New law on undeclared work

The new act on illegal work tackles the problem of undeclared work in a more systematic way than previous legislation. It creates better conditions for performance of control and prevention in this sphere. It also increases the cooperation of government bodies and provides more rights to inspection bodies in their fight against undeclared work. It also gives more strict responsibilities to employers in relation to registering their employees. It is expected that application of the new act will help to cut down on undeclared work in Slovakia.

Background

Undeclared work in Slovakia is a phenomenon that has been under discussion for a long time. Unfortunately, there are no reliable data about the exact numbers of persons engaged in this activity. According to some sources, the number of illegal workers in Slovakia total about 140,000 (SK0406105T) - which corresponds to approximately 6% of workers in the national economy.

The main motivation for resorting to undeclared work is high labour costs, due to the obligatory high payments by employers to compulsory insurance funds. Some employers employ persons without an employment contract and pay them wages (often low) for the work only, paying neither taxes nor contributions to insurance funds. Undeclared work tends to be more common in regions with high unemployment, reaching 20% or more in some areas.

Undeclared work appears in different forms and until now there was no legislation in Slovakia governing it precisely. In theory, labour inspectors controlled undeclared work and there were high penalties for employers found to be making use of such work, including the possibility of losing their licence. However, in practice, controlling and uncovering undeclared work proved difficult and the sanctions applied to employers were ineffective.

Principles of the new act

In order to intensify the fight against undeclared work, the Parliament approved the new act concerning undeclared work - Act No. 82/2005 Coll. on illegal work and illegal employment and amendments in other related acts - in February 2005. The new act came into force on 1 April 2005, but its provisions concerning the participation of employers in public procurement and the possibility to receive state aid will only come into force on 1 February 2006.

The characteristic feature of the new act is that it tackles the problem of undeclared work in a more systematic way than previously. It strengthens control over undeclared work, imposes tasks on several government bodies and institutions and requires their tight cooperation. In connection with this, it makes the record-keeping of workers more strict and defines obligations on the part of the employers as well as employees. At the same time, it makes engaging in illegal work by unemployed persons, including foreigners, more difficult.

As the title itself indicates, the new act defines undeclared work in two ways - performance of illegal work by a physical person and illegal employment of physical persons by employers. Undeclared work is considered to be performance of dependent work by a physical person for a company or an entrepreneur, as well as utilisation of dependent work of physical persons by companies or entrepreneurs. The act explicitly prohibits persons from performing illegal work and prohibits companies and entrepreneurs from illegally employing any person.

The act considers performance of illegal work to be not only the case of a person working without a duly signed labour contract, but also cases when such worker is:

  • a foreigner without permission for a temporary stay in Slovakia for the purpose of employment; and/or
  • a registered unemployed person who did not report to the employment office that he commenced employment.

Illegal employment with an employer is considered to be the case not only when a company or an entrepreneur employs physical persons without a duly signed labour contract, but also when:

  • the employer does not register his employees (including external workers) in the insurance companies and the old age pension register in time; and/or
  • the employed person is a foreigner without permission for a temporary stay in Slovakia for the purpose of employment.

The new act also considers job mediation that is not in line with the act on employment services as illegal employment performance. According to the above act, the undeclared work covers Slovakian citizens as well as foreigners working in Slovakia.

Control and sanctions for undeclared work

The act also defines who is responsible for ensuring companies do not engage in illegal work practices. The following auditing bodies are charged with responsibility for supervising this:

  • labour inspectorates;
  • Centre of Labour, Social Affairs and Family; and
  • offices of labour, social affairs and family.

In the case of control, the investigated employer entities are obliged to provide the auditing bodies with information, documents and other documentary evidence needed for effective control. Also, the person under investigation is obliged to submit the identification number of his or her social security to the auditing body certificate.

The person performing illegal work is committing an offence for which he or she can receive a fine up to SKK 10,000. The fine is negotiated within the Centre of Labour, Social Affairs and Family (Ústredie práce, sociálnych vecí a rodiny, ÚPSVR) and offices of labour, social affairs and family. The practice of negotiations on fines is regulated by Act No. 372/1990 Coll. on offences with further amendments.

Act No. 95/2000 Coll. on labour inspection with further amendments also defines supervising adherence to the provision of the act on illegal work and illegal employment. At the same time, this act determines that a legal or physical person as employer can receive a fine up to SKK 1,000,000 for the illegal employment of persons. According to the act on labour inspection, it is also possible to impose sanctions for incorrect actions by the employer’s employee who refuses to provide the auditing bodies with the information and data needed for effective labour inspection. However, the new act on undeclared work increases the ceiling of the fine from SKK 10,000 to SKK 20,000. It is also possible to levy a fine from SKK 500 to SKK 10,000 to another person who obstructs the performance of the labour inspection at the workplace. Fines for undeclared work are used as income towards the state budget.

Other changes to legislation

The act on illegal work and illegal employment has influenced and changed provisions of several other acts, too. In connection with this it has improved the information database and its interconnectivity, resulting in a more effective campaign against undeclared work.

The majority of changes, almost 40, were contained in the act on employment services as amended. According to the changes in the new act on illegal work and illegal employment in acts No. 453/2003 Coll. and No. 5/2004 Coll. with further amendments concerning state administration bodies in the sphere of social affairs, family and employment services, the ÚPSVR and offices of labour, social affairs and family are the bodies which control illegal work and illegal employment. They report cases of breaches of the act to the labour inspectorate, Social Insurance Agency (Sociálna poisťovňa) or police forces (in the case of a foreigner) which deal with the violation and decide if a fine should be levied.

Aside from this, ÚPSVR maintains records on accession to work and termination of work of EU member states’ citizens and his or her family relatives. It also maintains records on work permissions issued to foreigners in Slovakia.

The new act provides sanctions for employers not only in financial terms but also in other forms. According to the Act No. 231/1999 Coll. on state aid, an entrepreneur who makes a claim for state aid is obliged to submit a certificate from the NIP that he did not breach the prohibition of illegal employment. The act penalises entrepreneurs that illegally employed physical persons by revoking the possibility to receive state aid for an investment activity for a period of five years after evidence of their breach of law. The new act similarly amended Act No. 523/2003 Coll. on public procurement. The applicant or the person interested in public procurement used for signing of public contracts cannot breach the prohibition of illegal employment in a period of five years prior to the date of public procurement. At the same time, he or she must have no evidence of outstanding payments of contributions to the obligatory insurance funds that have been claimed from him or her on the basis of decision of relevant bodies.

The act on illegal work and illegal employment also increases the protection of labour inspectors during the performance of their inspections. At his or her request or at the request of the labour inspectorates, the police are obliged to provide protection during the performance of labour inspection in legitimate cases of threat of his or her life or health or in case of any obstructions to the performance of labour inspection.

It was specified in the Labour Code what the labour cost consists of and the obligation of an employer to keep consequent records on all work contracts with external workers. Due to the changes in the Act No. 461/2003 on social insurance with further amendments, the employer must register its employee, even an external one with whom it has signed the work contract, with the social and health insurance companies and providers of old-age pension savings. He must do so before the start of the agreed work and deregister on the day following the end of his or her work at the latest. Previously the registration was not specified so strictly and someemployers during a control of undeclared work used to say that the given employee started to work only recently and therefore it was not possible to register him or her so quickly.

ÚPSVR must administer a similar register of physical persons that were put into evidence as job seekers at the day of their register. A job seeker must be deregistered from the file at the date of the decision to eliminate him or her from the file.

Commentary

According to evidence from public administration (tax offices, trades departments at the district authorities) and labour offices, it is tradesmen and small rather than big enterprises that are typical subjects of undeclared work in Slovakia. Undeclared work is usually performed in construction companies, the retail and tourist trade, hotels, restaurants and in agriculture. The motives inducing employees to work in an undeclared fashion are mainly survival worries and the need to increase their income. However, employees who carry out this form of work lose the protection of the social security system. The typical profile is an unemployed person with few qualifications who performs casual and seasonal work in particular. Some workers have second jobs at weekends or in the evening and may work as self-employed, too.

The new act on undeclared work therefore concentrates on reducing the possibility of undeclared work by ensuring better networking of information on employed as well as unemployed persons, more efficient control of state inspection bodies and institutions of employment services and increased cooperation with the Social Insurance Agency. The new act also aims to improve the way employees from the EU Member States are registered and records on work permits for foreigners are kept. In cases when undeclared work of a foreigner is revealed, the police force is informed as well. Although the new act does not impose higher fines for breach of prohibition of the illegal work and employment, it enables new types of sanctions to be imposed against these employers.

The Ministry of Labour, Social Affairs and Family (Ministerstvo práce, sociálnych vecí a rodiny Slovenskej republiky, MPSVR SR), author of the new draft act, anticipates that it will to cut down the range of undeclared work in Slovakia. At the same time, the Ministry has announced that adherence to this act will be rigorously checked by the relevant inspection bodies. (Ludovit Czíria, Bratislava Centre for Work and Family Studies)

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