Controversy over effectiveness of new household service cheque

Since the beginning of 2006, private household workers in Austria can be paid for their services with a 'household service cheque' (including some social insurance contributions) instead of in cash. The government sees the new scheme as an innovative and effective means to increase legal activity rates in a problematic segment of the labour market. However, both organised labour and several NGOs engaged in social services have criticised the new scheme as inappropriate, in particular with respect to social protection of the (mostly female and foreign) workers concerned and their legal integration into the normal labour market.

On 1 January 2006, the 2005 Household Service Cheque Act (Dienstleistungsscheckgesetz, DLSG) came into effect, which enables people using household services to pay for them with a special cheque (including injuries insurance contributions) instead of in cash. In practice, this means that people using such services (ie the 'quasi-employers') have to buy 'household service cheques' prior to engaging a household worker. By paying for the service with the cheque, the (quasi-)employer has fulfilled all social insurance obligations on behalf of the worker who - for his or her part - has to submit all the cheques received for the work at the end of the subsequent month to the Insurance Association for Railway and Mining Workers (Versicherungsanstalt für Eisenbahnen und Bergbau, VAEB). The VAEB is in charge of administering the new scheme, which includes the conversion of the submitted cheques into cash to the benefit of the household workers. The cheques are available for sale at post offices (at a fixed value of EUR 5 or EUR 10), at tobacconists’ shops and directly at the offices of the VAEB (in these cases at any value demanded by the employer). For the employer, the purchasing price of the cheque includes 1.4% injuries insurance contributions and small additional administration fees. When handing over the cheque to the household worker, only the names and the social insurance identification numbers of both parties concerned have to be filled in, as well as the working day the cheque refers to.

The scheme applies in particular to childcare, care of elderly people, simple gardening work, domestic cleaning and home maintenance (AT0501203N). It is important to note that these services have to involve simple, 'assistant' work that does not require any higher skills belonging to recognised occupations (eg professional childcare or nursing activities). The use of the cheque is based on the principle of voluntarism.

Other provisions of the 2005 DLSG include the following.

  • Both payment in lieu of holiday pay and other special payments are included in the household service cheque. Pay rates are to be freely agreed upon by the two parties involved; however, there is a minimum pay threshold equivalent to the minimum pay scale under the Domestic Servants Act (Hausgehilfen- und Hausangestelltengesetz). This means that pay must be at least as high as this minimum pay scale plus 25% (ie special payments) and 9.6% (ie payment in lieu of holiday pay).
  • The household worker is insured only against accidents if the monthly pay represented by the cheques submitted does not exceed a certain monthly pay limit - which is EUR 456.38 in 2006. If monthly pay exceeds this threshold (which is only possible when the worker is paid by at least two employers), the worker is automatically and compulsorily covered by health and pensions insurance. Social insurance contributions of 14.7% on behalf of the employee have to be paid by him- or herself. In the event that monthly pay remains below the threshold of EUR 456.38, the worker may opt for voluntary health and pensions insurance with flat-rate social insurance contributions of EUR 47 per month.
  • The household service cheque scheme applies only to people with free access to the national labour market.

The government’s aim

According to the coalition government of the conservative People’s Party (Österreichische Volkspartei, ÖVP) and the populist Alliance for the Future of Austria (Bündnis Zukunft Österreich, BZÖ), the introduction of the household service cheque seeks to facilitate and promote legal 'quasi-employment' in the area of household-related services. Martin Bartenstein, the Minister of Economy and Labour Affairs (Bundesministerium für Wirtschaft und Arbeit, BMWA), emphasised that the new Act is meant to increase legal activity rates in a problematic segment of the labour market, which is characterised by a high degree of illicit employment practices. Moreover, Mr Bartenstein stated, the new scheme aims to help reconcile work and family life of the mostly female workers concerned. According to estimates presented by the BMWA, currently only slightly more than 10,000 out of more than 150,000 household workers are legally employed in terms of both labour and social insurance law on the one hand and - with respect to foreign workers - both work permit and residential status on the other hand. The minister’s aim is to double the number of legally employed workers within the next five years. However, the scheme is not devised to convert current illegality into legality, but to give incentives for employers to engage household workers legally. Thus legal employment relationships should, it is planned, smoothly replace the practice of hiring cheap personnel without ensuring their legal status.

Criticism from various sides

Since the introduction of the household service cheque, both organised labour and several non-governmental organisations (NGOs) engaged in welfare and social services have questioned the effectiveness of the new scheme. The Chamber of Labour (Arbeiterkammer, AK) and the Hotel, Restaurant and Personal Services Trade Union (Gewerkschaft Hotel, Gastgewerbe, Persönlicher Dienst, HGPD) fear that the new scheme will undermine current labour law standards, make 'wage dumping' easier and promote the further creation of precarious employment relationships. According to Ingrid Moritz, the head of the AK’s women’s department, the aim of legalising employment relationships and providing for more labour law protection to the benefit of the workers concerned will not be achieved. This is because the cheque scheme does not entail any entitlement to unemployment benefits or future pension benefits. Moreover, it does not include any provisions in terms of an entitlement to sickness benefits and claims on leave, nor with respect to periods of notice in the case of employment termination. Therefore both AK and HGPD oppose this scheme and describe it as a second-rate employment relationship without sufficient protective provisions, which will hit especially the women who represent the overwhelming majority of workers in this labour market segment.

NGOs like the Catholic Women’s Movement (Katholische Frauenbewegung Österreichs, KFBÖ) and the People’s Aid (Volkshilfe) welfare institution share this critical view on the household service cheque. The KFBÖ argues that the new scheme is an inappropriate means to support those women who are in urgent need of money in order to make a living. Moreover, it is deemed as an inappropriate instrument for curbing illegal employment, since the vast majority of household workers are currently engaged on an illegal basis (most of them are foreign nationals without any work permit) - and as such they are explicitly excluded from the scheme’s scope.

Commentary

When introducing the household service cheque during 2005-6 the government praised this measure as an innovative and effective means to tackle the 'shadow economy' in the private services sector. The explicit aim was to help establish a 'real labour market' with 'real prices' for a series of private (household) services. 'Real prices', however, imply that the employees concerned are actually (ie sufficiently) covered by social insurance and standard labour law regulations, which - according to the new scheme - they definitely are not. Moreover, the vast majority of household workers, who are illegally engaged foreign nationals, are explicitly and deliberately not affected by the scheme. In this respect, commentators argue, only a general 'amnesty' for the people concerned would be a solution. However, this is not a matter of public debate at all in Austria. Against the background of continuously increasing unemployment rates during recent years, neither the government nor the trade unions want to open up the Austrian labour market, least of all for 'third-country nationals' from outside the European Economic Area (EEA). (Georg Adam, University of Vienna)

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