Unfair employer practices examined

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Practices such as delayed payment of wages and failure to make social security contributions on employees' pay are relatively widespread among Polish employers. The problem is not new but has recently received renewed attention from trade unions and the media. Research conducted in May 2003 by the Warsaw School of Economics sheds light on the nature of these unfair employer practices, indicating that some 9% of employees do not receive their wages on time and 17% do not have their social security contributions paid in full. The situation is worst in smaller companies and those in private Polish ownership.

For many commentators, one of the main problem in Polish industrial relations is the existence of a number of widespread practices whereby employees unduly exploit workers, in a context of high unemployment and high demand for work. Notably, many employers, especially in the private sector, pay wages to their employees only on an irregular basis (PL0210105N) - for example, unpaid back wages was the main cause of a major strike in the clothing industry in 2002 (at the Odra plant in Szczecin). Furthermore, it is relatively common for employers not to pay the full obligatory social security contributions to the Social Insurance Institution (Zakład Ubezpieczeń Społecznych, ZUS) in respect of their employees (the law distributes the burden of contributions almost equally between employer and employee). Polish social security contributions are quite high and, with the aim of lessening the impact on their balance sheets, less scrupulous employers make contributions based on only a portion of the actual wages paid to their employees. Going even further, in some cases, workers are hired completely illegally - no employment contract is signed or registered, and no ZUS contributions are made. Finally, extreme cases of labour law violations which are particularly difficult to quantify in statistical terms affect seasonal labourers and other migrant workers arriving in Poland from countries such as Belarus or Ukraine.

The employees appear to consent to such a state of affairs because of high unemployment - the latest Central Statistical Office (Główny Urząd Statystyczny, GUS) figures put the unemployment rate at 18.1% in mid-2003 - and a pervasive fear of losing their jobs. In recent research (see below), 53.3% of employees admitted to varying degrees of fear that they might lose their jobs. At the same time, 19.1% of employees expressed the fear that, were they to lose their job, they would be unable to find other gainful employment; and 60.3% stated that, while they might conceivably find another job, the search would be very difficult. Under such circumstances, commentators state that it is difficult to speak of any balance between employees on the one hand and employers on the other. It should, however, be borne in mind that many Polish employers are, in turn, experiencing grave difficulty in collecting on invoices issued to their customers and that, under such circumstances, late wage payments or tax evasion may be necessary for their survival in the market. While, on the whole, employees seem to sympathise with such predicaments, research suggests (see below) they are less accommodating towards employers that treat their workers less than fairly even though their own financial standing and market position are sound enough.

Research highlights problems

In May 2003, a study on the 'economic awareness of Poles and its correlates' was carried out by a team from the Faculty of Economic Sociology at the Warsaw School of Economics (Szkoła Główna Handlowa, SGH), based on a survey conducted by Public Opinion Research Center (Centrum Badania Opinii Publicznej, CBOS) among a sample of 1,077 adult Poles selected at random. The results yielded by this survey must be interpreted with some caution, with due heed taken of the margin of error characteristic of such samples. However, the survey provides some valuable insights into the scope of unfair employer practices and allows a more detailed analysis of the profile of those employers where labour law violations are particularly prevalent.

When asked whether wages are always paid out on a timely basis, 89.6% of the employees surveyed replied in the affirmative, 8.8% in the negative, and 1.6% said that, while late payments have occurred on occasion, they are not the rule. In other words, one in 11 employees thus extend a 'credit facility' to their employer (ie in the form of delayed wages) on a regular basis.

The survey also examined social security contribution and other payroll tax evasion by employers, finding that only 83% of employees have their contributions paid in full. According to the responses received in the survey, the remaining 17% is broken down as follows:

  • 4.4% of workers have official contributions paid on the greater part of their remuneration, with their remaining pay collected 'under the table';
  • 2.1% of workers have official contributions paid on only a minority of their remuneration, with more than half of the wages actually earned paid to them unofficially;
  • 6.4% have no contributions paid on their earnings; and
  • 4.0% stated that they do not know whether, and to what extent, their employer makes ZUS contributions on their remuneration (it could be ventured, in such cases, that earnings are largely untaxed).

These figures suggest that every sixth employee works at least partly in the 'grey economy', while every 16th employee works illegally.

Synthesising the various answers given to these two questions, about timely/late wage payments and about full/incomplete payment of social insurance contributions/payroll taxes by employers, the research indicates that:

  • 76.7% of employees receive their wages on time and all due contributions/payroll taxes are paid with respect to them;
  • 12.5% receive their wages on time, but contributions/payroll taxes due on them are not paid or are paid only in part;
  • 5.9% receive their wages on an irregular basis but, when they are paid, all the contributions/payroll taxes are duly remitted; and
  • 5.0% receive their wages on an irregular basis and, when they are paid, contributions/payroll taxes due on them are not paid or are paid only in part.

Thus almost a quarter of employees appear to face difficulties with timely wage payments and/or with the attendant contributions/payroll taxes. One in 20 employees, according to the researchers, fall victim to nothing short of exploitation; not only are they paid irregularly, they are not insured in the basic areas of health, disability etc or have only some of the required contributions paid in their name.

Factors influencing unfair practices

The research examines the factors influencing untimely payment of wages and social security contribution/payroll tax evasion, considering: the size of the employing organisation; its ownership form; the sector of the economy in which it operates; and the presence of institutions representing employee interests (ie trade unions).

The size of the employing organisation is of significant influence, as indicated by the table below. The situation is clearly worst in micro-enterprises and best in large enterprises, though medium-sized enterprises are worse offenders than small ones.

Payment of social security contributions and timely wages, by company size
Size of employer % of employees having social security contributions paid in full % of employees receiving wages on time
Micro-enterprises (up to 5 workers) 57.4% 81.8%
Very small enterprises (6-14 workers) 75.4% 82.8%
Small enterprises (15-50 workers) 91.7% 91.0%
Medium-sized enterprises (51-150 workers) 84.1% 86.3%
Large enterprises (over 150 workers) 95.2% 97.5%

Source: SGH/CBOS, 2003.

As regards the ownership structure of the employing entities, the worst situation prevails in privately owned Polish enterprises, in which 72.3% of the employees have their social contributions paid in full and 83.6% receive their wages on time. A moderate situation applies in enterprises operated by employee companies/partnerships - however, while social security contributions are generally paid correctly, it is here that the greatest problems with timely payment of wages occur (75.6% of the workers are not paid on time). The situation is best in enterprises owned in whole or predominantly by foreign investors - 96.7% of the workforce have their contributions covered and all wages are paid on time. The situation is also quite good in state-owned enterprises, where 92.9% of employees have their social security contributions covered and 94.4% receive their wages on time.

In Poland, the size of the employing enterprise and the form of its ownership are closely linked to the presence of trade unions (ie unions are much more likely to operate in larger and state-owned firms - PL0208105F). Thus, 99.2% of employees working in employing entities in which unions operate have their social insurance contributions fully covered, while for entities without trade unions this figure is 75.1%.

Examining the issue by economic sectors, we find that the situation is most difficult for those employed in agriculture; here, 48.7% of workers have all social insurance contributions/payroll taxes covered by their employer and 76.2% are paid on time. The situation is also poor in the construction industry, where 76.3% of the workers have all contributions/payroll taxes covered by their employer and 93.0% are paid on time. At the opposite extreme is the education sector, where these figures stand at 98.7% and 98.0% respectively.

As might be expected, the research finds that the incidence of unfair practices is correlated with the social and demographic traits of the workers concerned. Young workers, people with low education levels and low earnings, and female employees are the most exposed to unfair treatment by their employers.

Trade union initiative

Since 2002, trade unions – most notably the All-Poland Alliance of Trade Unions (Ogólnopolskie Porozumienie Związków Zawodowych, OPZZ) – have been calling for decisive measures to combat late payment of wages. OPZZ leaders have made a number of calls for the remuneration of employees to be linked to that of their managers. Under these proposals, managers would receive their pay-cheques only after all the other workers in the enterprise have been duly paid. At present, these proposals have not been formulated in any detail, and they have already been criticised by employers, unsurprisingly enough, as well as by legal experts. The employers, for their part, do not deny that unfair practices with respect to employees do occur, and they do not seek to defend them in ethical terms; they maintain, however, that none of the current union proposals in this areas can bring constructive results.

Commentary

The difficult situation prevailing in Poland’s labour market, the genuine hardships faced by many employers, and the weakness of control institutions combine to create a situation which makes unfair practices with respect to employees difficult to curtail. They are quite common in the smallest enterprises, and their brunt is borne by those employee groups with the weakest market position. At the same time, however, such practices appear to be somewhat less pervasive than previously believed; three-quarter of Polish enterprises seem to be free of them. All things considered, however, it appears unlikely that the lot of Polish employees facing unfair practices of this sort can be improved materially over the next few years; such an improvement must probably await an economic turnaround and better conditions in the labour market. It is unlikely that any new regulations, as called for by the trade unions, would be capable of precipitating changes for the better (particularly given that the phenomena in question are observed most of all in small, privately-owned enterprises). Furthermore, the state budget, for its part, lacks the funds necessary for stricter enforcement and control. (Juliusz Gardawski, Institute of Public Affairs [Instytut Spraw Publicznych, ISP] and Warsaw School of Economics [Szkoła Główna Handlowa, SGH])

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