Explanatory Memorandum to COM(2014)221 - Establishing a European Platform to enhance cooperation in the prevention and deterrence of undeclared work - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2014)221 - Establishing a European Platform to enhance cooperation in the prevention and deterrence of undeclared work. |
|---|---|
| source | COM(2014)221  |
| date | 09-04-2014 |
At EU level, undeclared work is defined as 'any paid activities that are lawful as regards their nature but not declared to public authorities, taking account differences in the regulatory systems of the Member States'.
The fact that undeclared work is not observed or registered, and defined differently in national legislation, makes it difficult to obtain reliable estimates of how widespread it is across Member States. As a result, estimations of undeclared work vary widely.
According to the latest Eurobarometer survey of 2013, only 4% of respondents admitted that they performed undeclared work. However, 11% admitted that they had purchased goods or services in the previous year where they had good reasons to believe it involved undeclared work. There are considerable variations across the EU. The incidence and policies to address undeclared work are analysed in the chapter 'Undeclared work: recent developments' in the Employment and Social Developments in Europe 2013 review.[5]
Undeclared work has serious budgetary implications through decreased tax and social security revenues. It has negative impacts on employment, productivity and working conditions, skills development and life-long learning. It results in lower pension rights and less access to health care. It causes unfair competition between undertakings. Moving from informal or undeclared work to regular employment can also contribute to achieving the employment target as part of the Europe 2020 Strategy.
A closely related phenomenon is falsely declared work, or bogus self-employment, which occurs when the worker is formally declared as self-employed on the basis of a service contract but the work he/she performs fulfils all the criteria that are used by national law and practice to characterize an employment relationship. Bogus self-employment has negative consequences in terms of health and safety and social security coverage of the workers concerned, as well as on tax revenue, although normally less harmful than undeclared work.
In the Communication 'Towards a job-rich recovery'[7], the Commission stressed that strengthening job-rich growth calls for employment policies that generate favourable conditions for job creation, and that the transformation of informal or undeclared work into regular employment could have a positive impact on labour demand.
Consequently, the Employment Guideline Nr 7 on 'Increasing labour market participation of women and men, reducing structural unemployment and promoting job quality'[8] urges Member States to step up social dialogue and tackle labour market segmentation with measures addressing precarious employment, underemployment and undeclared work.
In the 2012 and 2013 Country Specific Recommendations[9], several Member States received recommendations concerning fighting undeclared work, the shadow economy, tax evasion and/or tax compliance.
The European Parliament in its Resolution of 14 January 2014 called for stronger cooperation and reinforcement of labour inspectorates to fight undeclared work[10].
The new Enforcement Directive on Posting of Workers will contribute to tackling better fraud and abuse and certain forms of undeclared work.
The main responsibility for tackling undeclared work lies with the Member States. The fight against undeclared work relies mostly on three types of enforcement bodies: (a) labour inspectorates to address abusive behaviour regarding working conditions and/or health and safety norms, (b) social security inspectorates fighting fraud on social insurance contributions, and (c) tax authorities to deal with tax evasion. In some Member States, social partners[11] are also involved in these tasks. In addition, in some Member States, customs authorities, migration bodies, the police and the public prosecutor's office are involved. It has however been noticed that, in some cases, cooperation between these different bodies at national level is not as structured or effective as necessary.
Since measuring undeclared work remains a big challenge, it makes it more difficult to develop targeted policies and to improve inspection practices for preventing, reducing or at the very least monitoring the incidence of undeclared work. The common challenge governments face in reducing undeclared work and ensuring conditions of decent work for undeclared workers, calls more coordinated steps on the part of governments and public institutions. There is a need to pursue policies that will at the same time reduce the incentives for employers to use undeclared work and for workers to engage in such activities.
Undeclared work can occur in a variety of sectors. The single sector most often over-proportionately affected by undeclared work is the construction sector[12]. Other sectors are household services, which include domestic cleaning services as well as child and elderly care, personal services, private security, industrial cleaning, agriculture and hotel, restaurant and catering industry.
It is found in a wide range of workplaces and involving workers with different profiles and backgrounds. Such heterogeneity makes undeclared work difficult to approach and demand specific strategies.
Preventing and deterring undeclared work contributes to better enforcement of EU and national law, especially in the areas of employment, labour law, health and safety and coordination of national social security systems. As the challenges are common to Member States, and as undeclared work often has a cross-border dimension, EU level action can play an important role by reinforcing cooperation between enforcement authorities within and between different Member States in the prevention and deterrence of undeclared work. At the moment, there is no formal mechanism in place for all relevant authorities from the Member States to address issues related to cross-border aspects of undeclared work.
EU level action would therefore help Member States to tackle undeclared work more effectively and efficiently. It would also contribute to addressing at EU level, in a positive and constructive way, the challenges associated with labour mobility, while safeguarding free movement of workers as one of EU's fundamental freedoms.
Cooperation between national enforcement authorities already takes place at EU level, where the work of several committees or working groups is linked to undeclared work. However, they do it on an occasional and limited basis: the Senior Labour Inspectors Committee (SLIC) looks at undeclared work from the occupational health and safety angle; the Expert Committee on Posting of Workers deals with undeclared work in relation to circumventing the rules on posting of workers; the Employment Committee (EMCO) discusses the impact of employment policy on undeclared work; the Administrative Commission for social security coordination looks at error and fraud in the framework of social security coordination; the Working Group on administrative cooperation in the field of direct taxation aims at facilitating the exchange of information, experience and good practice in that field.
In addition, useful exchange of experiences has taken place, either in the context of the Mutual Learning Programme under the European Employment Strategy or as part of multilateral projects[13], which shows that Member States are interested in cooperation to tackle undeclared work. Member States have also carried out multilateral projects on certain aspects of undeclared work and concluded bilateral agreements. The Platform will not prevent the application of bilateral agreements or arrangements concerning administrative cooperation.
However, the lessons learnt show that not all Member States take part in these exercises. In case of such voluntary multilateral cooperation, there is no obligation for Member States to participate, nor is there a mechanism to make participation mandatory in case the participation is found necessary by other Member States. As a result, EU level cooperation remains patchy both in terms of the Member States involved and the issues covered.
The existence of common challenges for the relevant enforcement authorities across Member States is another incentive for them to cooperate in this area. Inspection authorities face difficulties in cross-border situations, in particular when the aim is to identify or sanction cases of undeclared work, because their traditional mechanisms are meant to tackle mostly domestic aspects of undeclared work. Inspecting the nature and/or conditions of the employment relationship of migrant workers can be difficult due to communication problems, lack of knowledge of rules or the presence of organised networks operating at the margins of the law, often making use of complex legal constructions, involving agencies or intermediaries located in several Member States and sometimes having recourse to bogus self-employment forms of work. Many Member States face difficulties in ensuring appropriate communication and cooperation between different enforcement bodies within the Member States and in a cross-border context.
In addition, it is commonly perceived that excessive taxation or regulation of labour may boost undeclared work and that there may be effective, non-punitive ways to encourage employers to declare work and comply with law.
Finally, while in general all Member States agree on the need to prevent and deter undeclared work, in practice there may be different ways and levels of commitment to this goal and this might end up with low political priority and low sense of urgency to tackle undeclared work.
The Communication 'Towards a job-rich recovery' therefore highlighted the need for improved cooperation among Member States and announced the launch of consultations on setting up an EU-level platform between labour inspectorates and other enforcement bodies to combat undeclared work, aimed at improving cooperation, sharing best practices and identifying common principles for inspections.
Contents
This proposal stems from various studies and consultations undertaken recently.
In 2010, an external feasibility study[14] on the establishment of a European platform for cooperation between labour inspectorates and other relevant monitoring and enforcement bodies to prevent and fight undeclared work was carried out. The study analysed existing national institutional frameworks and policy measures, difficulties encountered by enforcement bodies on national and international levels, existing cross-border co-operation, best practices and identifies possible options for a European platform to prevent and fight undeclared work.
The special Eurobarometer[15] on undeclared work and a recent report from Eurofound on tackling undeclared work in the Member States[16] also fed into the preparation of this initiative. The Eurofound report was accompanied by an updated database[17] of measures taken between 2008 and 2013. The database includes 186 case studies from all EU Member States as well as from candidate countries. The database can be used to search measures by country, type of measures, target group and sector.
The consultation of stakeholders was carried out in the framework of the group of Directors General of Industrial Relations (DG IR), the Senior Labour Inspectors Committee (SLIC) and the Administrative Commission for social security coordination. In general, Member States' representatives recognized the added value in EU level action targeted at preventing and deterring undeclared work and welcomed the intention of the Commission to become more involved in this policy area.
The views of the European Social Partners have been collected in a 1st stage consultation[18] (4 July 2013 to 4 October 2013). The Commission identified the main problems related to prevention and deterrence of undeclared work, recalled the most recent activities taken by the Commission and introduced the objectives and possible content of the initiative. The aim of the consultation was to consult management and labour on the possible direction of EU action. The Commission received 15 replies from them (2 joint replies, 3 replies from the workers' representatives and 10 replies from employers' organisations). Social Partners agreed with the overall problem description and indicated that action at EU level is justified with the main objective of assisting national authorities, such as labour inspectorates, social security and tax authorities to prevent and deter undeclared work. In general, social partners agreed that a European platform could be an appropriate vehicle for enhancing cooperation between Member States. However, the views of social partners were divergent.
Most of the employers' representatives were of the opinion that the Platform should be established. However, they considered that there was no need for a separate new structure. Instead, options such as the creation of a subgroup to an existing group or better coordination of existing groups, could be considered. All trade unions and some employers' representatives favoured the establishment of an independent new body in order to ensure that all the facets of undeclared work be covered, which could not happen if existing structures would be used. Regarding the participation in the Platform, trade unions and some employers' representatives argued in favour of a mandatory approach for Member States, while some employers' organisations preferred a voluntary approach. The Social Partners supported the Commission's objective to present an initiative, but did not wish to enter into negotiations on this issue.
A 2nd stage consultation of Social Partners took place from 30 January to 13 March 2014[19]. In this consultation, the Commission presented an overview of the results of the 1st stage consultation and outlined the content of the planned initiative. The aim of the consultation was to obtain Social Partners' views on the content of the envisaged initiative on enhancing cooperation between Member States in the prevention and deterrence of undeclared work. The Commission received 16 replies (1 joint reply, 4 replies from the workers' representatives and 11 replies from employers' organisations). Social partners generally lent their support for action at EU level to prevent and deter undeclared work and reiterated the views expressed during the 1st stage consultation regarding the objectives, scope, tasks/initiatives, participation and form of the Platform. New elements were provided regarding social partners' participation in the Platform. Trade unions and employers' representatives agreed that EU level social partners, both cross-sectoral and in sectors with high incidence of undeclared work should be involved in the Platform as observers. Some trade unions and employers' representatives suggested that social partners should be given member status[20].
The Impact Assessment included several options for enhancing EU cooperation in the prevention and deterrence of undeclared work. The first option considered was no new action beyond the existing working groups and initiatives. The option of better coordination of the work of the different existing working groups and committees was also considered.
The third option was the establishment of a European Platform to enhance EU cooperation in the prevention and deterrence of undeclared work. Several sub-options were considered for setting up the Platform, such as a Platform with voluntary or mandatory membership and giving a responsibility for coordinating Member States actions against undeclared work to Eurofound. An option to create a decentralised agency responsible for enforcement of EU law and fight against undeclared work was considered.
The analysis concluded that the preferred option would be the establishment of a European Platform with mandatory membership. The Platform would provide for the involvement of all relevant authorities of all Member States in the EU level activities and enable regular and operational cooperation in this area. The sub-option of a voluntary multilateral cooperation was considered sub-optimal since the refusal of some Member States to participate would greatly diminish the value of EU cooperation for more ambitious Member States. In particular, mandatory participation was considered necessary, because cooperation to tackle cross-border aspects of undeclared work could not be fully achieved if some Member States were in (Member States with high priority in dealing with such aspects, mostly destination countries) and others out. The cross-border aspects of undeclared work could also have negative impact on the functioning of the Single Market as employers providing services in other Member States using undeclared workers would cause unfair competition. These employers can provide cheaper services due to the fact that they do not pay taxes or comply with obligations arising, for instance, from health and safety and working conditions regulations.
Taken into account all of the above, namely the need for improved EU cooperation, cross-border aspects of undeclared work and their impacts on the functioning of the Single Market, all Member States need to be included on the mandatory basis in the enhanced cooperation to tackle all aspects of the phenomenon.
Other options would not guarantee the involvement of all the relevant authorities of all Member States, would limit cooperation to the exchanges of best practices or would not allow for enforcement issues to be addressed appropriately and would thereby fail to support the holistic approach needed to tackle the problem. In addition, other options would contribute to a lesser degree to the visibility and prioritisation of the problem at EU level.
The Platform will bring together different enforcement authorities of all Member States as members. Other stakeholders, in particular the Social Partners at EU level, relevant Union decentralised agencies, such as Eurofound and European Agency for Safety and Health at Work (EU-OSHA) and international organisations, such as the International Labour Organisation (ILO) and representatives of EEA states, will have an observer status.
The Platform will carry out a number of tasks to be defined and implemented on the basis of agreed work programmes. Exchange of good practice would be the first practical step of cooperation. It would improve the knowledge of the phenomenon and develop better understanding about how undeclared work is tackled and who the main actors are in the Member States. To make best use of this exchange, based on a Eurofound database, a Knowledge Bank could be established, which could inter alia elaborate further on enforcement issues and lead to the development of common guidelines and principles. It is foreseen that the Platform will evolve progressively from a forum for exchange of information and good practice to more elaborate forms of cooperation as mutual trust and experience build up. Ultimately, the Platform should be able to undertake joint trainings and exchange of staff, and coordinate operational actions, including joint inspections and data sharing.
The proposal will enhance the development, implementation, monitoring and evaluation of the Union's instruments, policies (promoting a high level of quality and sustainable employment, guaranteeing adequate and decent social protection, combating social exclusion and poverty and improving working conditions) and relevant law and promote evidence-based policy-making and social progress, in partnership with different stakeholders.
The EU has the competence to act in the field of undeclared work based on Social Policy articles in the TFEU. In particular, Article 151 TFEU stipulates that the Union and the Member States "shall have as their objectives the promotion of employment, improved living and working conditions, […] proper social protection, […] with the view to lasting high employment and the combating of social exclusion." Article 153 TFEU lists the fields where the Union shall support and complement the activities of the Member States, which include working conditions, integration of persons excluded from the labour market and combating social exclusion.
The proposal on an enhanced EU cooperation in deterrence and prevention of undeclared work is based on Article 153 (a) TFEU, which allows for the European Parliament and the Council to adopt measures designed to encourage cooperation between Member States through initiatives aimed at improving knowledge, developing exchanges of information and best practices, promoting innovative approaches and evaluating experiences, excluding any harmonisation of the laws and regulations of the Member States.
The main objectives to be achieved by this initiative are the promotion of employment and improved working conditions (Art 151 TFEU). Taking into account the fact that the fight against undeclared work in different Member States relies on different types of enforcement bodies (as explained in Chapter 1), it is necessary that this initiative is extended to all national authorities, including those which will not be active in the employment and social fields, but are also responsible for, or have a role in the deterrence or prevention of undeclared work, such as taxation, migration and customs authorities.
The choice of legal instrument – a Decision of the European Parliament and of the Council – is the most appropriate, taken into account that the Article foresees the ordinary legislative procedure for the adoption of the initiative.
While the main competences for tackling undeclared work lie with the Member States, the challenges faced, such as the negative impact of undeclared work on the economy and the society, the difficulties in tackling cross-border forms of undeclared work, the trade-off between appropriate levels of taxation / regulation and the need to avoid encouraging employers to resort to undeclared work, and the lack of cooperation between different enforcement authorities, are common to all Member States. The EU action enhancing cooperation at EU level would support the efforts of Member States in the deterrence and prevention of undeclared work by making it more effective and efficient. It thereby adds value to Member States' actions. National enforcement authorities are indeed the most appropriate level to tackle the challenges linked to undeclared work. In addition, the cross-border aspects can be better tackled at EU level. The proposal thereby complies with the principle of subsidiarity.
The proposal complies with the proportionality principle since it is a measure designed to encourage cooperation between Member States without any harmonisation of the laws and regulations of the Member States. An option of creating a new EU decentralised agency was considered, but was discarded given the administration costs entailed in establishing a new agency.
Regulation (EU) No 1296/2013 of the European Parliament and of the Council[21] establishes a European Union Programme for Employment and Social Innovation ("EaSI") for the period 2014-2020. Funding for the Platform will come from the PROGRESS axis. An indicative amount of 2.1 million EUR per year is foreseen for carrying out the tasks, such as the establishment of practical tools, support by service providers, publishing of common guidelines and principles, and handbooks, developing a permanent training capacity and a common framework for carrying out joint trainings, organising peer reviews and European Campaigns. In addition, grants to finance projects supporting the achievement of the objectives of the Platform will be covered. Up to 224 000 EUR per year will be used to reimburse the costs related to participation in the Platform meetings. It is also recalled that the European Social Fund (ESF) supports Member States' efforts to improve the quality of public administration and governance and, by doing so, promote their structural reforms. Financing is foreseen within the Multiannual Financial Framework 2014-2020. Member States are encouraged to use the ESF to reinforce the capacity of their national authorities in tackling undeclared work. The legislative proposal is budget-neutral and does not require additional staff resources. The
COM staff – 2.5 full time employees – currently working in the Directorate General for Employment, Social Affairs and Inclusion – will act as the Platform's Secretariat. Details are explained in the legislative financial statement annexed to this proposal. The involvement of the European Union's decentralised agencies, Eurofound and European Agency for Safety and Health at Work, in the work of the Platform as observers will not extend their existing mandates. Regarding these Agencies, the proposal is budget neutral.