems arising from the failure of the existing legislation to set out basic concepts for labour law purposes, labour legislation as a whole refers exclusively to employees, albeit without expressly mentioning paid employment. However, labour legislation does not cover self-employed people. The concept of self-employment is only mentioned in relation to social insurance, where Social Insurance Law 41/1980, as amended up to 2006, makes a clear distinction between employees and self-employed persons as the two categories requiring mandatory insurance.

In this context, any violations by employers who, when drawing up employment contracts, conceal a relationship of subordination under the guise of self-employment bring into play the issue of social security cover. These violations are judged by the competent courts through a process of defining criteria in order to prove whether a relationship of paid employment exists. As regards such criteria, the courts have consistently ruled in the past that the decision to create a relationship of paid employment is in principle a matter of choice, but not a choice of naming or designating other terms and conditions of employment that objectively conceal it.

According to the courts, however, no specific criteria or fixed factors exist which define either form of employment. For example, determination of compensation for services provided is an element which may support the existence of an employer-employee relationship; however, it does not by itself provide a basis for the employment relationship. In this context, the relationship is generally proved on the basis of the following criteria:

  • the employees’ obligation to provide their services;
  • the employer’s right to monitor the employees’ work.

Also taken into account as criteria are factors such as: payment of a salary; the ability to determine the manner, the place and conditions of work; ownership of the equipment necessary to perform the work; ownership of capital; engagement of assistants to carry out the work; responsibility for supervising the work; the element of risk undertaken; and anticipated profits.

Social dialogue

The question of economically dependent work has not as yet been the subject of dialogue either on a tripartite or on a bipartite level. In this context, no specific actions have been recorded to combat official or unofficial concealment of employment in a position of subordination. Neither the employer organisations nor the trade unions have a framework of proposals and positions on this question. MLSI has indicated that its Department of Labour Inspection intends to publish an internal circular addressed to all labour inspectors to enable them to better identify cases of bogus self-employment.

Commentary

Apart from the lack of dedicated actions and initiatives on the part of the social partners, the main problem lies with labour legislation and, in particular, the lack of an adequate statutory framework that would clearly define the concept of subordination. This could be done, for example, by introducing legislative provisions presumed to be of a binding nature, in order to extend the protection of labour legislation to categories of workers in this undefined area between self-employment and paid employment.

Such a deficiency is to a large extent due to the secondary role that labour legislation traditionally plays in Cyprus with regard to regulating terms and conditions of employment. The way that self-employment is defined must be addressed, as well as the inadequacy of the existing monitoring mechanisms. A necessary condition for dealing with the problem of official or unofficial concealment of the employment status is the development of a new, mutually acceptable, statutory framework regarding the definition and formulation of the concept of work in a position of subordination.

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.

Eva Soumeli, Cyprus Institute of Labour (INEK/PEO)

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