International conference«HOW TO MAKE FORMAL WORK ATTRACTIVE»

17-18 September 2014, Vilnius

Legitimizing informal work at a national level

MEASURES FOR PREVENTING AND TACKLING UNDECLARED WORK IN LATVIA

Māris Badovskis

Director of Labour Relations and

Labour Protection Policy Department

17.09.2014.

Understanding and scope of undeclared work

• There is no legal definition of undeclared work at the national level

• Even though there is not a legal definition, in general undeclared work is understood as paid activities that are lawful as regards their nature but are not declared to public authorities

• This concept includes:

Work without a written labour contract

Employment of persons who are not declared to the State Revenue Service

Envelope wage

False registration of working hours

Falsely declared work

Understanding and scope of undeclared work

• Estimated size of shadow economy and undeclared work in % of GDP - 25.5 (Schneider F., 2013)

• Employment without a written contract – less than 5% of all workers (Hazans M, 2012)

• Envelope wages - 11% of respondents to the Eurobarometr Survey 2013

• Most vulnerable sectors of economy as regards undeclared work are:

Construction

Wholesale and retail

Manufacturing, agriculture, fisheries and forestry

Individual services

Housing and catering

Transport

Measures for preventing and tackling undeclared work

Political measures

•Combating undeclared work has been an ongoing priority for the Government of Latvia

•Action Plan for Reduction of Unregistered Employment for the time period of 2010 to 2013

•Action Plan for combating shadow economy and providing fair competition for the time period of 2010 to 2013

•Every year the Action Plan for the State Labour Inspectorate is approved. The action plan includes several measures for the inspectorate and inspections` indicators that should be reached in the current year.

Measures for prevention and tackling undeclared work

• On 16 September 2014 the Cabinet of Ministers approved Regulation establishing a new insitutional body – the Council for combating shadow economy (hereinafter - the Council) which is the institution coordinating and supervising activities of competent institutions - state administration institutions and non-governmental organizations - in the field of combating shadow economy

• The Council will coordinate drafting of the policy documents as well as their implementation. It will also aim to improve inter-institutional cooperation in the field of combating the shadow economy in order to make cooperation more effective

Measures for preventing and tackling undeclared workLegislative measures

A number of legislative acts were amended in order to implement political decisons in the field of tackling the undeclared work:

•The Labour Law (obligation to conlude a written contract of employment prior to actual commencement of work, presumption of the existence of employment relations in case if an employer has not ensured entering into an employment contract in writing)

•The Public Procurement Law (exclusion of the candidate from procurement procedure in case of violation of legal enactments as regards the employment of person without written contract and without declaring him to public authorities)

•The Latvian Administrative Violations Code (changes in the amounts of fines as well as the changes in the policy of imposing administrative penalties)

•Secondary legislation (introduction of compulsory declaration of employees prior to commencement of work, use of electronical system of declaration, compulsory declaration of working time and wages)

Measures for preventing and tackling undeclared work

Preventive measures

•Public campaigns in order to inform society about undeclared work and its conseqences

– general public (public advertisements, information on mass media)

– targeted groups (employers, employees)

– targeted sectors (for example, car repair services)

•Educational activities in schools

Related risks and challenges

• In addition to a tradidional non-existence of a written labour contract new forms of undeclared work emerge:

Falsely declared work (bogus self-employment);

Service providers, tenants, volunteers etc.;

Inaccurate accounts of total hours worked by employee are being made, for instance, part- time work is registered instead of actual regular working time.

• Society’s tolerance towards violations in the field of undeclared work remains at quite high level

Cooperation of administrative bodies and society

•Cooperation of controlling authorities and exchange of information are the key factors for effective tackling of undeclared work (mutual agreements, access to data bases, joint inspections)

•Cooperation of controlling authorities and non-governmental organisations (agreements of cooperation)

Results

•Decrease of the shadow economy from 27.3% in 2010 to 25.5% in 2013

•Increase of the number of socially insured persons from 902.6 thousands in 2010 to 977 thousands in 2013

•Increase of social insurance budget income from 1.6 billion in 2010 to 2 billion in 2013

Thank You for Your attention !