EUROPEAN COMMISSION Strasbourg, 8.3.2016 SWD(2016) 52 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposal for a Directive of the European Parliament and the Council amending Directive 96/71/EC concerning the posting of workers in the framework of the provision of services {COM(2016) 128 final}

{SWD(2016) 53 final}



Table of Contents 1. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 1.1. Identification 1.2. Consultation and expertise 1.3 Scrutiny by the Commission Regulatory Scrutiny Board 2. PROBLEM DEFINITION 2.1. Policy context 2.2. Defining the scope of the issue 2.3. Inconsistent playing field for companies grounded on differentiated wage rules 2.4. Unclear rules to be applied on specific situations 2.4.1. Subcontracting 2.4.2. Temporary agency workers 2.4.3. Definition of the temporary nature of posting 2.4.4. Intra-corporate posting 2.5. Evolution of the problem without further EU intervention 2.6.EU Right to Act 3. OBJECTIVES 3.1. General Policy Objective 3.2. Specific objectives

3.3. Coherence of the objectives with other EU policies 4. POLICY OPTIONS 4.1. Option 1 - No policy change: baseline scenario 4.2. Option 2: clarification of the composition of minimum rates of pay to codify the rulings of the European Court of Justice 4.3.1 Option 3a: Application of the same mandatory rules on remuneration for posted and local workers 4.3.2. Option 3b: Extension to all sectors of the reference to erga omnes collective agreements 4.4. Option 4: Adapted rules for specific situations of posting 4.4.1. Option 4a: long-term postings 4.4.2. Option 4b: sub-contracting relations 4.4.3. Option 4c: Temporary agency workers 4.5. Discarded options 4.5.1 Communication by the Commission to clarify the elements of remuneration applicable to posted workers 4.5.2. Introduction of equal pay for equal work with respect to a reference undertaking 4.5.3. Clarification of the application of the Directive to the road transport sector 4.5.4. Option 4d: intra-group posting 5. Analysis of the impact of the policy options 5.1. Effectiveness 5.1.1. Create a level playing field for companies based on equal rules on wages 5.1.2. Improve the clarity of EU rules on posting 5.2. Overall economic impacts

5.3. Overall social impacts 5.4. Impact on SME's 5.5. Implementation costs 5.6. Budgetary Impact 6. OVERALL COMPARISON OF THE OPTIONS 6.1 The preferred options 7. EVALUATION AND MONITORING 7.1. Monitoring 7.2. Evaluation ANNEX I. - Summary of the positions expressed by the Member States and the stakeholders ANNEX II. - Numbers and figures on posting of workers Annex III. - Overview of the case law of the CJEU on the constituent elements of minimum rates of pay ANNEX IV Illustrative simulations of the impact of Equal Pay on labour costs for employers and after-tax income for workers in situation of posting ANNEX V. - Composition of remuneration ANNEX VI. - Impact of the revised Directive on remuneration 1. PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES 1.1. Identification Lead DG: DG Employment, Social Affairs and Inclusion (EMPL)

Other services involved: SG, LS CWP/Agenda planning reference: CWP 2016, Annex I, initiative n. 8. 1.2. Consultation and expertise In the framework of the Labour Mobility Package, the Commission launched on 15 July 2015 a public consultation open to EU citizens and organisations, which remained open for 12 weeks. The consultation included a chapter on the social security rules applicable to posted workers. Out of 307 respondents who submitted their replies to the public consultation, 232 respondents replied online to the questions on the coordination rules on posting (which amounts to 75.57% of the total number of respondents), including 138 individuals (69.35% of the total number of individuals) and 94 organisations (87.04% of the total number of organisations). During the preparation of the initiative, the Commission has received written contributions from 16 Member States, in the form of two joint letters. The first was sent on 18 June 2015, signed by Austria, Belgium, France, Germany, Luxembourg, the Netherlands and Sweden. On 31 August 2015, a second joint letter signed by Bulgaria, Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, Slovakia and Romania was sent to the Commission. The targeted revision of the Directive was also discussed with Member States' representatives within the Committee of Experts on Posting of Workers, in a meeting held on 7 September 2015. The Commission organised a consultation of European social partners on the Labour Mobility Package, including the targeted review of the Posting of Workers Directive, in the form of a roundtable, which was held on 10 June 2015. A meeting with was held with civil society on 17 June 2015. Written contributions were received from the following European social partners: ETUC, BusinessEurope, UEAPME, EFBWW and FIEC, EBC, CESI, CEC and Eurociett. Written contributions were also received from national social partners, namely the Swedish Association of Industrial Employers, Gesamtmetall , the Confederation of Industry of the Czech Republic, the Industry Associations of Denmark, Finland, Iceland, Norway, Sweden, the Council of Nordic Trade Unions and the Dutch Trade Union Confederation (FNV). Two European NGOs have also sent written contributions: ECAS and Eurodiaconia. Annex III provides a summary of the positions expressed by the Member States and stakeholders in written contributions

To increase the evidence basis, a study on wage-setting systems and minimum rates of pay applicable to posted workers in accordance with 1996 Posting of Workers Directive in a selected number of Member States and sectors was prepared, on behalf of the Commission, by the Fondazione Giacomo Brodolini. An analysis on the economic value of posting of workers was prepared on behalf of the Commission by HIVA KU Leuven . 1.3 Scrutiny by the Commission Regulatory Scrutiny Board The Regulatory Scrutiny Board of the European Commission assessed a draft version of the present IA and issued a negative opinion on 22 January 2016. A new version of the Impact Assessment was submitted to the Board on 15 February 2016. A positive opinion on the new version was issued on 24 February 2016. 2. PROBLEM DEFINITION 2.1. Policy context Posting of workers plays an essential role in the Internal Market, particularly in the cross-border provision of services. It consists of the case in which undertakings post an employee to another Member State to provide a service. Directive 96/71/EC (hereafter: 'the Directive') regulates three variants of posting: the direct provision of services between two companies under a service contract, posting in the context of an establishment or company belonging to the same group ('intra-group posting'), and posting through hiring out a worker via a temporary work agency established in another Member State. The EU established an Internal Market which is based on a highly competitive social market economy, aiming at full employment and social progress (Article 3(3)TFEU). The treaty establishes the right for companies to provide their services in other Member States. It provides that 'restrictions on the freedom to provide services in the Union shall be prohibited in respect of nationals of Member States who are established in a Member State other than that of the person to whom the services are intended' (Article 56 TFEU). The freedom to provide services may be limited only by rules which are justified by overriding reasons of general interest, provided that these are justified, proportionate and applied in a non-discriminatory way. Altogether, in 2014 (latest data available), there were over 1.92 million postings in the EU, up by 10.3% as compared to 2013 and by 44.4% with respect to 2010. The upward trend followed the stagnation of postings during the years 2009 and 2010. EU-15 Member States represented the destination of 86% of total postings, with Germany, France and Belgium as the three main countries of destination which altogether received 50% of total postings in Europe (see figure 1). In proportion to the domestic employment of the receiving country, posted workers represent a relevant share in Luxembourg, Belgium and Austria.

Figure 1. Posted workers, breakdown by receiving country, absolute numbers and % of total employment, years 2010 and 2014. Source: EMPL elaboration on Pacolet and De Wispelaere (2015). Note: data on received posted workers are only available with respect to postings to single Member States (art. 12 of Reg. 883/2004). Poland, Germany and France accounted for the three largest senders of posted workers in 2014, with EU-15 accounting for 54% of total posted workers sent in that year. The incidence of posted workers on the domestic employment of sending countries was highest in Luxembourg, Slovenia, and Slovakia. Figure 2. Posted workers, breakdown by sending country, absolute number and % on total employment, years 2010 and 2014. Source: EMPL elaboration on Pacolet and De Wispelaere (2015). Note: data on sent posted workers include both postings to single Member States and postings to multiple Member States (art. 12, 13 of Reg. 883/2004). Postings involve a small share of the total EU workforce (0.7%), with unique posted persons accounting on average for 0.4% of EU employment (0.2% in full-time equivalents). However, the relevance of posting of workers is particularly strong in the construction sector, in which 42% of total postings are concentrated. Posting of workers is also important in the manufacturing industry (21.8%) and in other service sectors, such as personal services (education, health and social work, 13.5%) and business services (administrative, professional, and financial services, 10.3%). Posting of workers through temporary agency work represents, on average, 5% of total postings in the EU, albeit with significant cross-country variations. Further data on posting of workers are presented in Annex II.

However, it is important to note that strong data limitations on posting of workers remain an on-going problem. Comparable figures are based on the portable documents A1 (PD A1) for social security purposes, although some Member States, including Belgium, Denmark, France and Sweden have set up national registration systems, requiring detailed information from companies posting workers to their country. The accuracy of the information contained in PD A1 documents cannot be guaranteed due to the lack of formal controls by the authorities in the sending countries, among other things. Therefore, the figures presented below represent an estimate of the actual number of postings taking place and do not provide a precise picture of reality. Moreover, PD A1 forms include incomplete information on the duration of postings (these forms are not required for short-term postings below one month of duration and for long-term postings over 24 months) and the precise economic sector of activity; and they include no information at all on aspects such as the qualification of posted workers, their earnings, and the economic value of cross-border services involving posting of workers. Improvements can be expected from the transposition of the 2014 Enforcement Directive, in particular the administrative requirements and control measures suggested by article 9(1). Furthermore, the envisaged revision of the Regulation on social security coordination will propose stricter measures to improve the reliability of the A1 forms, and therefore of the data, provided by sending Member States. 2.2. Defining the scope of the issue Posting of workers constitutes an essential resource for the functioning of the Internal Market. The 1996 Directive sets the EU regulatory framework to establish a balance between the objectives of promoting and facilitating the cross-border provision of services, providing protection to posted workers and ensuring a level-playing field between foreign and local competitors. It stipulates a 'core set' of terms and conditions of employment of the host Member State which are mandatory to be applied by foreign service providers, which include (article 3(1) of the Directive): maximum work periods and minimum rest periods; the minimum rates of pay, including overtime rates; minimum paid annual holidays; the conditions of hiring-out of workers; health, safety and hygiene at work; protective measures in favour of pregnant women, young mothers, children, and young people; equality of treatment between genders; and other provisions of non-discrimination. The 2014 Enforcement Directive has provided for new and strengthened instruments to fight and sanction circumventions, fraud and abuses. It addresses problems caused by so-called "letter-box companies" and increases the Member States’ ability to monitor working conditions and enforce the rules applicable. Inter alia, the Directive lists qualitative criteria characterising the existence of a genuine link between the employer and the Member State of establishment. The Enforcement Directive also lays down provisions to improve administrative cooperation between national authorities in charge of posting. For instance, it provides for an obligation to respond to requests for assistance from the competent authorities in other Member States within two working days in the case of urgent requests for information and within 25 working days in non-urgent cases. Moreover, the Directive lists national control measures that the Member States may apply when monitoring compliance with the working conditions applicable to posted workers. The full effects of the Directive should become tangible as of mid-2016, as Member States will have until 18 June 2016 to transpose the Directive. The current initiative does not address any issue touched upon by the Enforcement Directive. Neither the Enforcement Directive nor the measures taken to transpose it into national laws will be in any way affected by the present initiative. Rather, it focuses on issues which were not addressed by it and pertain to the EU regulatory framework set by the original 1996 Directive. Therefore, the revised posting of Workers Directive and the Enforcement Directive are complementary to each other and mutually reinforcing. Problem Tree 2.3. Inconsistent playing field for companies grounded on differentiated wage rules The 1996 Posting of Workers Directive establishes a structural differentiation of wage rules applying to posted and local workers which is the institutional source of an un-level playing field between posting and local companies, as well as of segmentation in the labour market. Wage differentiation originates from three mechanisms set in place by the Directive. First, the Directive stipulates that posted workers are guaranteed only the minimum rates of pay, as part of a "hard core of clearly defined protective rules", in the receiving Member State. Minimum pay is defined either by the law or by universally applicable collective agreements which have been declared universally applicable. In the absence of universally applicable collective agreements, Member States may decide to base themselves on collective agreements which are generally applicable to all similar undertakings in the geographical area and in the profession or industry concerned, or collective agreements which have been concluded by the most representative employers' and labour organizations at national level and which are applied throughout national territory. Thus, unless there are collective agreements that fulfil these conditions, posted workers are only entitled to whatever statutory minimum wage that there might be in the receiving country. However, even when collective agreements are applicable, it is widely reported that sending companies tend to pay the rates applicable to the lowest pay group, rather than the adequate pay group corresponding to workers' job tasks, educational level and seniority. In summary, the existing Directive has an in-built structural wage gap between posted and local workers. Second, the composition of the minimum rates of pay guaranteed to posted workers in the host Member States is unclear and sensibly varies across the Member States. The Directive leaves the definition and composition of 'minimum rates of pay' applicable in their country to the Member States and the social partners. For example, while certain bonuses or allowances (such as Christmas bonus or bad-weather allowance) are constituent parts of the pay in some Member States, they are not in others. Annex V provides an overview of the types of bonuses and allowances included across different Member States. The European Court of Justice has clarified selected issues of the concept. Nevertheless, the lack of a clear standard generates uncertainty about rules and practical difficulties for the bodies responsible for the enforcement of the rules in the host Member State; for the service provider when determining the wage due to a posted worker; and for the awareness of posted workers themselves about their entitlements. In practice, the notion of "minimum rates of pay" which can in a number of Member States include seniority allowance, quality bonuses and 13th month bonuses, seems to be wrongly interpreted without these components, as meaning 'minimum wage' (see Annex V).

Third, there are uncertainties concerning the effectiveness of the Directive in Denmark and Sweden where, in the absence of a statutory minimum wage and a scheme for the extension of collective agreements, minimum rates of pay are set by collective agreements that are applicable nationwide but leave ample room for integration to company-level agreements, in line with productivity and skill requirements. Following the Laval ruling through which the European Court of Justice has challenged the validity of company-level agreements to set the working conditions for posted workers, both countries have amended national legislation to clarify the application of their wage-setting systems in the terms set by the Directive . While general agreements set basic wage floors in some relevant exposed sectors, company-level agreements play an essential role in setting a level playing field with local companies, but the number of such collective agreements with cross-border service providers seems to be low.. Figure 3 provides a synoptic view of the level of minimum rates of pay (as a ratio of the average wage in the whole economy) under different wage regimes and the number of workers posted to each Member State from lower-wage countries who are likely to receive only the minimum rates of pay in the receiving country. Figure 3. Minimum rates of pay guaranteed by the Directive and potential range of posted workers affected, by receiving country, whole economy, 2010 Source: EMPL calculations on Eurostat data and Pacolet and De Wispelaere (2015) data. No data for CY. Note: in minimum wage countries (MW) the minimum pay is calculated as the ratio between the monthly statutory minimum wage and the nominal average wage in the construction sector; in Member States with universally applicable collective agreements (CA), and collective agreements concluded at national level (in accordance to article 3(8) of the Directive), the minimum rate of pay is calculated as the ratio between the nominal monthly wage of the lowest pay group (elementary worker) and the average wage in the construction sector. Differentiated rules on wages translate into a competitive advantage for posting companies over local companies in receiving countries, with the former being able to adhere to lower wage bound than the latter, while competing for the same business in the same (host) country. This is particularly true in domestically-provided services, such as construction and personal services, given their labour-intensive and price-sensitive character and the fact that delocalisation of these activities is not possible. In light of EU labour market conditions, including wage differentials and diversity of wage-setting regimes, in the context of an enlarged European Union, the balance struck by the 1996 Directive to establish a climate of fair competition has changed considerably. As illustrated by figure 9 (Annex II), the gap between Member States on minimum wages has constantly increased since 1996, from a ratio between the lowest and the highest minimum wage of 1:3 to 1:10. Moreover, differentiated wage rules seem in contradiction with the principle according to which cross-border service providers should pursue their activities in another Member State "under the same conditions as are imposed by the State on its own nationals" (Article 57 TFEU). The labour market effect of these provisions is segmentation between posted and local workers. Posted workers are reported to receive a lower remuneration level than local workers, especially in high-wage EU receiving countries, such as Belgium, Denmark, France, Germany, the Netherlands and Sweden. Because of the absence of data on the earnings of posted workers, only gross estimates exist. However, the wage gap (in compliance with the Directive) is estimated to range from 10-15% in the Danish construction sector, up to about 25% - 35% in the construction sector in the Netherlands and Belgium, and up to 50% in the road transport sector in Belgium. The wage gap constitutes a source of labour market segmentation insofar as it implies differentiated rules applying to posted workers on aspects such as composition of pay, correspondence of certain bonuses, and longer working hours. Wage differentiation is reported to be especially acute in two cases. First, posted workers in labour-intensive sectors, such as the construction sector and road transport are more likely to receive minimum pay rates than posted workers in high-end service sectors, e.g. finance and insurance. This is because in these sectors labour cost differentials are one of the key drivers of posting of workers while posted workers tend to have low skills. By contrast, in sectors or for professions in which posting is driven by skills shortages, such as the care services sector, or workers have higher skills, wages are not reported to be a problematic issue . Second, unequal wage treatment particularly affects workers posted from low- to high-wage countries. While the 1996 Directive does not preclude companies from applying more generous conditions than the minimum standards of the receiving country, workers posted from low-wage countries tend to lack the bargaining power to obtain more generous conditions in line with the wage standards of the receiving countries. On the receiving end, the Directive provisions can exert downward wage and overall labour cost competition on local companies and workers in high-wage Member States, including through possible risks of replacement of local workers with posted workers. It also risks destabilising coordinated wage-setting regimes and the bargaining autonomy of the social partners in those regimes. 2.4. Unclear rules to be applied on specific situations The 1996 Directive addresses different types of posting through a one-size-fits-all principle. In specific situations, however, the rules have not proved to be up to standard with changing economic and labour market conditions and do not provide sufficient legal clarity. Unclear rules undermine the efficient functioning of the Internal Market by creating uncertainties among undertakings, workers and their representatives, and public authorities. 2.4.1. Subcontracting Posted workers in the context of sub-contracting chains are in a situation of particular vulnerability. Subcontracting chains involve a client, or principal contractor, externalising single specialities or tasks to other companies or self-employed workers. Workers may be posted to another member State in order to execute that service. Subcontracting is an extensive practice in the building and construction sector, as well as in other industries and service sectors, such as shipbuilding, transport, tourism and the cleaning industry. The compression of production costs through the subcontracting of specific tasks to trans-national subcontractors is one of the drivers of the phenomenon and may be a source of downward wage pressure in the context of posting both on posted and on local workers, as well as a source of risk of job displacement for local workers. As there is little comprehensive data, it is difficult to estimate the extent of sub-contracting through cross-border service providers and posting of workers. Overall, in 2011 (latest available data) payments of companies to subcontractors ranged between less than 15% (RO, PT, DK, and IT) to over 30% (UK, SK, and CZ) of turnover in the construction sector (figure 10, Annex II). The 2014 Enforcement Directive recognised that "compliance with the applicable rules in the field of posting in practice and the effective protection of workers' rights in this respect is a matter of particular concern in subcontracting chains" (recital 36) while introducing a system of joint liability of the main contractor. The Enforcement Directive hence determines who can be held liable for wage payment but does not address the question of what wage a posted worker in a subcontracting chain is entitled to. 2.4.2. Temporary agency workers

The posting of temporary agency workers to a user undertaking established in another Member State is a rather specific situation, compared with the typical situation of workers posted in the context of a contract of service. In the case of temporary agency workers, the movement of the worker to the host Member State constitutes the very purpose of the provision of services and the posted worker carries out his tasks under the control and direction of the user undertaking. Posted agency workers are exposed to the risk of differentiated treatment with respect to temporary agency workers directly recruited in the host Member States because of the problematic interaction between the Posting of Workers directive and the Directive 2008/104/EC on temporary agency work (TAW). While the TAW Directive establishes that temporary agency workers should be granted the same working and employment conditions of workers as comparable workers of the user undertaking, in the Posting of Workers directive the same principle is not mandatory. Article 3(9) provides that temporary agency workers posted from another Member State are granted the application of the hard core of rights as nationals, including minimum rates of pay, but are not granted equal treatment as comparable workers of the user undertaking, unless a Member State has ruled so. The majority of Member States (15) has transposed article 3(9) to ensure that the equal treatment principle also applies to posted temporary agency workers, but thirteen Member States (Austria, Cyprus, Estonia, Greece, Finland, Croatia, Hungary, Ireland, Latvia, Poland, Portugal, Slovenia, and Slovakia) do not set any specific provision for this category of workers, with the general conditions for posted workers applying. As a result, temporary agency workers who are posted to the latter group of countries are exposed to risks of differentiated pay and working conditions with respect to locally recruited agency workers. National temporary agencies are faced with unfair competition since the workers assigned by agencies established in another Member State are potentially paid lower wages. It should be noted, however, that the Posting of Workers Directive does not affect the regulation of the temporary agency industry with respect to aspects such as restrictions on particular sectors or licencing systems in the Member States. 2.4.3. Definition of the temporary nature of posting The 1996 Directive defines the nature of posting as having a temporary character, for the "limited period of time" necessary for a worker to carry out in another Member State the work for which he or she has been posted. However, the Directive does not provide any temporary limitation to the posting of workers or any limitation to the assumption that they do not integrate into the labour market of the host Member State. The lack of a definition of the temporary limitation of posting creates a mismatch with the Regulation on the coordination of social security systems. The Regulation sets at 24 months the maximum duration of postings after which posted workers are compulsorily integrated in the social security regime of the host Member State for the entire period of posting. The same rule does not apply for working conditions under the Posting of Workers Directive. Workers posted for long periods remain entitled to the minimum standards of the host Member State, as far as remuneration, working time, and paid holidays are concerned, while remaining subject to the income tax regime of the home country. The inconsistency of the EU regulatory framework on posting represents a problem as such as a matter of clarity of rules, while bearing significant adverse consequences on the fairness of competition between posting and local companies. Companies posting workers for long-term services can continue applying a more advantageous set of minimum-standard labour rules with respect to local companies, thus gaining a competitive edge based on the application of unequal wage rules. In turn, workers posted for long periods are de facto integrated in the labour market of the host Member State, but they do not benefit from the principle of equal treatment with nationals as EU mobile workers (within the meaning of Article 45 TFEU) do, as far as working conditions are concerned. Workers in long-term postings are more exposed to abuses of their working conditions. The Commission identified this problem in the preparation of the Enforcement Directive, but no policy option was presented at that time since the initiative focused only on problems related with the enforcement of the existing rules. 2.4.4. Intra-corporate posting In addition to the typical situation of posting in the context of a contract of services between undertakings established in different Member States and to temporary agency workers, the Directive also covers intra-corporate posting, i.e., the posting to an establishment or to an undertaking owned by the group in the territory of another Member State. The specificity of this situation is two-fold: first it has a rather weak link with the provision of services, being mainly confined to staff mobility within undertakings of the same group. Secondly, similarly to the agency worker, the link between the posted worker and the undertaking in which he/she temporarily performs the tasks is much stronger, since the worker carries out the tasks under the control and direction of the undertaking to which he/she has been posted. It also creates a difference of treatment between EU and third-country nationals. Indeed, Directive 2014/66/EU on the conditions of entry and residence of third-country nationals in the framework of an intra-corporate transfer provides, in its Article 5(4)(b) that third country nationals must be given a remuneration "not less favourable than the remuneration granted to nationals of the Member State where the work is carried out occupying comparable positions". By providing for the same rules as for the typical situation of posting under a contract of services, the Directive does not address the specificities of this situation and could create a distortion of competition between companies having (or not) subsidiaries in different Member States, as well as a difference of treatment between EU and third-country nationals. 2.5. Evolution of the problem without further EU intervention With the continuing pick-up of economic activity in the EU, posting of workers can be expected to continue growing at a steady pace based on the evidence that the growth of posting is strongly correlated to the growth of GDP. If postings continue to grow at the annual growth rate of 11.1% showed between 2010 and 2014, the total number of postings may reach up to 3 million workers by 2018. While the increase in the number of postings represents an indicator of a vigorous Internal Market for cross-border services, its social acceptance among companies and workers may risk being weakened by concerns about the fairness of EU rules. The regulatory framework would nevertheless be subject to some changes as a consequence of two factors, notably the transposition of the 2014 Enforcement Directive and the application of current – and possibly, future – case law of the European Court of Justice. The transposition of the Enforcement Directive On 18 June 2016, the deadline for the transposition of the 2014 Enforcement Directive at national level elapses. The Enforcement Directive tackles a number of important issues related to the fighting and sanctioning of circumventions, fraud and abuses. Member States are called upon to set up stronger rules to unmask fraudulent competition practices by companies through the use of so-called "letter-box companies". The Directive will also simplify and improve access to information on terms and conditions of employment in the host Member State, both for employers and to posted workers. Moreover, the improvement of administrative cooperation between the Member States, in particular as concerns the exchange of information, will support the fight against abuses of the posting of workers covering up undeclared or illegal work activities. The set-up of stronger monitoring systems at national level will increase the availability of reliable data on the posting of workers across the EU Member States, and enhance inter alia the ability of the social partners to monitor and enforce the correct application of the provisions set by collective agreements. The cross-border enforcement of administrative penalties and fines will also ensure that the sanctions are effective and dissuasive even in case of a short presence of the cross-border service provider in the host Member State.

The Enforcement Directive will be effective essentially in situations of fraud (letter-box companies, etc.). It will therefore mainly contribute to preventing severe forms of distortion of competition. To the extent to which wage differentiation and unfair competition practices are a matter of poor enforcement at national level, the transposition of the Enforcement Directive will contribute to tackling the problems listed above. The effects of the jurisprudence by the European Court of Justice The European Court of Justice has clarified on successive occasions the notion of "minimum rates of pay". In particular, the case Sähköalojen ammattiliitto ry (C-396/13) has established that a host Member State can require sending companies to include in the payment to posted workers holiday allowances, daily flat-rate allowances to compensate workers for disadvantages entailed by the posting, and compensation for travelling time, on equal terms as local workers. Moreover, the ruling acknowledged that if collective agreements set different pay levels related to the categorisation of employees into pay groups, these pay levels need to be considered as valid in line with the Directive, provided that the conditions are universally binding and transparent. While the ruling has an immediate effect on the rules applicable to posting companies and posted workers, its effects will continue to be monitored closely. In the more recent case Regio-Post (C-115/14), the Court's ruling has tackled an issue in relation to subcontracting activities in public procurement. It established that Member States can require tenderers of public procurements and their subcontractors to pay their employees a set minimum wage. They can also exclude those tenderers and subcontractors who are unwilling to respect that minimum wage level. In summary, the case law of the European Court of Justice has contributed to progressively clarify the provisions of the EU regulatory framework (see Annex II for a summary of recent case law). The case law of the Court is nevertheless, by definition, unpredictable since it depends on the number and nature of the cases brought before the Court. Moreover, the Court can clarify but not amend the provisions of the Directive. 2.6. EU Right to Act A regulative framework for posting of workers between Member States can only be established at EU level. The aims are to facilitate the cross-border provision of services through posting of workers by improving the clarity and transparency of applicable labour market rules in the host Member State(s) of posted workers; to ensure a level playing field for competition in the provision of services between posting companies and local companies in the host Member State, while ensuring that posted workers have an adequate level of protection while working in the host Member State. EU action in the form of a Directive is warranted to encourage the freedom to provide services across borders on the basis of article 56 of the Treaty on the Functioning of the European Union (TFEU). The Directive currently provides for a uniform and EU-wide regulative framework setting a hard core of protective rules of the host Member State which need to be applied to posted workers, irrespective of their substance. Therefore, in full respect of the principle of subsidiarity, the Member States and the social partners at the appropriate level remain responsible for establishing their labour legislation, organising wage-setting systems and determining the level of remuneration and its constituent elements, in accordance with national law and practices. The envisaged initiative does not change this approach. It thus respects the principles of subsidiarity and proportionality and does not interfere with the competence of national authorities and social partners. The proposed policy options respect the limits laid down in primary EU law and the Charter of Fundamental Rights. Proportionality is one of the factors against which the developed policy options have been assessed. The principle of equal treatment, including on pay, is enshrined in Article 21 of the EU Charter of Fundamental Rights. It is also at the core of EU secondary law on fixed-term contracts, part-time work or temporary agency work. More recently, the EU has developed a consistent legal acquis on equal treatment, including pay, in matters such as racial or ethnic origin, religion or belief, disability, age or sexual orientation. 3. OBJECTIVES 3.1. General Policy Objective The general objective is to ensure the smooth functioning of the Internal Market by adapting the terms and conditions set by the 1996 Directive to the new economic and labour market conditions, diverting the basis of competition away from wage costs and workers' working conditions and thereby increasing the fairness of the Internal Market. 3.2. Specific objectives The specific objectives that correspond to the problems identified are to: create a level playing field for the cross-border provision of services through equal rules on wages applicable to posted and to local workers;

improve the clarity of EU rules on posting by improving the consistency between different pieces of EU legislation. In the context of this impact assessment, the level playing field for companies is understood as the same set of rules applying for the remuneration of labour within a given Member State, which generates equal opportunities for companies. The scope of a level playing field to other elements such as taxes, legal form of companies, access to loans, etc. is outside the scope of this initiative. 3.3. Coherence of the objectives with other EU policies The targeted review of the Posting of Workers Directive figures prominently among the initiatives proposed by the Commission to achieve the objective of a deeper and fairer Internal Market, as one of the chief priorities for its mandate. The proposal of targeted amendments to the Posting of Workers Directive integrates and complements the provisions set in the Enforcement Directive, which is to be transposed by 18 June 2016. The targeted revision of the Posting of Workers Directive will interact with the planned revision of the Regulation on the coordination of social security systems (Reg. No. 883/2004). The revision of social security coordination rules aims at facilitating the full exercise of citizens' mobility rights while at the same time ensuring an equitable distribution of the financial burden among the institutions of the Member States involved. Included in the said proposal of revision is the requirement for Member States to certify the information contained in the Portable Documents A1, which constitute the information basis for data on posted workers. Such provision may contribute to improving the reliability of data on the posting of workers and the evidence-basis for policy initiatives at national and EU level. The amendments to the Posting of Workers Directive complement the Internal Market Strategy aimed at enhancing transparency and simplicity of rules for EU businesses. In the preparatory consultations led by the Commission with about 300 stakeholders, mostly SMEs, 30% of companies providing services across borders reported problems with existing rules on posting of workers, such as burdensome administrative requirements, paperwork, fees and registration obligations. The lack of clarity of labour market rules in the country of destination is also considered a relevant hindrance to cross-border service provision, especially among SME's. A clarification of certain rules under the Posting of Workers Directive may positively complement the Internal Market Strategy to address these concerns. 4. POLICY OPTIONS To reflect the holistic character of the initiative, the policy options are presented as a compact set of possible measures. Each option is nevertheless to be understood as opposed to the baseline scenario. 4.1. Option 1 - No policy change: baseline scenario The Commission does not take any initiative to revise the 1996 Posting of Workers Directive. It monitors and evaluates the transposition of the Enforcement Directive and takes stock of its implementation, while it is left to the case law of the European Court of Justice to clarify the legal uncertainties in the EU regulative framework. The entry into force of the Enforcement Directive will contribute to a better detection and sanction of situations of fraud (letter-box companies, non-compliance with the rules of the Member State of origin on taxes or social contributions, etc.). The European Court of Justice could continue contributing to the clarification of the notion of "minimum rates of pay", although this is entirely dependent on the cases brought to the Court. This option has the support of nine Member States, Business Europe, UAPME, the European representations of the metal, engineering and technology industries (CEEMET), temporary agency work industry (Eurociett, except for issues related to the temporary agency work sector, see below) and the Confederation of the Managers (CEC). 4.2. Option 2: clarification of the composition of minimum rates of pay to codify the rulings of the European Court of Justice This option entails a revision of the 1996 Directive with the aim of codifying the case law of the European Court of Justice, with particular reference to the case Sähköalojen ammattiliitto ry (C-396/13). This option implies some changes to clarify the notion of "minimum rates of pay" and its composing elements. The revision would define that minimum rates of pay applicable to posted workers may include, if set by the law of the Member State: holiday allowances; daily flat-rate allowances to compensate workers for disadvantages entailed by the posting; and compensation for travelling time, on equal terms as local workers.

Moreover, changes would also include the recognition of different pay levels attached to the categorisation of employees into pay groups in collective agreements, provided that the conditions are universally binding and transparent. A fuller list of case law is provided in Annex III. This option codifies case law, but it would not create any additional effect on the pay conditions applicable to posted workers with respect to the status quo. By codifying the case-law of the Court at a certain point in time, it could prevent its development in future cases. 4.3. Option 3: Changes to the provisions of the Directive regarding pay 4.3.1 Option 3a: Application of the same mandatory rules on remuneration for posted and local workers This option establishes a new balance in working conditions, including remuneration, between posted and local workers in the host countries by removing the reference to the "minimum" rates of pay applicable to posted workers. The pay applicable to posted workers would thus encompass all the elements of remuneration that are paid to local workers if they are laid down by law or by collective agreement which are generally applicable to all similar undertakings in the geographical area and in the profession or industry concerned, or by collective agreements which have been concluded by the most representative employers' and labour organizations at national level and which are applied throughout national territory. In order to ensure that the rules on remuneration applicable to posted workers are proportionate and do not impede the provision of services, it could be specified that the applicable rules on remuneration should be all the elements of remuneration rendered mandatory by national law, regulation or administrative provision, collective agreements or arbitration awards which have been declared universally applicable and/or, in the absence of a system for declaring collective agreements or arbitration awards to be of universal application, other collective agreements or arbitration awards within the meaning of paragraph 8 second subparagraph, in the Member State to whose territory the worker is posted. . This option would continue respecting the differences of wage-setting systems in Europe. Therefore, EU Member States would be affected differently by the option. In Member States in which terms and conditions of employment are set by law or by collective agreements not universally applicable (BG, CZ, EE, HR, HU, LV, LT, MT, PL, RO, SK, UK) this option would make applicable to posted workers elements of remuneration set by law that are not so far expressly considered as part of the "minimum rates of pay", if any, such as, for instance, of a Christmas allowance or a compensation for work during public holidays or night work; In Member States with collective agreements made universally applicable to some sectors (IE, DE, LU) or professions (CY) or in all sectors (AT, BE, ES, FI, FR, EL, IT, NL, PT, SI), or by nationwide collective agreements in accordance with Article 3(8) of the Directive (DK, SE), the option would add up to the pay of posted workers elements of remuneration set by the relevant collective agreement that are not so far expressly considered as part of the "minimum rates of pay". Since collective agreements tend to be more detailed than statutory provisions on the elements of remuneration, the option would have a higher impact than in the case above. Elements of remuneration to be applied to posted workers are totally dependent on the terms of each collective agreement and may include elements such as seniority allowances, allowances and supplements for dirty, heavy or dangerous work, 13th/14th month bonuses. Existing provisions leaving the faculty to Member States to exempt short-term postings of less than one month from the application of the rules on pay will not be changed. 4.3.2. Option 3b: Extension to all sectors of the reference to erga omnes collective agreements The option establishes that posted workers must be granted the rates of pay laid down by law or by collective agreement made universally applicable in all economic sectors. The modification would overcome the current provision which establishes that the application of collective agreements made universally applicable is currently mandatory only for the construction sector and optional for all other sectors. This option envisages extending the validity of universally-binding collective agreements for posted workers to all sectors of the economy. Thus, all collective agreements applicable erga omnes would automatically be applicable to posted workers, as well. Member States would be differently affected by this provision. This provision may have an impact on Member States which give generally binding force to collectively-agreed pay rates in some sectors or professions only (DE, IE, LU, CY). These Member States will be encouraged to extend this practice to posted workers in all sectors. This option would have no impact either on Member States which already extend the validity of collective agreements to all sectors, in line with the faculty given by Article 3(10) of the 1996 Directive (AT, BE, ES, FR, EL, FI, IE, IT, NL, PT, SI); or on countries which do not made collective agreements universally applicable (BG, CZ, EE, HR, HU, LV, LT, MT, PL, RO, SK, UK, as well as DK, SE).

This option would go in the direction supported by seven Member States, the European Trade Union Confederation, and the European Builders Confederation. 4.4. Option 4: Adapted rules for specific situations of posting 4.4.1. Option 4a: long-term postings Option 4a would include a provision according to which the labour law of the host Member States applies to the employment contract of workers posted for longer than 24 months, from day one of posting. The proposal provides that, whenever the anticipated or the effective duration of posting exceeds 24 months, the posted worker is deemed to be carrying out his tasks habitually in the host Member State. By application of the rules of the Rome I Regulation, the employment contract will be governed by the law of the host Member State. In case of replacement of a posted worker, this option envisages that the cumulative duration of posting is taken into account with regard to workers who were posted for at least six months (who would thus benefit from the application of the labour law of the host Member State). This provision would meet the objective of aligning the Posting of Workers Directive with the conditions set by the Regulation on the coordination of social security systems as regards long-term posting, thus eliminating a source of inconsistency in the EU regulatory framework. The proposal would tackle the distortions to competition caused by the application of lower-standard wage rules by posting companies in host Member States in the event of long-term postings and correct the internal inconsistency of the EU regulatory framework as regards the definition of the temporary nature of posting. This provision would affect workers posted to all Member States, provided that the anticipated or effective duration of posting is longer than 24 months. This option goes in the direction of specifying the temporary duration of posting advocated by seven Member States, the Economic, Social and Environmental Council of France and the Socio-Economic Council of the Netherlands, as well as by the European Builders Confederation. The European Builders Confederation and the Economic, Social Environmental Council of France also propose that social partners are delegated to set the maximum duration of postings at sector level. 4.4.2. Option 4b: sub-contracting relations This option would give Member States the faculty (but not the obligation) to provide that the workers of any subcontractor must be granted the same remuneration as the workers of the contractor, including the rules laid down in collective agreements not universally applicable (for instance, company-level agreements) which are binding to the contractor. To avoid discriminating against cross-border service providers, the option would provide that Member States can only implement this principle for both national and cross-border service providers. This provision would add a further level of protection for posted workers in subcontracting chains which would constitute a major change with respect to the existing situation. The current Directive provides no specific conditions for subcontracting chains. While this option may potentially be exercised by all Member States, an essential precondition for it to have an impact is that the main contractor transparently applies a not universally applicable collective agreement at any level, including company-level agreements. The added value of this option would be more evident if applied in Member States where collective agreements are not universally applicable or the company is the dominant level of wage bargaining, including DK, SE, and the UK, inter alia. The option would not affect posted workers who already benefit from more favourable conditions of employment in accordance with their individual contract or the rules of the Member State of origin. 4.4.3. Option 4c: Temporary agency workers Option 4 includes the provision to render mandatory the application to cross-border temporary agency workers of the principle of equal treatment of temporary agency workers with respect to comparable workers in the user undertaking, set by Article 5 of Directive 2008/104/EC. This change would improve the consistency between the Posting of Workers Directive and the Temporary Agency Work Directive by eliminating any source of uncertainty as regards the application of the principle of equal treatment to agency workers. Currently, it is up to the host Member State to decide whether it applies to these workers the general rules on posting (i.e. minimum rates of pay laid down in law or erga omnes collective agreements) or the terms and conditions of employment that are applicable to temporary agency workers at national level. The option only concerns temporary agency workers assigned by temporary agencies established in a different Member State than the user undertaking. The main receiving Member States have made use of the possibility to provide for equal treatment between national and cross-border temporary agents. The option would require legislative amendments in AT, CY, EE, EL, FI, HR, HU, IE, LV, PL, PT, SI, and SK.

While no stakeholder has expressed any explicit position on this option, Eurociett has supported the principle of equal pay for equal work for posted agency workers and the application of the full set of regulations in the Temporary Agency Work Directive to posted agency workers. General favour for an EU initiative on posted agency workers has also been expressed by the European Trade Union Conference, the European Builders Confederation, and the Economic, Social and Environmental Council of France. 4.5. Discarded options 4.5.1 Communication by the Commission to clarify the elements of remuneration applicable to posted workers This option would envisage an interpretative Communication which builds on the case law of the European Court of Justice to clarify the elements of remuneration applicable to posted workers across the EU Member States. However, considering the wide range of views on this issue, a non-legislative option would have a very limited impact and would not attain the objectives of ensuring the fairness of posting and of increasing legal clarity for companies, workers and public authorities. 4.5.2. Introduction of equal pay for equal work with respect to a reference undertaking This option would envisage the introduction of the principle of equal pay for equal work at company level by requiring that posted workers are guaranteed the terms and conditions of employment covering remuneration that would be applicable if the posted workers were employed by a reference undertaking or, in its absence, a similar undertaking established in the host Member State. In the case of a subcontracting chain, the proposal would imply that the posted workers should receive the same remuneration treatment as the employees of the contractor established in the host Member State of which the service provider is a direct or an indirect subcontractor (hereafter the "reference undertaking"). This proposal may be most effective to attain the objective of providing equal treatment to posted workers since it would ensure full equal treatment for posted workers compared with workers of the undertaking of reference. However, it risks failing the test of proportionality and compatibility with the Internal Market, as it would create more obligation on companies posting workers from other Member States than on local companies in the host Member State. Moreover, the complexity of the mechanism of identifying a reference or similar undertaking may increase the risk of judicial litigation in the implementation phase. 4.5.3. Clarification of the application of the Directive to the road transport sector This option would consist in defining that the application of the Directive to international transport operations other than cabotage (which is always covered by the Directive) requires the existence of a sufficient link with the host Member States. In order to provide a high level of legal certainty, the criteria to determine the existence of a sufficient link should be expressly set out. In any case, given that cabotage falls in any case within the scope of the Directive, international transport operations combined with a cabotage operation should also fall within the scope of the Directive. For other international transport operations, the sufficient link should be expressed in the number of transport operations in a given Member State within a reference period (one month, for instance) or in any other way that is applicable in practice and enforceable in the host Member State. This option would be effective to achieve the objectives of providing a more balanced playing field in the transport sector and enhance legal clarity for companies. However, as more evidence is required in order to establish an adequate definition of a "sufficient link" as regards to international transport operations, a sector-specific regulation is deemed more suitable to tackle the problem. 4.5.4. Intra-group posting This option would concern workers posted between two establishments or undertakings of the same group, established in two Member States. It would provide that the remuneration of these posted workers is not less favourable than the remuneration granted to workers employed in the establishment or undertaking where the workers has been posted occupying comparable positions. This option would aim at aligning the protection granted to EU nationals and third-country nationals in case of intra-corporate posting by extending equal treatment to posted workers, in line with Directive 2014/66/EU. However, the option has been discarded because it would be an obstacle to the free provision of services which would not be justified and proportionate. The Court has recognised that the protection of workers is an overriding objective of general interest that can justify obstacles to the provision of services on condition that it is appropriate for ensuring the attainment of the legitimate objective or objectives pursued and that it proportionate, i.e., that it does not go beyond what is necessary to achieve the objective. This option cannot be seen as necessary for the protection of posted workers and would, in any case, go beyond what is necessary to reach the objective. 5. Analysis of the impact of the policy options This section summarises the economic and social impacts of each policy option. No environmental impact has been identified. The analysis includes an evaluation of the specific impact of the proposals on small and medium enterprises (SME's). As noted in section 2.1, one fundamental caveat to the analysis of the impact is the scarce availability of data. To partially compensate for this, a multiplicity of sources of qualitative evidence has been used, based on stakeholders' assessment of the situation in particular sectors and workplaces. Where possible, national data sources have been used to complement EU data, in the understanding that national sources are not representative of other Member States. Finally, proxies have extensively been used to simulate the impact of the proposed provisions on remuneration levels, as well as on the economic value of posting. 5.1. Effectiveness

The analysis of effectiveness addresses the degree to which the options achieve the specific objectives of the revision of the Directive: create a level playing field for companies based on equal rules on wages; and improve the clarity of EU rules on posting, including by eliminating inconsistencies between different pieces of EU legislation. 5.1.1. Create a level playing field for companies based on equal rules on wages Under options 1 and 2, differentials in rules on wages with posted workers may narrow as a consequence of the recent case law of the European Court of Justice, most notably the case Sähköalojen ammattiliitto ry (C-396/13), establishing that some allowances may be part of the pay of posted workers and that pay groups set by universally binding collective agreements should be respected for posted workers. The impact is expected to be significant especially in the construction sector, where collective agreements are a key source to determine the wage level of posted workers, either because they are declared universally binding or because they are signed by the most representative employers' and workers' associations in accordance with Article 3(8) of the Directive (see table 1). In those countries, the respect of pay groups may imply some wage raises, if –as reported by some stakeholders – employers tend to apply only the lowest pay group, under the status quo . However, posted workers will still be entitled to minimum pay rates only, while the application of the Court's case law would have no impact on sectors and in countries where collective agreements are not binding. Therefore, the structural differentiation in pay rates and the resulting distortion of competitive conditions will persist. Table 1. Sources of minimum rates of pay for posting of workers in the EU 28 Statutory minimum wage Binding collective agreements Nationwide agreements (Art. 3(8) Selected sectors or professions All sectors BG, CZ, EE, HR, HU, LV, LT, MT, PL, RO, SK, UK DE, IE, LU, CY AT, BE, ES, FR, EL, FL, IT, NL, PT, SI DK, SE Note: In DE, the sector-specific wage minima apply in fourteen sectors (waste management, training services, construction industry, roofing trade, electrical trades, industrial cleaning services, money and valuable services, scaffolding erection, agriculture, forestry and horticulture, painting and decorating trades, care provision, slaughter and meat processing, stonemason and stone sculptor, the textile and clothing industry, laundry services and temporary agency work sector). In LU, collective agreements are universally binding in the main nine sectors of posting (building and associated trades, transport, road haulage and road passenger transport; cleaning of buildings; security guarding; brewing; printing; banking and insurance; social sector and care; temporary agency work). In IE, Employment Regulation Orders with statutory effects are currently in place in the catering, contract cleaning, hairdressing, hotels, retail and trades and in the security industry sectors. In CY, minimum wages have statutory effects for some professions only, namely shop assistants, clerks, child-care workers, personal care workers, security guards, and cleaners at business/corporate premises. Option 3a and 3b would establish equal rules on remuneration and extend the effectiveness of universally binding collective agreements to workers posted in all economic sectors. By overcoming the "minimum rates of pay" standard set by the current Directive, this option would achieve the utmost degree of effectiveness in attaining the objective of levelling the playing field as regards wage rules. Through the extension of the validity of universally binding collective agreements to all sectors beyond the construction sector, which is currently not mandatory, this option reinforces the wage-setting instruments to determine the rates of pay of posted workers. In several Member States, including among the largest recipients, the provision would have no impact as collective agreements are already enforced erga omnes in all sectors (see table 1). An impact may be exerted on DE, IE, LU and CY. These Member States will need to extend to posted workers those wage rates at sector- or professional level which they decide to declare universally binding in all sectors, while this is currently compulsory only for the construction sector. Obviously, the decision on whether or not to make a collective agreement legally binding will continue to rest with the Member States. This option would not affect Member States in which collective agreements are not universally binding and only the statutory minimum wage is applicable to posted workers, unless they regulate to this effect. Likewise, this option would not have any effect on the wage-setting regimes of DK and SE in those sectors where nationwide collective agreements do not set any remuneration standard. Option 4 would reinforce the attainment of the objective of a more balanced level playing field by filling specific legislative gaps. In particular, the equal treatment rule would eliminate competition on wage rules among subcontractors in a production chain. As regards to long-term posting, the application of the equal treatment principle from day one would reduce differentials in the working conditions of long-term posted workers and contribute to reducing wage differentials with local workers. The clarification of the interplay between the posting of workers and the temporary agency workers directives would improve the level playing field by aligning legislation on the working conditions of posted temporary agency workers across the EU. Figure 4. Summary of the impact of options on wages Wage conditions Options 1 & 2 Option 3 Option 4 Equal treatment Optional for temporary agency workers Optional for temporary agency workers Temporary agency, Long-term Optional / subcontracting Suppression of the reference to minimum All the Member States Universal collective agreement applicable in all sectors AT, BE, CY, DE, ES, FR, EL, FI, IE, IT, LU, NL, PT, SI Universal collective agreement, minimum level for construction and optional for other sectors AT, BE, CY*, DE**, ES, FR, EL, FI, IE***, IT, LU****, NL, PT, SI AT, BE, CY, DE*, ES, FR, EL, FI, IE**, IT, LU***, NL, PT, SI Legal Minimum wage BG, CZ, EE, HR, HU, LV, LT, MT, PL, RO, SK, UK BG, CZ, EE, HR, HU, LV, LT, MT, PL, RO, SK, UK BG, CZ, EE, HR, HU, LV, LT, MT, PL, RO, SK, UK Collective agreements (art. 3(8)) SE, DK SE, DK SE, DK * for 6 professions ** in 14 sectors *** in 6 sectors **** in 9 sectors 5.1.2. Improve the clarity of EU rules on posting Under option 1, legal clarification is left to the pronouncements of the European Court of Justice upon the occurrence of judicial litigation on selected aspects. As shown in Annex III, the Court's jurisprudence has clarified the concept and composition of pay on several occasions. However, delegating finding a solution for the problems identified to the Court implies the permanence of uncertainty for companies and workers until the occurrence of a case of judicial litigation. The risk of further judicial litigation on issues of pay, among other aspects, and the related costs for businesses and workers, cannot be prevented through non-action. Option 2 brings some added value with respect to option 1. By modifying the EU Directive to reflect the rulings of the Court of Justice, this option would increase the clarity of the main EU legislative source. However, it would not tackle the identified legal situation with temporary agency work, subcontracting, long-term posting, and intra-group transfers; nor would this option prevent further cases of judicial litigation on the components of pay emerging again in the future. Options 3a and 3b contribute to improving clarity on the constituent elements of remuneration and to reducing existing cross-sector differences in the mandatory application of collective agreements. First, by equalising the rules on remuneration between posted and local workers, this option would clear any room for interpretation on the constituent elements of the wage to be applied to posted workers. It would thus contribute to minimising the risk of further judicial litigation on this very point. Second, the option would increase the certainty that the minimum pay set by all universally binding collective agreements apply to posted workers, regardless of their sector of employment. Within the scope of EU competences, however, the provision would not harmonise the set of instruments applicable to posted workers across the Member States, nor the diverse structure of collective agreements, including the definition of pay groups and bonuses and allowances, which remain a prerogative of the social partners in national wage-setting practices. Option 4 contributes to legal clarity by intervening on specific situations by removing mismatches with other pieces of EU legislation. The thrust of option 4 reaches out to posted employees in subcontracting chains, in line with the attention conferred by the 2014 Enforcement Directive. The advantage of this option is that it would extend the applicability of company-level agreements in Denmark and Sweden where these are the predominant source of wage-setting, thus filling a legislative gap in the existing Directive. Further contributions to the legal clarity stem from aligning pieces of EU legislation in the case of long-term posting (with Regulation No. 883/2004) and temporary agency work (with Directive 2008/104/EC), by establishing similar rules between posted workers and third-country nationals. 5.2. Overall economic impacts The economic impact of the options is assessed against the objectives of promoting a level playing field in the context of the Internal Market based on the application of equal rules on wages, and of improving legal clarity for companies.

Limited labour market and economic significance The economic context of posting of workers is one of a rather limited significance in the national labour markets, with the number of postings accounting for 0.7% of total EU employment, descending to 0.4% if only unique posted workers are counted and further down to only 0.2% in full-time equivalents. Overall, the employment impact of new legislation may be circumscribed to specific segments of the European labour market, including in those Member States where posting represents significant shares of the domestic employment population, such as Slovenia (11.5%) and Luxembourg (20.7%) from a sending perspective, and Belgium (3.6%) and Luxembourg (9%) from a receiving perspective. The provision of cross-border services through posting of workers may be thus assumed to have a limited economic impact on sending or receiving countries. In the absence of any data on the turnover or added value gained through posting of workers, figures can only be reconstructed via proxies. To take the representative construction sector, cross-border services represent an overall small share of total turnover in the sector (calculated as the ratio of turnover from export activities on total turnover), amounting to just 0.7% of total turnover in the EU28 (figure 11, Annex II) . Exceptions are SI, EE, DK and LU, where the cross-border trade intensity makes up about 5% of total turnover. It should be noticed however that not all cross-border construction services are carried out through posting of workers (e.g. they could be carried out by hiring local workforce). Two posting models The wage rules set by the Directive impact differently on the economic context in which posting takes place. Posted workers tend to support the provision of labour-intensive services in the context of low value chains, including construction, transports and some personal services. Labour cost differentials give a competitive edge to posting companies which thus tend to strictly apply the minimum rate of pay required in the host country. Wage cost competition is particularly relevant as posted workers support the provision of domestically-provided services which cannot be delocalised. On the other hand, posted workers are also employed in the context of the provision of high-productivity services, such as financial services or of particularly skilled labour in high value chains. In line with the possibilities given by the Directive, this segment of posted workers tends to be paid higher wages than the minimum, or at the level of the home country if this has higher wage standards than the receiving country. Wage-based competition does not exhaust the phenomenon of posting of workers in the EU. Empirical evidence points to the fact that, while labour cost differentials remain one important driver of posting, there is no strict correlation between price level or tax wedge differentials and the volume of sent posted workers (figure 12 and 13, Annex II). This is because in high value chains skills shortages or factors such as specialisation or quality of the service play an important role in the cross-border provision of services. Wage cost differentials may be estimated to be the driving factor of flows from low- to high-wage countries, which represented one third of the total stock in 2014, and part of the comparative advantage for a further 15% of workers being posted from medium- to high-wage countries (figure 5). However, the remaining 50% of postings flow between countries with similar wage levels, where it can be assumed that the search for adequate skills rather than cost reductions constitute the main trigger for businesses to look for cross-border service providers. In this case, the wage rules set by the Directive are not reported by the stakeholders to create any particular problem. Figure 5. Flow of postings between EU Member States divided by wage group (high, medium, low), % on total posting, year 2014 Notes: EMPL calculations. High-wage (above EU average wage, year 2012): DK, LU, SE, FI, BE, NL, DE, FR, AT, IT, IE; Medium-wage (around EU average, 2012): CY, ES, EL, MT, SI, PT; Low-wage (less than half of the EU average wage): HR, CZ, EE, PL, SK, HU, LV, LT, RO, BG; no data on the destination of postings from CY, DK, and the UK. Posting of workers tends to be pro-cyclical, satisfying demand for services in more dynamic economies and contracting in the event of a downturn, which is reflected in the correlation between the number of postings and overall economic growth (figure 15, Annex II). However, the possibility for posting companies to wage costs through the current rules promotes the deepening of specialisation of low-wage countries in the provision of labour-intensive services in low value chains, most notably construction services, to high-wage countries. Figure 6 shows that 70% of postings from low-wage member States occur in industry and construction sectors, as compared to about 50% and 40% of postings from medium- and high-wage countries, respectively. Posting rules thus favour a strong role of wage-based competition in these services markets. Minimum-standard rules on wages add up to differentials in labour and income taxation between Member States and generate significant gaps in total labour costs for employers. Figure 6. Posted workers sent in 2014, breakdown by economic sector and group of countries Source: EMPL calculations on Pacolet and De Wispelaere (2015); High-wage (above EU average wage, year 2012): DK, LU, SE, FI, BE, NL, DE, FR, AT, IT, IE; Medium-wage (around EU average, 2012): CY, ES, EL, MT, SI, PT; Low-wage (less than half of the EU average wage): HR, CZ, EE, PL, SK, HU, LV, LT, RO, BG; no data on the destination of postings from CY, DK, and the UK. Concentrated impact on receiving country On the receiving end, current rules favour flows of posted workers into a set of high-wage economies, with DE, FR, BE, AT, NL receiving 81% of workers posted from low-wage countries, and a few economic sectors, most notably the construction sector (figure 15). In this sector, posted workers represent up to 20% of domestic employment in BE, and over 10% in AT and LU (figure 6, Annex II)

The labour market impact of the in-flow of workers to which lower pay rules apply in high-wage Member States is not univocal, although data limitation constrains in-depth analysis. There is some evidence that posted workers complement domestic employment in the whole economy by filling job vacancies for skills or positions which are not present in the domestic labour market. However, while this seems to be the case of workers posted in high value chains, a closer analysis of posting in low value chains in a representative receiving Member State such as Belgium shows that potential substitution effects have been at play. Figure 7 shows the share of posted workers in the construction sector increasing since 2010 with overall domestic construction employment decreasing at the same time. Figure 7. Belgium, trends in employment, self-employment and posted workers, all economy and construction sector, 2010-2014. Source: Pacolet and De Wispelaere (2016) calculations on LIMOSA and BNB data In other Member States, domestic employment growth remains subdued with respect to the growth of received posted workers. In this perspective, posted workers risk crowding out especially national low-skilled jobs with which they compete in the receiving market (figure 20, Annex II). Under option 1 (baseline scenario) and largely under option 2, unchanged rules would be likely to provide the context for the growth of posting of workers at a steady pace with respect to recent years in line with economic growth. Option 3a and option 3b are expected to have an impact on raising the wage level of posted workers, particularly those posted from low-wage, and to a lesser extent from medium-wage Member States to high-wage Member States. The application of equal rules on wages (option 3a) would imply that posted workers would be entitled to all elements of remuneration laid down by law or by universally applicable collective agreement. The quantification of possible wage increases is very difficult, as bonuses and allowances strongly vary across the member States and sectoral collective agreement (see Annex VI). On the basis of the distribution displayed in figure 5 for the year 2014, option 3a can be estimated to affect between around 700,000 to 900,000 workers being posted from low- to high-wage countries, and to a lesser extent, from medium- to high-wage countries which are assumed to receive the minimum rate of pay under the current scenario. The elimination of the reference to "minimum rates of pay" will facilitate the application of the Directive to the industrial relations systems of DK and SE by overcoming the problems related to the definition of "minima" which were among the causes of the dispute in the Laval case. Nevertheless, option 3a would affect workers posted to DK and SE only to the extent that nationwide collective agreements between the most representative social partners set remuneration standards, in the absence of both a statutory minimum wage and universally applicable collective agreements. The option would not affect workers being posted from high- to lower-wage countries, as they are reported to usually be paid the same wage levels as in their home Member State. Option 3b may potentially affect only workers posted from lower-wage countries to the Member States which currently give statutory effect to collective agreements only in a selected number of sectors, most notably DE, IE and LU. The potential beneficiaries would be up to 300,000 workers. Workers in sectors currently excluded from the application of sectoral minimum pay may benefit from the increased protection of applicable agreements. By increasing the reach of equal rules on wages to workers posted from low-wage countries, the main economic impact of options 3a and 3b would principally be on labour-intensive services in low value chains but will remain limited. From the receiving perspective, local companies in high-wage Member States, especially cost-sensitive small and medium enterprises (SME's), would benefit from a more balanced level playing field vis-à-vis posting companies from lower-wage countries, thus increasing their cost competitiveness. However, it should be emphasised that equal rules on wages would translate neither into equal nominal wages between posted and local workers, nor into equal levels of labour costs. While the current gap in wage outcomes would narrow down, pay structures would remain differentiated more in line with wage distribution in the domestic labour market of the receiving Member State. Furthermore, social security and other tax differentials would still generate an advantage on total labour costs for companies established in countries with lower nominal rates than those in the receiving one. The simulation carried out in Annex IV shows that companies from high-tax Member States (e.g. BE or FR) would still be at a cost disadvantage with respect to posting companies from low-tax countries, even in an extreme situation of equalisation of wage costs (which is part of the discarded option). For the same reasons, from a sending perspective, the cost competitiveness of posting companies in labour-intensive sectors established in low-wage Member States would be reduced with respect to the baseline scenario, but it would not be eliminated by options 3a and 3b. Tax differentials would still play a role in determining lower total labour costs. On the one hand, stricter rules on wages may have an adverse impact especially on SME's providing cross-border services in sectors such as constructions with the risk of a possible loss of business opportunities. On the other hand, option 3a would have the advantage of enhancing legal clarity as concerns the elements of remuneration applicable to posted workers, which are currently a possible object of dispute and legal action. On a more macro-level, higher wage costs may drive companies established in low-wage Member States to invest in non-cost factors to open markets, such as the skills of their workforce and service innovation. In the long-run, the effect of equal rules on wages may contribute to shifting economic specialisation towards higher value chains. Within the Internal Market, consumers of construction services may possibly be affected by price increases. However, the effect on prices would be unlikely to be automatic, as the limited increase of wage costs may simply reduce the mark-ups of construction firms which are estimated to be relatively higher in sending countries such as CZ, PL, SK and PT. Lower-wage service providers to DK and SE would not be affected by option 3a and 3b. At the same time, posting of workers in more capital-intensive sectors such as high-end manufacturing, telecommunications and technological services are expected to be less affected by the modification of the Directive, to the extent that posting in these sectors is mainly motivated by the search for adequate skills which are not present in the domestic market. The application of equal treatment envisaged by option 4a and 4b is expected to have a strong impact on levelling the playing field in cases of long-term postings and posting in the context of subcontracting, albeit on a limited segment of posting. They also contribute to improving legal clarity though fine-tuning different pieces of EU legislation, thus avoiding the risk of judicial litigation. Option 4a would add the reduction of differentials in working conditions, including equal rules on wages, to the alignment of labour taxation costs envisaged for long-term postings by Regulation 883/2004 on social security coordination. The lack of data as regards long-term postings does not allow the estimation of how many workers would be affected by this option. However, available data suggest that long-term postings may represent a small share of total postings. The average duration of posting was 103 days in 2014, with a maximum of 257 days of workers posted from Ireland (see figure 8, Annex II). Sample data from Austria find that 4-5% of total postings to that country are longer than a year, while the maximum length of a registered posting in France amounted to 1,288 days in a temporary agency work enterprise in 2012 but only 553 days in 2013. In the construction sector, the maximum duration of postings is reported to be seldom longer than 6 months. Therefore, it can be concluded that, while substantial, the changes introduced by option 4a would be circumscribed to a limited group of posted workers.

The impact of this option on the reduction of labour cost differentials would be more significant with respect to long-term postings from low-wage and high-wage countries. The margins for competition on labour costs for sending companies from lower-wage countries, in particular SME's, in low value chains would be reduced, as an effect of the application of equal rules on wages, as well as of the labour law provisions of the host Member State. On the other hand, local companies in receiving Member States would increase their cost competitiveness on more ambitious service provisions, and shift the determining competitiveness conditions on non-cost factors. Option 4b would be optional for Member States to introduce in order to reduce the scope of wage cost competition in sub-contracting chains. The relevant feature of this option is that it provides the possibility to apply the rules on remuneration applicable to the main contractor to any subcontractor, including rules stemming from non-universally applicable collective agreements, for instance at company level, if the main contractor is bound by one. Therefore, this option may have an effect on all wage-setting systems, including DK and SE, as well as Member States with full wage decentralisation, such as the UK. Despite the fact that sub-contracting is reported to be a wide-spread practice in a number of sectors, including construction, cleaning, and manufacturing industries, there is no data which allows to estimating the number of workers involved. According to Eurostat figures, in 2011, the relevance of payments to subcontractors in the construction sector amounted to over 30% of turnover in the UK, SK, and CZ and to less than 15% in RO, PT, DK, and IT (figure 11, Annex II). Based on the assumption that subcontracting mainly involves low-skilled workers in low-wage and labour intensive sectors, it could be estimated that the potential range of workers affected may fall in the range of up to 676,300 postings in 2014, including workers posted in sectors such as construction, agriculture, hunting and fishing sector, accommodation and food service activities, and freight transport by road sector. The application of equal treatment between posted workers in subcontracting chains with respect to the wage rules applicable to workers at the main contractor companies would have the effect of strongly compressing wage differentiation between the main contractor and its sub-contractors, including both local and foreign ones. Option 4b – proposed to be facultative for Member States to apply – would reduce the cost competitiveness especially of SME's posting workers from low- to higher-wage countries and result in some losses of business opportunities for companies placing their competitiveness on cost factors. However, option 4b would still entail the payment of the social security contributions at the rate of the country of origin, thus preserving some room of manoeuvre on total labour costs for sending firms. While equalising the level playing field would benefit domestic firms, especially SME's, in higher-wage countries vis-à-vis low-wage competitors, the provision would reduce room for cost competitiveness for local companies, as well. Final consumer prices may be pushed upwards to the extent that the main contractor would have a reduced leverage to optimise total service costs through competition between sub-contractors. Option 4c targets a very limited group of posted workers. It would promote the adaptation of rules on equal treatment for posted temporary agency workers in thirteen Member States (figure 8). However, while these Member States are the destination of 7.5% of total posted workers in 2014, with Austria and Finland making up the lion's share of this figure, only Portugal has a relevant share of workers posted to the country through temporary work agencies (11.4%). Based on 2014 figures, this option may affect up to 1,000 workers posted to the thirteen Member States requiring legislative adaptation. In general, the regulation may have a cost-increasing impact to the extent that unclear rules on the treatment of posted agency workers in these Member States lead to lower working conditions standards for these workers. However, the impact would be concentrated in countries where the agency work sector makes up low (between 4-5%) to very low (less than 2%) shares of total in-flowing postings. Figure 8. % Share of temporary agency workers on total posting received, 2014 Source: EMPL, on the basis of data provided by Pacolet and De Wispelaere (2015) 5.3. Overall social impacts The social impact of the initiative is measured against the objectives of fair conditions of competition among companies based on equal rules on wages applying to posted and local workers in the host country; and of providing more certain rules to posted workers and their representatives both in sending and receiving countries. Under option 1 (status quo) and, to a large extent, option 2, unequal rules on wages generate a segmentation between posted and local workers, affecting in particular workers posted from low- to higher-wage countries in labour-intensive sectors. To provide the same services, posted workers are entitled to minimum rates of pay, while the unclear status of pay increases according to skill or qualification levels are reported to create significant gaps in pay with equivalent domestic workers. Wage differentials between posted and local workers are reported to vary across member States and sectors, from 10 up to 50% less. Unequal rules on wages may have an adverse impact on low-skilled workers in labour-intensive sectors of high-wage receiving Member States, through downward wage competition at the local level and displacement of job opportunities. On the other hand, wage differentials have a relatively lower impact on the overall welfare of workers posted from low-wage to higher-wage countries to the extent that minimum pay levels in high-wage countries exceed average take-home pay in the home country. As an illustrative example, in 2010, the level of the statutory minimum wage in Belgium (EUR 1,415) was almost twice as high as the average wage of a construction worker in Poland (EUR 752). Moreover, as shown in the simulation carried out in Annex IV, lower social security and income tax rates in the home Member State – where taxes are paid - may contribute to smoothing differentials in net earnings between posted and local workers, although gaps remain significant. The implementation of the Enforcement Directive and of the rulings of the European Court of Justice may contribute to mitigating differentials, including through more effective inspection systems. However, any smoothing effect would not be an intentional consequence of clearer and more effective EU legislation either on the clarification of the composition of pay for posted workers, or on the application of rules across different economic sectors. Option 2 is not expected to produce substantive changes with respect to the status quo. The codification of the case law into the Directive may advance some steps on legal clarity, as individual workers may access information about their entitlements about pay from one single and clearer legal text. However, while in practical terms the rulings of the European Court of Justice are already applicable, they only tackle part of the problems identified and do not provide an effective solution to unequal rules on wages, and their social consequences. Option 3a and 3b are expected to have a relevant impact both on reducing wage differentials between posted and local workers and on clarifying the entitlements of posted workers across sectors. While, as mentioned in section 5.2, these options do not aim at equal wage outcomes, they would contribute to clarifying the entitlement of posted workers to all the remuneration elements envisaged by universally applicable collective agreements or agreements signed by the most representative organisations, including bonuses and allowances, such as seniority pay or the Christmas bonus, inter alia, on equal terms as local workers. Option 3a is expected to exert some effects also on Member States where rates of pay are set through statutory regulation insofar as elements of pay mandated by law to local workers (e.g. the 13th month bonus) would become applicable to posted workers. Option 3b may have a beneficial effect for the social protection of workers posted from low-wage to higher-wage countries in sectors where collective agreements are not universally applicable. In DE, IE, LU, the statutory minimum wage represents the minimum rate of pay in sectors in which sectoral minimum wages are not given statutory effects. In these Member States, option 3b would promote the extension of sectoral minima to all sectors. On the other hand, both options entail the risk of an inflow of dependent posted work into self-employment as a possible unintended consequence of more equal wage standards. As collective agreements do not apply to the self-employed, companies may find it more advantageous to recruit on independent work arrangements, falling outside the protection scope of the Directive. In 2014, registered posted self-employed were roughly 8% of total postings, at fairly stable levels with respect to previous years. Nevertheless, bogus or false self-employment is reported to be a problematic issue as far as posting is concerned, even though part of the problem source for the phenomenon rests with labour market segmentation and enforcement of labour law in the sending Member States. Options 4a would enhance the social protection of workers posted for long-term periods with an impact on the remuneration of posted workers similar to that of option 3. Options 4b and 4c would have a strong beneficial impact on workers posted in the context of subcontracting chains or via temporary work agencies. The promotion of the principle of equal treatment aims at raising the protection especially of workers posted from low-wage Member States by conferring the entitlement to the remuneration conditions set by company-level agreements. Especially in the case of posted agency workers, options 4c would increase the level of protection in the thirteen countries where the principle of equal treatment is formally not in force. However, as discussed in section 5.2, little data availability limits the possibility to quantify the impact of these options. Stronger enforcement tools and coordination provided for by the Enforcement Directive would contribute to greater effectiveness of these options on the ground. 5.4. Impact on SME's

The envisaged initiative does not increase the administrative burden or costs to cross-border service providers and to SME's in particular. The issues concerning the administrative requirements and control measures that Member States can impose on cross-border service providers was dealt with by the Enforcement Directive (Article 9). None of the options considered here has any impact on these aspects. SMEs especially in receiving high-wage Member State would benefit from this initiative, as a level playing field would enhance their capacity to compete on non-wage factors. This beneficial effect is stressed by some SME stakeholder, as well. In turn, possible increases in wage costs may have some adverse effects especially on SMEs basing their competitiveness on wage costs, which is reflected in the concerns of other European stakeholder associations about the opportunity to revise the Directive. The costs of access to information to the conditions of remuneration applicable to posted workers in different receiving Member States would not be substantially modified by any of the considered options with respect to the status quo. However, option 3a would contribute to facilitating the application of collective agreements, as these would be applicable in their entirety, with respect to the current difficulty of identifying the components of "minimum rates of pay". In any case, it should be noted that Article 5 of the Enforcement Directive requires that Member States ensure that the information on the terms and conditions of employment which are to be applied and complied with by service providers is made generally available free of charge in a clear, transparent, comprehensive and easily accessible way in a single national website on posting. 5.5. Implementation costs The revision of the 1996 Directive would not bear any implementation cost. In fact, all implementation costs will be included in the transposition of the 2014 Enforcement Directive, due by 18 June 2016. In line with the dispositions of the Enforcement Directive, the Commission will assess and evaluate the implementation and explore the enforcement mechanisms put in place by the Member States. Some options could diminish administrative costs, by improving legal clarity and reducing the frequency of judicial litigation. 5.6. Budgetary Impact No extra budgetary impact is envisaged for the implementation of the proposed revision. As noted above, the transposition of the Enforcement Directive should comprehend all implementation costs. However, the proposed changes may have an impact on public budgets in the form of extra social security revenues for sending Member States, resulting from the increase of the wage basis on which social security charges are levied – especially for posting flows from low- to higher-wage countries. It is estimated that social security revenues represent, on average, 0.7% of total monthly revenues and 0.2% of total yearly revenues for sending Member States, with higher values (up to an estimated 4.9% in SI) in countries where sent posted workers represent a strong share of the domestic workforce. A marginal wage increase for posted workers may further benefit social security revenues in sending Member States, even though there is a risk that possible losses of business opportunities in receiving countries may render the effect neutral. 6. OVERALL COMPARISON OF THE OPTIONS The table below synthetizes the main impacts of the options for different groups of stakeholders. Table 3. Impact on main groups and stakeholders OPTIONS 1 2 3a no reference to minima 3b Reference to CA 4a. long-term postings 4b. sub-contracting 4c. temporary Agency work Posted workers 0 0 (+) equal conditions (+) equal conditions (++) equal treatment (++) equal wage (++) equal treatment Local workers (host country) 0 0 (++) less downward wage pressure (++) less downward wage pressure (++) no competiti