Social partners agree on measures to combat social security fraud

In April 2007, the Austrian Federal Economic Chamber and the Austrian Trade Union Federation agreed that employers should be obliged to register their employees with social insurance institutions before commencement of work. This measure has been devised to prevent the widespread practice of social security fraud, in particular among companies in the construction sector.

In mid April 2007, the respective Presidents of Austria’s two major social partner organisations, Christoph Leitl of the Austrian Federal Economic Chamber (Wirtschaftskammer Österreich, WKÖ) and Rudolf Hundstorfer of the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB), agreed on measures aimed at preventing social security fraud in companies. According to the social partner proposal, employers should in future be obliged to register their employees with the relevant social insurance institutions before the commencement of work or on the day of commencement at the latest.

Fraudulent practices

The initiative has been introduced to combat fraudulent practices in companies, in particular among enterprises in the construction sector. In relation to the latter companies, employers have been making use of, to an allegedly large extent, a legal loophole with respect to the employees’ registration for the sole purpose of evading taxes and social insurance contributions.

Currently, an employer is entitled to an elapsed period of seven days prior to registering an employee with the relevant social insurance institution. Trade unions contend that this possibility has been abused by a number of companies, as they are failing to register some of their staff for a much longer period than the seven days stipulated. In cases where the authorities have uncovered one or more unregistered employees at the workplace, employers often claim that the employees concerned have only been engaged in work for a few days and are about to be registered in the subsequent days. For the authorities, it has hitherto been difficult to establish proof of fraud, unless the employees concerned are willing to supply information – which they usually are not. The social partners believe that preventing the possibility of this loophole would constitute a core instrument for combating organised social security and tax fraud.

Need for tougher penalty scheme

According to the WKÖ-ÖGB proposal, the structure of the penalty scheme for infringements of the registration law should be amended. Penalties for employers caught for the first time should be relieved, by reducing administrative fines from the current €730 to €365 per unregistered employee discovered. Conversely, tougher measures are planned for repeated offenders, by increasing fines from the existing €3,630 to €5,000 per case of illegal employment.

In 2006, some 7,490 unregistered employees throughout the country were uncovered by the law enforcement unit involved in combating illicit work (Kontrolle der illegalen Arbeitnehmerbeschäftigung, KIAB).

Social fraud bill

The social partners’ draft proposal on combating social fraud, which is expected to be taken up by the current social democratic-conservative coalition government (AT0701039I) and endorsed by parliament during 2007, represents the second important legislative initiative taken against fraudulent practices in companies. On 1 March 2005, the Social Fraud Bill (Sozialbetrugsgesetz, SozBeG (in German, 700Kb PDF)) came into effect, which extended the legal provisions of criminal law concerning organised tax and social fraud. Prior to this, fraudulent companies, even in the case of those engaged in serious ‘organised’ fraud, had only been threatened with administrative fines. However, since March 2005, fraudulent employers face imprisonment of up to five years in major cases of organised social insurance payment evasion (AT0506201N).

Views of social partners

When the SozBeG was passed in 2004, it received the support of both ÖGB and WKÖ. However, ÖGB and the Chamber of Labour (Arbeiterkammer, AK) have been critical of the fact that the higher penalties introduced by the new legislation failed to address the problem of omission of registration committed by many employers. As a result, trade unions have called for the abolition of the seven-day period for registration, a move which WKÖ has opposed for a long time. The employer organisations have always argued that measures devised to promote business, such as tax burden relief and reductions in non-wage labour costs, would represent a more promising solution for curbing illegal employment practices rather than any legal threats to employers (AT0302202F). In fact, many of WKÖ’s demands in recent years have been met by the previous conservative-populist government. Against this background, WKÖ apparently could no longer credibly oppose the fight against fraudulent employers. When presenting the joint social partner proposal on 17 April 2007, Mr Leitl of WKÖ emphasised that this initiative has been introduced to help enforce the principle of equal opportunities for all enterprises and thus to promote fair competitive conditions.

In terms of the effectiveness of the April 2007 social partner agreement regarding the fight against illegal social insurance payment evasion, most commentators consider that the agreement represents an important milestone.

Georg Adam, Institute of Industrial Sociology, University of Vienna

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