Undeclared work: Individual employment relations - Q3 2014 (EurWORK topical update)

This article presents some of the key developments and research findings on aspects of individual employment relations in the EU during the third quarter of 2014. Measures to combat undeclared work such as increased monitoring, closer supervision of revenue collection and pre-paid service vouchers for short-term work are the main focus of this report.

Introduction

Undeclared work causes serious damage to working conditions, fair competition and public budgets. It may be defined as any paid activities that are lawful forms of work but are not declared to the public authorities, taking into account differences in the regulatory systems of Member States.

In the first half of 2014, the European Commission proposed the creation of a European Platform to improve cooperation on undeclared work at EU level. The aim of the platform is to prevent and deter undeclared work more effectively, bringing together various national enforcement bodies. These bodies include labour and social security inspectorates, tax and migration authorities and other stakeholders such as EU-level representatives of employers and employees.

According to a Special Eurobarometer Report published in March 2014, 4% of Europeans said they were involved in undeclared paid activities (8.5 MB PDF) in the 12 months preceding the survey. Estonia, Latvia and the Netherlands had the highest percentages of people admitting they had been involved in undeclared work, all with 11%. Almost a third of Europeans (32%) said they knew someone who had worked without declaring at least some of their income to tax or social security institutions. The figures were highest in Denmark (59%), the Netherlands (55%) and Greece (54%).

Estonia – Earlier registration of employees

In March 2014, the Estonian parliament approved changes to its Taxation Act, which allowed for the creation of a database of employees to fight undeclared work and illegal ‘envelope wages’, and to increase tax revenue.

Previously, employers had to report the hiring of a new employee to the authorities within seven to 30 days after the start of employment. The new registration system now being introduced will require employers to register new employees, regardless of their type of contract, at least one day before their first working day.

The changes took effect in July 2014. Ministry of Finance figures show that, between July and August, employers declared payments made to more than 5,400 people who until then hadn’t received any recorded income. The largest number of employees added to the database worked in construction, retail and in food and drink services.

The database aims to decrease employers’ administrative burden and increase an employee’s sense of security. It gives employees the ability to check the database for themselves to see whether an employer has registered and paid taxes for its workers. It also allows employees to check the social benefits they are entitled to.

Lithuania – Service vouchers for short-term employment in agriculture

In order to reduce undeclared work and to simplify regulations of short-term services in certain economic areas, on 1 April 2013 Lithuania introduced the Law on Provision of Agricultural and Forestry Services. The new Act made it possible for employers to issue service vouchers in lieu of payment to short-term workers.

In September 2014, information on the use of service vouchers in the agricultural and forestry sectors was released. Figures showed service vouchers representing at least one day’s pay were used by almost 23,000 people during the last three quarters of 2013.

Compulsory health insurance contributions withdrawn on the basis of services provided under service vouchers totalled about €243,500.

According to the authorities, the introduction of service vouchers has created opportunities for unemployed people to increase their income and reduced undeclared work.

Latvia – Stricter monitoring of revenue collection

Latvia’s State Revenue Service (VID), meanwhile, improved tax collection with moves that included an intensified fight against the shadow economy.

The new approach was to warn employers about temporarily increased supervision in particular sectors identified as most exposed to the shadow economy. The sectors were then given two months to improve their tax discipline. They were warned that if no improvements were seen, repressive measures such as thematic inspections, tax audits and even intervention by financial police would follow.

In June 2014, the car service sector was given two months to improve accounting and tax discipline. In mid-September 2014, targeted examination started in about 800 car service enterprises. Declared average salaries in car service enterprises increased by 5.1% between July and August as a result of the extra supervision, backed by Latvia’s Automotive Association which signed a cooperation agreement.

The control measures will be supplemented by improvements in normative regulation in the car servicing sector.

The VID has said it intends to target the dentistry sector using similar methods.

Slovenia and Greece – Fall in undeclared work

In May 2014, the new Prevention of Illegal Work and Employment Act came into force in Slovenia. The new law defined the nature of illegal work and stipulated which monitoring authorities were responsible for enforcing the legislation.

The cornerstone of the act’s provisions is a voucher system for domestic workers, among whom illegal and undeclared work is widespread.

In July 2014, a report from the Slovenian Labour Inspectorate stated that undeclared employment and violation of the rights of foreigners was decreasing. In June 2104, the Labour Inspectorate had assessed the implementation of health and safety at work regulations, and of labour legislation covering temporary and mobile construction sites, and had found fewer illegal employment and legislation violations.

Greek Ministry of Labour figures show that undeclared work fell to 23% in May 2014 from 39% in May 2013. Inspections were carried out in a total of 1,672 businesses during May 2014. Of 4,981 employees, 1,165 were uninsured. Fines of about €10,000 per uninsured person were imposed.

The decrease in undeclared labour, according to the ministry, was in part due to higher fines and the carrying out of inspections.

Commentary

With public budgets coming under pressure in the post-crisis period, the issue of undeclared work has been under close scrutiny in a number of countries. According to reports from a number of EU Member States, it seems that some of the measures introduced appear to be bearing fruit. The new European platform may bring further momentum to the fight against the shadow economy.

About this article

This article is based mainly on contributions from Eurofound’s network of national correspondents. Further resources on undeclared work can be obtained from the following reports:

Eurofound 2013: Tackling undeclared work in 27 EU Member States and Norway: Approaches and measures since 2008

Eurofound 2009: Measures to tackle undeclared work in the European Union  

For further information, contact Karel Fric:

kfr@eurofound.europa.eu