This article gives a brief overview of the industrial relations aspects of undeclared work in Slovenia, as of June 2004. It looks at: the nature and extent of undeclared work; the regulatory framework; the role, activities and views of the social partners; and partnerships between social partners and public authorities to tackle undeclared work.
The phenomenon of undeclared work - defined as 'any paid activities that are lawful as regards their nature but not declared to the public authorities'- is an issue which has been preoccupying the EU institutions for a number of years. In 1998, the European Commission issued a Communication on undeclared work, which was designed to launch a debate on the causes of such work and the policy options for combating it (EU9804197F). It suggested that there was a need to clarify the causes and extent, and concluded that combating undeclared work should be part of the overall European employment strategy.
According to the Communication on undeclared work, the main motivation for employers, employees and self-employed people to participate in the undeclared economy is economic. Working in the informal economy offers the opportunity to increase earnings and to evade taxation on income and social contributions. For employers, the incentive is to reduce costs. The same document mentions three factors contributing to undeclared work: i) demand for 'personalised services' to households; ii) reorganisation/restructuring of industry and firms; and iii) the impact of new technologies. Undeclared work has impacts on the social security systems, public finances, competition and industrial relations. At that time, studies estimated the average size of the informal economy at between 7% and 16% of the GDP of the then 15 EU Member States. The Commission has launched a number of studies on the topic, covering issues such as 'Measuring undeclared work' (the latter in collaboration with Eurostat). In July 2004, the Commission issued a new report on Undeclared work in an enlarged Union (EU0407204F). It looks at the incidence in each Member State, including the 10 new Member States that joined in May 2004, and examines the reasons behind the growth in undeclared work.
Since 2001, the issue of undeclared work has been included in the EU employment guidelines. The current version includes a specific guideline entitled 'transform undeclared work into regular employment'. This provides that Member States should develop and implement broad actions and measures to eliminate undeclared work, which combine simplification of the business environment, removing disincentives and providing appropriate incentives in the tax and benefits system, improved law enforcement and the application of sanctions. They should undertake the necessary efforts at national and EU level to measure the extent of the problem and progress achieved at national level.
Finally, in October 2003, the Council of the European Union adopted a Resolution on undeclared work (EU0311206F), calling on Member States to address this issue and to work together to improve the situation. Suggested actions include preventative measures and sanctions aimed at eliminating undeclared work. The Resolution also invites the social partners at European level to address this issue within the context of their current multiannual work programme (EU0212206F) - indeed, the partners plan a seminar on the issue in 2005, with the aim of reaching a joint opinion - and to deal with it in the context of the sectoral social dialogue committees. The Council calls on the social partners at national level to promote the declaration of economic activity, to engage in awareness-raising and to promote the simplification of the business environment, particularly in relation to small and medium-sized enterprises.
Given this high level of interest in the subject, in June 2004 the EIRO national centres in 23 European countries were asked, in response to a questionnaire, to give a brief overview of the industrial relations aspects of undeclared work, looking at: the nature and extent of undeclared work; the regulatory framework; the role, activities and views of the social partners; and partnerships between social partners and public authorities to tackle undeclared work. The Slovenian responses are set out below (along with the questions asked).
Nature and extent
Please describe briefly the nature and extent of undeclared work (ie 'any paid activities that are lawful as regards their nature but not declared to the public authorities') in your country. The aim here is not to provide very detailed statistical information or go into concrete calculation methods, but only to give what overall figures are available, plus broad estimates and indications where such figures are lacking. This should cover matters such as: the overall amount of undeclared work; gender aspects (ie are women more or less affected, and why?); the relationship between undeclared work and migration (please distinguish between legal and illegal migration); and sectoral aspects (ie which sectors are most involved).
Different sources estimate the share of undeclared work in the Slovenian economy at between 17% and 25% of GDP. The latest estimates from a governmental 'commission for discovering and preventing undeclared work and employment' (Komisija Vlade Republike Slovenije za odkrivanje in preprečevanje dela in zaposlovanja na črno) (see below under 'Law') is that the extent of such work in Slovenia is close to an estimated EU average - ie around 15% to 17% of GDP. As in many other countries, some sectors are much more affected by undeclared work than others. The highest level of undeclared work in Slovenia is found in construction, transport, catering, retail and services such as cleaning, hairdressing and tailoring. While in some sectors men dominate among both formally employed and undeclared workers, in others (mainly services) women form the majority of undeclared workers. Although some undeclared workers in certain sectors (construction, transport, and restaurants) are immigrants, the relationship between undeclared work and migration has not yet been identified as significant.
Law
What is the legislative framework in your country concerning undeclared work? Please include here: definition; incentives for transformation of undeclared work into regular work; sanctions and penalties; connection with the tax system and benefits; any attempts at administrative or fiscal simplifications; and any recent legislative changes.
In order to reduce the scope of undeclared work, the government adopted a 'programme for discovering and preventing undeclared work and employment' in 1997. A governmental 'commission for discovering and preventing undeclared work and employment' was established to determine, coordinate and monitor activities and measures in this area. The commission is headed by the secretary of state responsible for this area at the Ministry for Labour, Family and Social Affairs (Ministrstvo za delo, družino in socialne zadeve, MDDSZ).
The legislation concerning undeclared work includes: the Law on the Prevention of Black Work and Employment (LPBWE) that was passed in 2000; Regulations on 'work activities counted as personal supplementary work'; and the procedure for notification of these work activities (in force since 2002).
The LPBWE defines what it refers to as 'black' work and employment, the participants involved in such work and illicit advertising. Article 3 of the LPBWE defines undeclared ('black') work as occurring in the following circumstances:
- if a legal entity carries out an activity that is not registered in the register of companies, or it does not have the documents fulfilling the conditions for performing a registered activity as stipulated by the law;
- if a private person performs an activity about which he or she has not notified the competent body, or does not have the documents required by the law on the fulfilment of the conditions for carrying out a notified activity;
- if a legal entity or a private person performs an activity in spite of a temporary ban on carrying out this activity;
- if a foreign legal entity or private person, based in or resident outside Slovenia, carries out an activity on the territory of Slovenia or performs certain services on the territory of Slovenia without fulfilling the relevant conditions and without registering the commencement of the performance of these services at the competent tax office; or
- if an individual is carrying out an activity or work which is not registered or notified as stipulated by the LPBWE or another law.
Undeclared employment is defined in Article 5 of the LPBWE as occurring:
- when a legal entity or a private person, itself fulfilling the conditions for carrying out an activity, has not concluded a contract of employment or a contract of work in line with the regulations and has not registered the worker with the health insurance institute and the pension and disability institute, or employs a foreigner or a person without Slovene citizenship contrary to the regulations on the employment of foreigners; or
- when an individual, on his or her own account, employs a worker who then performs undeclared work.
The LPBWE lays down exceptions that are considered not to be undeclared work: 'mutual neighbourly help'; carrying out work exclusively to meet one’s own needs; carrying out emergency work for the prevention of accidents or to tackle the consequences of natural and other accidents; carrying out humanitarian, charity, voluntary and beneficial work; and 'personal supplementary work' (see below).
Violations of the LPBWE’s provisions are monitored by the Market Inspectorate, the Labour Inspectorate, the Traffic Inspectorate and other authorised bodies, such as the Tax Administration. The penalties envisaged by the LPBWE are fines that vary between SIT 50,000 (EUR 212) and SIT 5 million (EUR 21,200).
No systematic evaluation of how the LPBWE actually functions in practice is available.
The Regulations on work activities counted as personal supplementary work and the procedure of notification of these work activities define certain activities - such as household help, picking and selling forest fruits and herbs, domestic or art crafts work and some other smaller jobs - as 'personal supplementary work', and defines relevant notification procedures (which are extremely simple) and tax rules (with a tax limit of the annual national minimum wage).
According to the head of the governmental commission for discovering and preventing undeclared work and employment, very good results in preventing and combating undeclared work have been achieved through the well-coordinated collective actions of the Labour Inspectorate, the Market Inspectorate, the Traffic Inspectorate, the Tax Administration, the police and other supervisory bodies, together with the Ministry of Finance, the Ministry of Internal Affairs and the Ministry for Labour, Family and Social Affairs. Besides regular inspections, these bodies have been cooperating on additional projects coordinated by the commission. Joint inspections have covered one or more businesses in the same sector or different sectors at one or several locations. Good results have also been achieved by special mobile inspection groups that have performed ad hoc activities (involving several locations and different sectors). Useful information on undeclared work has also been gathered through anonymous telephone calls to the Labour Inspectorate. The commission assesses positively the results achieved by the recent measures on notification of personal supplementary work.
Social dialogue
Please provide an overview of any collective agreements dealing with the issue of undeclared work (at any level - eg intersectoral, sectoral, company, regional). If there are any such agreements, please outline their content and, if possible, their impact, giving examples. Where possible, please provide details on collective agreements in sectors particularly affected by undeclared work, such as hotels/restaurants/catering, agriculture, domestic/personal services, retail or construction.
There are no reported examples of collective agreements dealing with undeclared work.
Please give details of any joint or unilateral initiatives on undeclared work taken by trade unions and employers’ organisations (such as information campaigns, providing training for their members responsible for negotiations, or adopting codes of conduct/ethics).
Are there cases in your country where workforce representatives have mobilised employees on the issue of undeclared work? If so, what form did this take (demonstrations, strikes etc)? Are there cases where social partners have made appeals on this issue to the public authorities (the government, elected representatives etc)? What were the results?
The social partners collaborate in preventing/combating undeclared work mainly through information-sharing. Both trade unions and employers’ associations inform the governmental commission (see above) and inspection authorities about cases of undeclared work. Some trade union organisations include information and lectures (given by invited members of the governmental commission) concerning undeclared work in their regular education programmes. These include the trade, transport and catering unions affiliated to the Union of Free Trade Unions of Slovenia (Zveza svobodnih sindikatov Slovenije, ZSSS), KNSS - Independence, the Confederation of New Trade Unions of Slovenia (KNSS - Neodvisnost, Konfederacija novih sindikatov Slovenije, KNSS) and the Confederation of Trade Unions of Slovenia Pergam (Konfederacija sindikatov Pergam Slovenije, Pergam) (SI0210102F). Employers’ associations also give attention to the problem of undeclared work. For example, the Chamber of Crafts of Slovenia (Obrtna zbornica Slovenije, OZS) (SI0211102F) has initiated debates on the need for a legislative framework in the area of undeclared work and regularly organises round tables/discussions on undeclared work as part of its annual programme of meetings.
Partnerships
Please outline any initiatives taken jointly by public authorities and social partners in order to address undeclared work, and their results. What types of partnerships exist in your country (eg involving local authorities or NGOs) and what tools or measures have been used to address the problem? Please refer to good and bad practices, indicating which policies have proved to be successful in the national context and why (such as a good mix of actors, cultural traditions or flexible tools).
Once a year the the governmental commission for discovering and preventing undeclared work and employment prepares a report on its activities and their outcomes. The commission submits this report to the tripartite consultative Economic and Social Committee (Ekonomsko socialni svet Slovenije, ESSS) - on which the social partners are represented (SI0207103F) - and to the government. The social partners and the government discussed the commission's report covering 1 July 2001 to 31 December 2002 at the ESSS session on 16 April 2003.
The final draft of report for the period from 1 January to 21 December 2003 (the final version has not yet been published at the time of writing) states that the main positive trend over this period was a decentralisation of collaboration among inspection institutions to the local level. This has resulted in more efficient and accelerated work (since local institutions are the most familiar with the local situation and problems) and prevented any unnecessary coordination activity by the governmental commission. As part of the preparations for Slovenia’s EU accession on 1 May 2004, special attention was paid in 2003 to undeclared work by foreign workers - especially in construction, transport, catering (eg Chinese restaurants), the music and performance industry, nightclubs and agriculture - and involving foreign business entities.
In its 2003 report, the commission draws attention to problems related to: misuse of the Law on Associations (connected with undeclared work in catering and agriculture); supplementary farm work (eg use of agricultural machinery for transport purposes and undeclared work in tourism); a lack of necessary legislative support for the Law on Value Added Tax; and computer book-keeping programmes that allow subsequent editing and changes.
Seven regional expert meetings were organised by the undeclared work commission and the Ministry for Labour, Family and Social Affairs in 2003. These enabled the evaluation of joint work, the exchange of experience and the planning of future collaboration between the commission and local units of the Market, Traffic, and Labour Inspectorates, tax authorities and the police. In 2003, special attention was also paid to controlling the undeclared work of registered unemployed people, with the results indicating that around 25% of all reported undeclared workers are also registered as unemployed.
The commission states that the efficient prevention and combating of undeclared work in the future depends on faster court procedures, improved tax control and stricter financial discipline.
Has a comprehensive partnership on undeclared work developed in the context of your country’s National Action Plans (NAPs) on employment (in response to the EU employment guidelines)? Have there been significant tripartite arrangements on undeclared work as a result or in the context of the NAPs? How have the social partners at various levels implemented the aspects of EU employment guidelines on the issue of undeclared work that are under their responsibility?
Slovenia’s draft NAP on employment for 2004 includes (under the strategic goal 'improvement of the quality and productivity of work') a subchapter on transforming undeclared work into regular employment. It states that Slovenia has developed an indicator to monitor undeclared work only in the process of adapting its labour market policies in line with the European employment strategy. It also states that it will be possible to report more precisely on the extent of the problem only in the NAP for 2005.
Several measures in the draft 2004 NAP are envisaged to stimulate the transformation of unregistered work and employment into regular employment:
- the abolition of administrative obstacles to the operations of companies, including amendments to legislation and the establishment of a system to make it easier for companies to register;
- changes to tax legislation in the field of collecting public contributions in order to reduce the administrative burden on companies, and especially small companies;
- the establishment of measures to promote entrepreneurship and develop an 'entrepreneurship-friendly' environment; and
- easing access to sources of finance for companies and making it easier to start up new businesses.
It is stated that the prevention and uncovering of undeclared work will not only result in a reduction of registered unemployment but will also promote the transition from unregistered work to regular employment. A current pension reform should not be allowed to promote early retirement and undeclared work.
Slovenia’s active employment policy includes the following measures:
- the promotion of new employment (with compensation of a share of pay, initially in the form of a lump-sum subsidy) for those seeking their first job and those who are difficult to employ;
- the promotion of self-employment;
- the reimbursement of social security contributions to employers in certain circumstances; and
- local employment programmes, particularly public works.
The draft NAP for 2004 was discussed by the government and social partners at the session of the ESSS on 3 December 2003. The Ministry of Labour, Family and Social Affairs (Ministrstvo za delo, družino in socialne zadeve, MDDSZ), responding to trade union comments on the chapter on undeclared work, stated that, together with the Ministry for the Economy (Ministrstvo za Gospodarstvo, MG), the MDDSZ is investigating the possibility of amending the existing legislation in order to make it easier to transform unregistered work into regular employment.
Please give details of any cross-country collaborative plans involving your country with the aim of combating undeclared work? Are these inter-governmental activities (ie collaboration between two or more countries, neighbouring or otherwise) or initiatives taken by social partners, or both?
A good example of a successful cross-country collaborative plan involving Slovenia aimed at combating undeclared work over last three years is 'Mermaid'- a European joint action by road traffic inspection authorities, with an emphasis on freight and bus traffic. In 2003, Slovene inspection institutions - the police, Labour Inspectorate, Traffic Inspectorate, customs authorities and Market Inspectorate - carried out controls on the same dates as colleagues all over the EU, in implementation of EU Directive 88/599/EEC on recording equipment and social legislation in road transport. While traffic control was the main reason behind the action, inspections were also directed at discovering cases of smuggling of goods, illegal commerce in drugs, illegal migration and undeclared work.
Views
Please summarise the views of trade unions and employers’ organisations on the issue of undeclared work. Please include their positions on the role of the administrative, tax system and social welfare regime, and their view/assessment of government initiatives.
In discussions about undeclared work, employers stress the need for strict inspections in order to prevent unfair competition from undeclared activities affecting those employers (especially small ones) that declare their business activities and pay taxes. The trade unions stress the need for intensive information activities to acquaint both employers and employed and unemployed workers about the consequences of undeclared work.
Both employers’ associations and the unions strongly support government initiatives (some were also initiators of the legislative arrangements) on combating undeclared work, due to its negative impact and consequences for the position and work of their members (workers and businesses). The social partners are also actively involved in information-sharing and educational activities to raise awareness and knowledge on the scope and consequences of undeclared work (see above under 'Social dialogue'), as well as the legislative framework for preventing and combating such work.
Commentary
Please give your own comments on the issue of industrial relations and undeclared work.
It seems that the social partners' shared negative attitudes towards undeclared work and their joint efforts in this area, together with the new legislative framework, have already shown some good results in combating undeclared work in Slovenia. According to commentators, the future results depend to a great extent on the introduction of some new and already envisaged measures that would support easier transformation of unregistered work and employment into regular employment, tighter financial discipline and faster court procedures. (Aleksandra Kanjuo Mrčela, Organisational and Human Resources Research Centre, OHRC)