1........... Background.................................................................................................................. 7

2........... Procedural issues and consultation of interested parties.............................................. 8

3........... Problem definition...................................................................................................... 10

3.1........ The problems of undeclared work.............................................................................. 10

3.1.1..... The heterogeneity of undeclared work makes policy responses difficult................... 11

3.1.2..... Causes and consequences of undeclared work........................................................... 13

3.2........ Governance – the problem requiring action................................................................ 15

3.2.1..... Insufficient cooperation between enforcement authorities at EU level..................... 15

3.2.2..... Difficulties in dealing with the international (cross-border) dimension of undeclared work 17

3.3........ What are the underlying drivers of the specific problems?........................................ 21

3.4........ Who is affected, in what ways and to what extent?.................................................. 21

3.5........ How would the problem evolve, all things being equal? (Baseline scenario)............. 21

3.6........ Does the EU have the right to act and is the EU added value evident?.................... 23

3.6.1..... The EU's right to act................................................................................................... 23

3.6.2..... Added value of EU action......................................................................................... 24

4........... Objectives................................................................................................................... 24

5........... Policy options............................................................................................................. 26

5.1........ Policy option 1: No new action.................................................................................. 26

5.2........ Policy option 2: Better coordination of the work of the different existing working groups/committees at EU level............................................................................................................................. 26

5.3........ Establishment of a European Platform to enhance EU cooperation in the prevention and deterrence of undeclared work......................................................................................................... 26

5.3.1..... Policy option 3: Individual body with voluntary membership................................... 27

5.3.2..... Policy option 4: Individual body with mandatory membership................................. 27

5.3.3..... Policy option 5: Attaching the platform to an existing body..................................... 28

5.4........ Options discarded....................................................................................................... 29

6........... Analysis of impacts..................................................................................................... 30

6.1........ Option 1: No new action (Baseline scenario)............................................................. 31

6.1.1..... Awareness of the urgency of the problem and stepping up efforts to fight undeclared work 31

6.1.2..... Contribution to better cooperation between different enforcement authorities......... 31

6.1.3..... Technical capacity to address cross-border aspects of undeclared work................... 31

6.1.4..... Costs........................................................................................................................... 31

6.1.5..... Overall assessment...................................................................................................... 32

6.2........ Option 2: Better coordination of the different existing working groups/ committees at EU level 32

6.2.1..... Awareness of the urgency of the problem and stepping up efforts to fight undeclared work 32

6.2.2..... Contribution to better cooperation between different enforcement authorities......... 32

6.2.3..... Technical capacity to address cross-border aspects of undeclared work................... 32

6.2.4..... Costs........................................................................................................................... 32

6.2.5..... Overall Assessment..................................................................................................... 33

6.3........ Option 3: Individual body with voluntary membership............................................. 33

6.3.1..... Awareness of the urgency of the problem and stepping up efforts to fight undeclared work 33

6.3.2..... Contribution to better cooperation between different enforcement authorities......... 33

6.3.3..... Technical capacity to address cross-border aspects of undeclared work................... 34

6.3.4..... Costs........................................................................................................................... 34

6.3.5..... Overall Assessment..................................................................................................... 35

6.4........ Option 4: Individual body with mandatory membership........................................... 35

6.4.1..... Awareness of the urgency of the problem and stepping up efforts to fight undeclared work 35

6.4.2..... Contribution to better cooperation between different enforcement authorities......... 36

6.4.3..... Technical capacity to address cross-border aspects of undeclared work................... 36

6.4.4..... Costs........................................................................................................................... 36

6.4.5..... Overall Assessment..................................................................................................... 36

6.5........ Option 5: Integrating the fight against undeclared work into Eurofound................. 37

6.5.1..... Awareness of the urgency of the problem and stepping up efforts to fight undeclared work 37

6.5.2..... Contribution to better cooperation between different enforcement authorities......... 37

6.5.3..... Technical capacity to address cross-border aspects of undeclared work................... 37

6.5.4..... Costs........................................................................................................................... 38

6.5.5..... Overall Assessment..................................................................................................... 38

7........... Comparing the Options............................................................................................... 38

8........... Monitoring and evaluation.......................................................................................... 40

9........... Annexes...................................................................................................................... 41

9.1........ Annex I: Summary of the responses to the Consultation of Social Partners.............. 41

9.2........ Annex II: Estimated size of the shadow economy and undeclared work in the EU. 44

9.3........ Annex III: Measures taken by Member States to prevent and fight undeclared work and actors involved in these measures............................................................................................................ 48

9.4........ Annex IV: Mapping of the initiatives and activities in different policy fields linked to undeclared work at EU level...................................................................................................................... 76

Executive Summary Sheet

Impact assessment on Proposal for a Decision of the European Parliament and the Council on on establishing a European Platform to enhance cooperation in the prevention and deterrence of undeclared work

A. Need for action

Why? What is the problem being addressed?

The main responsibility when tackling undeclared work lies with the Member States. Fight against undeclared work relies mostly on three types of enforcement bodies: labour inspectorates, social security inspectorates and tax authorities. In some cases new authorities, inter-ministerial agencies, national steering groups and tripartite committees have been created. The following drivers have been identified as hindering more effective and efficient fight against undeclared work. Firstly, the absence of a dedicated common forum at EU level does not facilitate Member States' efforts to exchange their views and experiences on different practices. Secondly, enforcement authorities' traditional mechanisms and resources tackle mostly domestic aspects of undeclared work.. Thirdly, while in general all Member States agree on the need to fight undeclared work, in practice in some Member States there might be a low awareness on the urgency of the problem and this might end up with not giving sufficient political priority to the fight against undeclared work.

What is this initiative expected to achieve?

The general policy objective is to support Member States in their efforts to prevent and deter undeclared work. Within this general framework, the specific objectives of this initiative are: (1) To improve cooperation between Member States' different enforcement authorities at EU level to prevent and deter undeclared work more efficiently and effectively. (2) To improve Member States' different enforcement authorities technical capacity to tackle cross-border aspects of undeclared work. (3) To increase Member States' awareness on the urgency of the problem and to encourage Member States to step up their efforts to fight undeclared work.

What is the value added of action at the EU level?

Action at the EU level will be targeted to improve effectiveness and efficiency of Member States' actions when tackling undeclared work. The EU can facilitate exchange of good practices as well as develop more advanced coordination of actions in order to support them in the deterrence and prevention of undeclared work. EU level action will enhance Member States cooperation and make fighting undeclared work more effective and efficient thereby add value to Member States' actions.

B. Solutions

What legislative and non-legislative policy options have been considered? Is there a preferred choice or not? Why?

Following options were considered: (1) No new action: undeclared work is an issue (among others) for various groups and committees at EU level, but not an integrated objective to enable them to deal with the phenomenon in its complexity. (2) Better coordination of the work of the existing working groups/committees at EU level, which might increase the attention, but not allow for an integrated approach. (3) Establishing a European Platform with a voluntary membership, which would allow for an integrated approach, but as some Member States might opt out of the cooperation, there could be a gap in the coverage. (4) Establishing a European Platform with a mandatory membership, which would allow for an integrated approach with all Member States participating. This option is therefore the preferred one, although there is a slight risk that if some of them are not fully committed, cooperation between Member States might be somewhat less intensive than in Option 3. (5) Integrating the fight against undeclared work into an existing structure such as Eurofound was also considered as an option, but not found preferable as it would provide too little political attention to the topic, thus potentially failing on the objective to increase Member States commitment. Going even further than that, creating a new agency was considered, but discarded as not suitable for the time being.

Who supports which option?

Most of the stakeholders find that action at EU level is necessary and justified. However, opinions vary when it comes to the form that the action should take. Most of the employers were of the opinion that the EU level cooperation could be carried out by better coordination of already existing groups. Most of the the trade unions favoured the establishment of a new independent body. The majority of social partners underlined that participation in this EU level cooperation should be mandatory for Member States. Member States, however, favoured voluntary membership over mandatory one. Some Social Partners (mainly employers’ organisations) identified Eurofound as a potential place to host the Platform.

C. Impacts of the preferred option

What are the benefits of the preferred option (if any, otherwise main ones)?

The benefits of the initiative are mainly in the form of improved governance, which should – via several links – help to reduce undeclared work. However, providing a direct link between better governance structures and the reduction of undeclared work or other general social or economic benefits was found unrealistic (because of the rather indirect link between undeclared work and the intervention and because undeclared work is as such difficult to measure). It was considered possible to identify to what extent the options will achieve the set objectives. The preferred option provides the following benefits: a) all Member States will participate in the work of the platform, this would consequently raise awareness of the problem in all Member States and b) it will allow for regular and structured cooperation on the subject. In analysing the different options, no environmental impacts have been identified.

What are the costs of the preferred option (if any, otherwise main ones)?

The Platform will have a secretariat provided by the European Commission (2.5 full time employees). The Commission would also reimburse the travel costs of the nominated experts. Therefore, yearly costs for the Commission staff as well as the administrative costs related to the meetings of the platform would not exceed EUR 600 000. . The administrative costs as well as operational costs related to the specific tasks of the Platform, which will be specified in work programmes (and which will not exceed 2,1 million per year), will be covered by the PROGRESS axis of the EaSI.

How will businesses, SMEs and micro-enterprises be affected?

The initiative under discussion concerns different enforcement authorities of the Member States and the development of better cooperation between these authorities at EU level. Therefore no direct impacts on SMEs were identified.

Will there be significant impacts on national budgets and administrations?

No. Member States would have to provide for the participation of experts in the work of the Platform. Subsequent to the cooperation Member States might find it necessary to change their approach to the fight against undeclared work. However, this is in the competence of the respective Member State.

Will there be other significant impacts?

No. The initiative under discussion concerns governance issues. Overall good governance is expected to have an impact on the social situation and the economic performance. However, the incidence chain from the establishment of a platform against undeclared work to reduced undeclared work is rather long. It was impossible to establish a sufficiently direct link between the functioning of a platform, the reduction of undeclared work and economic performance or social wellbeing.

D. Follow up

When will the policy be reviewed?

Four years after the Decision establishing the Platform enters into force, the Platform will be evaluated. Meanwhile, the Commission regularly reports to the Council on the progress made towards enhanced cooperation between Member States.

1. Background

The concern with high levels of undeclared work is high on the EU policy agenda, especially in relation to job creation, job quality and fiscal consolidation.

The Europe 2020 Strategy for smart, sustainable and inclusive growth sets a target of 75% of 20-64-year olds in employment by 2020[1]. In order to catalyse progress towards the target, the Commission adopted the Flagship Initiative "An agenda for new skills and jobs"[2], where the promotion of job creation is key action no 13. In this context the need to move from informal or undeclared work to regular employment was highlighted.

The Employment Package[3], adopted in April 2012, carries forward the actions presented in the abovementioned EU 2020 flagship initiative. In the communication "Towards a job-rich recovery", the Commission stresses that employment policies help to create conditions favourable to job creation and that transformation of informal or undeclared work into regular employment could have a positive impact on productivity, working standards and, in the long term, skills development. It highlights the need for improved cooperation among Member States and announces the launch of consultations on setting up an EU-level platform between labour inspectorates and other enforcement bodies to combat undeclared work, aimed at improving cooperation, sharing best practices and identifying common principles for inspections.

In the 2012 and 2013 Country Specific Recommendations[4], several Member States (MS) received recommendations concerning undeclared work, shadow economy, tax evasion and/or tax compliance.

In the Employment Guideline[5] Nr 7 "Increasing labour market participation of women and men, reducing structural unemployment and promoting job quality", MS are urged to step up social dialogue and tackle labour market segmentation with measures addressing precarious employment, underemployment and undeclared work.

The role of the social partners is emphasised in this context in the Annual Growth Survey 2013[6], where the importance to fight undeclared work is highlighted in order to prepare for a job rich recovery. It states that social partners have a key role to play alongside public authorities.

In the Annual Growth Survey 2014[7], in the context of tackling unemployment and the social consequences of the crisis, the need to reinforce the fight against undeclared work is highlighted.

2. Procedural issues and consultation of interested parties

This document was drafted by DG Employment, Social Affairs and Inclusion. While discussion on how to step up the fight against undeclared work is longstanding and has been an issue in various committees, the preparation of this initiative started in 2012. An Impact Assessment Steering Group was set up, including representatives of the following Commission’s services: SG, SJ, ECFIN, ENTR, AGRI, MOVE, MARE, MARKT, REGIO, TAXUD, SANCO, HOME, JUST, ESTAT and BUDG. The IASG met three times between April and December 2013.

The Impact Assessment Board (IAB) examined this analytical document and issued an opinion on 24 January 2014. Following the recommendations for improvement, in particular the problem definition, the policy options and assessment of their impacts and the sections on comparison of options and on monitoring and evaluation arrangements were strengthened.

The evidence base for this impact assessment stems from various studies undertaken in the last years.

In 2010, an external feasibility study[8] on the establishment of a European platform for cooperation between labour inspectorates, and other relevant monitoring and enforcement bodies to prevent and fight undeclared work, was carried out. The study was based on desk research, interviews with over 20 stakeholders, the web-based survey covering all Member States and four workshops. The aim of these workshops was to discuss and come to a better understanding of existing national institutional frameworks, existing policy measures, difficulties encountered by enforcement bodies on national and international levels, existing cross-border co-operation, best practices and possible options for a European platform to prevent and fight undeclared work. The feasibility study was finalised in December 2010.

The recent report from Eurofound on tackling undeclared work in the MS[9], which was accompanied by an updated database[10] of measures taken during the years 2008-2013, and a special Eurobarometer[11] on undeclared work, also play a particular prominent role in preparation of this study.

The consultation of stakeholders was done as part of the on-going work with Member States in the framework of the Directors General of Industrial Relations (DG IR) meetings, the Senior Labour Inspectors Committee (SLIC) and the Administrative Commission for social security coordination[12]. Questions put to these groups and committees, invited Member States to share their views regarding several aspects of enhanced cooperation, such as the added value in EU cooperation in the field of undeclared work, the most appropriate framework for this cooperation (the involvement of different national authorities, the mandate and tasks). In general, Member States saw an added value of EU level action targeted at preventing and deterring undeclared work and welcomed the intention of the Commission to involve itself more strongly in the fight against undeclared work.

The views of the European Social Partners have been collected during first and second stage consultations[13] (4 July 2013 to 4 October 2013 and 30 January 2014 to 13 March 2014). A summary of the responses received is included in Annex I.

The Commission received 15 replies to the first stage consultation (2 joint replies, 3 replies from the trade unions and 10 replies from employers' organisations). Social Partners agreed with the overall problem description and they conveyed to the Commission their opinion that action at EU level is justified with the main objective of assisting national authorities, such as labour inspectorates, social security and tax authorities to prevent and deter undeclared work. In general, social partners agreed that a European platform could be an appropriate vehicle for enhancing cooperation between Member States.

In the second stage consultation, the Commission presented an overview of the results of the first stage consultation and outlined the content of the planned Union initiative. The aim of the consultation was to obtain Social Partners' views on the content of the envisaged initiative on enhancing cooperation between Member States in the prevention and deterrence of undeclared work. The Commission received 16 replies (1 joint reply, 4 replies from the workers' representatives and 11 replies from employers' organisations). Social partners conveyed their general support for an action at EU level to prevent and deter undeclared work and reiterated their views expressed during a 1st stage consultation regarding the objectives, scope, tasks/initiatives, participation and form of the Platform.

The European Economic and Social Committee adopted on 21 January 2014 an Opinion on a Strategy against the shadow economy and undeclared work[14] reiterating the importance of combating the shadow economy and undeclared work, to accompany and complement the work being done in the European Commission, Eurofound and other international organisations.

The European Parliament has adopted on 14 January 2014, a Resolution on effective labour inspections as a strategy to improve working conditions in Europe[15]. The European Parliament welcomed the Commission's initiative to create a European Platform and called for enhanced cooperation at EU level to fight undeclared work.

3. Problem definition

3.1. The problems of undeclared work

In the 2007 Commission Communication[16], undeclared work is defined as "any paid activities that are lawful as regards their nature but not declared to public authorities, taking account differences in the regulatory systems of the Member States".

Undeclared work withdraws some activities from the public authorities' control. These activities are not taxed and other contributions (e.g. social security contribution) which are due are not paid. They become purely private, while probably still relying in parts on the infrastructure provided with public money. Not to speak of situations in which undeclared work is performed in parallel to receiving public support in the form of unemployment benefits or social security benefits.

With more people being active in providing or requesting undeclared work, the tax base for income taxation and social security contributions is getting smaller while public revenues are still needed. The smaller the basis from which the government generates its revenues, the higher the rate of taxation or contribution will be and subsequently the motivation increases not to declare activities. It is a vicious circle which can lead to anomie. Even though social and employment policy and therefore the issue of undeclared work, are primarily a competence of each Member State, an integrated Europe with some Member States not having a well-functioning governance system is not desirable.

Undeclared work is influenced by a wide range of economic, social, institutional and cultural factors. It is held responsible for obstructing growth-oriented economic, budgetary and social policies, and in particular for lowering work quality standards, creating risks for the health and safety of workers, putting at risk the financial sustainability of social protection systems and undermining the competitive environment for businesses[17].

The fact that undeclared work is not observed or registered, and defined differently in national legislation, makes it difficult to obtain reliable estimates of how widespread it is across Member States. Different methods exist to approach and measure undeclared work and there have been several attempts to measure the phenomenon (they are explained in detail in Annex II). However, caution has to be taken when looking at the results, because depending on the source and the underlying methodology they differ a lot. For example, according to World Bank's research, in 2008-2009, undeclared work was highest in Cyprus (53% of extended labour force), followed by Greece (46,7% of extended labour force)[18]. According to these countries' own estimations undeclared work constituted, in 2012, 19,1% of GDP in Cyprus and 36,3% of GDP in Greece.

In this report, Eurobarometer 2007 and 2013 results will be used. All figures result from direct surveys, which were based on face-to-face interviews with EU citizens. Meaning that awareness, national definitions, transparency of undeclared work and trust in the interviewer, are important factors for citizens to enable them to indicate that they have performed or benefitted from undeclared work.

According to the Eurobarometer surveys in 2007[19] and 2013, the total share of respondents who said they performed undeclared work remains extremely low. It was 5% in 2007 and 4% in 2013, but variations exist among countries. In 2013, the provision of undeclared work is highest in Latvia, the Netherlands and Estonia (11%) and lowest in Malta (1%), Ireland, Italy, Cyprus, Portugal and Germany (2%). For most[20] countries, the 2013 figures are very similar to those from 2007. From the demand side, 11% of the respondents admit that they have purchased goods or services in the previous year where they had good reason to believe it involved undeclared work. Also here, there are considerable variations across the EU. The Member States with particularly high numbers include Greece (30%), the Netherlands (29%) and Latvia (28%). The Member States with the lowest proportions of purchasers were Poland (5%), Germany (7%), Spain and the UK (8% in each). In most countries, the proportion of respondents reporting that they had purchased undeclared goods or services was broadly similar to the result in 2007, except in Cyprus (increase from 2% to 16%), in Greece (increase from 17% to 30%), in Malta (from 18% to 23%) and in Slovenia (from 17% to 22%).

The economic and financial crisis pushes firms and households to seek cost-savings by substituting declared work with undeclared work, and unemployed workers are engaging in undeclared work as a coping strategy; thus leading to a relative increase of undeclared work.[21]

3.1.1. The heterogeneity of undeclared work makes policy responses difficult

Generally three types of undeclared work can be defined. The first category is that of undeclared work in a formal enterprise, including so called "underdeclared work" in form of "envelope wages" (where only a part of the salary is paid officially, while the rest is given to the employee in an envelope) and situations where the employee is declared to work part-time, but works in reality full-time. Awareness of customers for such forms of undeclared work can be expected to be very low and with the more complex forms which could involve transactions across borders, even workers might actually not know. Secondly, there exists undeclared own account or self-employed work, providing services either to a formal enterprise or other clients, such as households. While in the Nordic countries, undeclared work involves mainly undeclared self-employment, in other Member States it concerns mostly employer-employee relations in a formal enterprise[22]. An extreme case would be the activity by totally undocumented workers (e.g. illegally staying migrants working in a sub-contracting chain). A third type of undeclared work is providing goods and services to neighbours, family, friends or acquaintances, which can involve construction or repair works, cleaning, provision of childcare or care for the elderly. Typical for this last type of activities is that it is sometimes provided as a sort of mutual aid. The activities, which are provided as some sort of mutual aid for neighbours, friends or relatives, are not at the heart of this initiative.

Undeclared work borders and overlaps with other types of fraud, for example with those committed in the context of posting of workers. This renders the work of enforcement bodies difficult because those who infringe on the rules play off different enforcement bodies by e.g. claiming that it is not undeclared work, but posting or unpaid traineeships. Therefore, even though the focus is on undeclared work, abuses or the circumvention of other rules (labour law, social security etc.) could also be tackled.

The abuse of the status of self-employed, either at national level or in cross-border situations, is frequently associated with undeclared work. Bogus self-employment occurs when a person is classified as self-employed instead of employed, in order to avoid certain obligations arising from laws and practices applicable to employees, such as labour regulations and the payment of taxes or social security contributions. In many of these situations, one can speak of disguised employment relations, meaning that workers are treated as self-employed, but clearly fall within the category of subordinate employment and subsequently should be classified as employees with all the respective rights and obligations. It could be argued that bogus self-employment is misdeclared activity and as such cannot be seen as undeclared work. However, bogus self-employment can have negative consequences, in terms of health and safety and social security coverage of the workers concerned, as well as on tax revenue, although normally less harmful than undeclared work. The individual's awareness that this is a form of undeclared work can be expected to be very low. As a means of avoiding social contributions and labour regulations, dependent self-employment can imply bogus self-employment and creates unfair competition between companies.

Extensive subcontracting can facilitate this phenomenon by reducing liabilities for the original employer. Another phenomenon that enhances the rise in both self-employment and bogus self-employment, is the increasing number of self-employed migrant workers in the construction sector, especially from Central and Eastern Europe. For instance, in the Netherlands, 80% of the self-employed workers in the sector are estimated to be migrant workers[23]. As explained above, undeclared work can be found in a wide range of workplaces, starting from self-employed and micro enterprises to large enterprises. It can occur also in a variety of sectors. The single sector most often over-proportionately affected by undeclared work is the construction sector. Other sectors are household services, which include domestic cleaning services as well as child and elderly care, personal services, private security, industrial cleaning, agriculture and hotel, restaurant and catering industry. In addition, it involves workers with different profiles and backgrounds (e.g. low-skilled, men, women, citizens, migrants, young people etc).

Taking into account the sectoral features of undeclared work, Member States have developed specific instruments to prevent or deter undeclared work. For household services and construction work provided for private households, there is often a grey zone between mutual help and professional services. Furthermore, private households often pay such services from fully taxed income, while for enterprises, such expenditure would be operating expenditure, i.e. happen before taxation. Therefore, several Member States encourage the official declaration of these services by introducing service vouchers or special tax reduction schemes, to bring private households to buy goods and services officially and not from the black market.

Such heterogeneity makes undeclared work difficult to measure and to detect. It also complicates the effective reduction of undeclared work as banning it without understanding the underlying mechanisms will not be enough to reduce it.

3.1.2. Causes and consequences of undeclared work

The growth of the informal economy is often seen as a reaction to imperfections in the formal labour market[24]. When formal supply and demand do not meet, the possibilities for informal labour market grow. Circumstances that lead to these imperfections can be the high cost of labour, the shortage of labour (quantity and quality), the shortage of jobs, or the inflexibility of the labour market. According to the Eurobarometer 2013, 50% of the respondents said that they worked undeclared because both parties benefitted from it, 21% worked undeclared because they could not find a regular job and 16% did it because tax and/or social security contributions were too high.[25] While in the Eastern countries (28%) and even more so in the South of Europe (43%), the inability to find a regular job played a major role, in the northern and western European countries the motivation for undeclared work was mainly that it was beneficial for the provider and the client (> 60%).

In addition, when looking at the causes of undeclared work, the degree of trust people have in government and government agencies and the degree of inclusion people experience in the society, is of great importance. When there is very little identification with government or society at large, people will more easily act against common rules[26]. According to the Eurobarometer 2013, 14% of people were working undeclared because it is a common practise in their region or sector of activity and there is no real alternative (5% in Nordic countries, compared to 21% in Southern Europe). 6% of the respondents worked undeclared because of dissatisfaction with the state ("the state does not do anything for you, so why should you pay taxes"). Respondents in Eastern and Central Europe were more likely than those in other regions to use the latter reason (15%), particularly compared with those in the Nordic countries (2%).

Other influential factors are the transparency of legislation and legislation enforcement. If control mechanisms are unclear and inefficient, people will be more prone to evade taxes by performing undeclared work. The absence of certain control mechanisms can also stimulate undeclared work. 18% claimed to work undeclared because of too much bureaucracy and red tape, and the proportion of those who believe that there is a high risk of being found and prosecuted has not changed much since 2007 (from 33% to 36%).[27]

The consequences of undeclared work are often poorer working conditions. Health and safety obligations are neglected. Employment rights, such as annual leave and working time are not respected. The training needs of undeclared workers are not taken into account. They have less employment security, they might not have right for redundancy payments and unemployment benefits, as well as to other benefits due to the fact that no social security or healthcare contributions have been paid for them/by them. In addition, as no pension contributions are paid, their pension rights are decreased. Due to the reason of not having a legitimate income, their access to loans might be limited.

According to the Eurobarometer 2013, when asked whether people had suffered any negative consequences of working undeclared, 58% answered negatively or did not know of any negative consequence. Among other consequences (respondents could indicate multiple answers), having no social security entitlements was reported by 20%, the lack of insurance against accidents by 19%, harder physical conditions by 7% and a higher risk of accidents as compared to a regular job by 6%. A higher risk of losing their job was experienced by 7%. Here the fact whether the work is done completely undeclared or underdeclared (for example the worker receives "envelope wages") has a bearing on the outcome. If work is underdeclared, then there is at least some entitlement for social security and employment conditions.

Employers who are not declaring the work done by their workers are creating unfair competition between them and companies respecting the rules. Such distortion can also have a cross-border dimension in cases where in one country undeclared work is systematically fought, while in a neighbouring country public authorities do not prioritise this problem.

These negative consequences are not only borne by competitors and employees, potentially also the enterprise as such might – in the long run – be faced with disadvantages. Its ability to access credit, which is needed to develop the business further, can be more limited. This is particularly true for SMEs. In some areas, it is quite usual that businesses are started in an undeclared way - the intended services are tried out first on friends and family – and their activity only declared when they prove to be sustainable. This raises the issue about the start-up assistance that is available to these enterprises and about the forms of support reserved to declared business activities.

3.2. Governance – the problem requiring action

The main responsibility when tackling undeclared work lies with the Member States. However, EU level action can play a complementary role and help Member States by addressing the following aspects:

(1) Insufficient cooperation between enforcement authorities of different Member States in the prevention and deterrence of undeclared work (because the responsibility of tackling undeclared work is located in different institutions such as labour inspectorates and tax authorities, which do not meet at EU level).

(2) Difficulties in tackling the international (cross-border) dimension of undeclared work.

3.2.1. Insufficient cooperation between enforcement authorities at EU level

Fight against undeclared work relies mostly on three types of enforcement bodies: a) labour inspectorates to address abusive behaviour regarding working conditions and/or health and safety norms, b) social security inspectorates fighting fraud on social insurance contributions, and c) tax authorities to deal with tax evasion. In some cases, also social partners[28] are involved in these tasks. In addition, in some Member States, customs authorities, migration bodies, the police and the public prosecutor's office are involved (See Annex III).

As the nature of undeclared work varies from one country to another depending on the economic, social and political context, the development of measures to tackle undeclared work should be tailored accordingly. However, the exchange of practices between Member States helps to compare experiences and identify effective approaches[29].

For example, in some Member States new authorities, inter-ministerial agencies, national steering groups and tripartite committees have been created[30]. Other Member States have formed specialized units or teams[31] in order to address certain sectors or different aspects of undeclared work. Cross-agency cooperation is very important in the fight against undeclared work[32]and the lack of cooperation between different enforcement agencies, such as labour inspectorates, tax and social security authorities hinders effective policies[33]. A high level of undeclared work not being addressed by a structured cooperation between relevant authorities in the Member State (tax, labour, social security) could an indication of low political priority and low awareness of urgency of the problem in a Member State. A structured cooperation is so far implemented to various degrees in Austria, Belgium, Germany, Spain, Finland, France, Ireland, Luxembourg and the Netherlands. Member States where appropriate coordination structures are not in place, could learn and benefit from the experiences of those Member States where this kind of inter-institutional cooperation has been established.

Box 1. Inter-institutional temporary teams as a means to prosecute undeclared work In the Netherlands severe fraud or abuse of rules and regulations in the field of social security, taxes or illegal employment is prosecuted by so-called intervention teams. These teams consist of members of different bodies, such as municipalities, the Tax Authority, the Inspectorate SZW (Ministry of Social Affairs and Employment), the Employee Insurance Agency, the Social Insurance Bank, the police and the public prosecutor's office. The composition of an intervention team and the leading body is, depending on the theme or target group, decided by a National Steering Group. In 2007, an intervention team was set up to investigate and prosecute undeclared work in mushroom growing. The Inspectorate SZW was in charge of the team which was joined by members of the tax authorities, the immigration service, aliens' police and the public prosecutor. 98 farms were visited. The teams found rather severe forms of exploitation of foreign employees, working without permits, abuses of minimum wage, etc. The tax authority recovered more than a million euros on taxes and fined several companies for more than a hundred thousand euros[34].

Another illustration: Member States planning to introduce voucher schemes could learn from those who have already done so. For example, Poland seems to have encountered similar problems as those experienced earlier on in the Netherlands when introducing measures for hiring unemployed people to work in the domestic services sphere. The Austrian voucher system could probably have benefitted from the expertise of similar schemes in Belgium and France[35], which were introduced several years earlier.

However, only few attempts to learn from each other's experiences have been made. In 2012, in the framework of the PROGRESS Mutual Learning Programme, a peer review on "Tackling undeclared work: developing an effective system for inspection and prevention"[36], was undertaken (see Table 1 below). This peer review was followed by the learning exchange between Czech Republic, Estonia and Lithuania to share experiences regarding concrete measures, such as registering of employees to improve the detection of undeclared work[37]. This learning exercise was considered to be very timely in the tight economic situation where authorities dealing with undeclared work are looking not only for cost effective approaches, but also effective ways to increase tax revenue for their state.

3.2.2. Difficulties in dealing with the international (cross-border) dimension of undeclared work

The mobility of workers across Member States constitutes a fundamental freedom within the Union. Several initiatives are on-going to support the exercise of this right. Using cross-border situations to disguise undeclared work, threatens discrediting this fundamental right.

Cross-border issues are relevant mostly for deterrence activities, such as inspections and enforcement of sanctions. Inspectors, when carrying out inspections in sectors such as construction or agriculture, which have high numbers of foreign workers, face cross-border employment situations daily. However, inspection authorities face specific difficulties in carrying out their work in such situations, in particular when the aim is to identify or sanction cases of undeclared work, because their traditional mechanisms and resources are meant to tackle mostly domestic aspects of undeclared work. Inspecting the nature and/or conditions of the employment relationship of migrant workers can be difficult due to communication difficulties, lack of knowledge of rules or the presence of organised networks operating at the margins of the law, often making use of complex legal constructions involving agencies or intermediaries located in several member States. This could make it difficult to establish the chain of command between the different actors involved and the liability for social security benefits and taxes. Subsequently, the enforcement of sanctions is difficult in cases the worker resides or the employer is located in another country.

Cross-border issues may also be relevant for prevention activities, since national preventative efforts normally only address citizens and employers of the Member State concerned and not potential mobile workers or service providers across the border.

In order to do that and consequently detect undeclared work in cross-border situations, there is an increased need for cooperation between Member States. Some Member States have concluded in the recent past bilateral agreements that aim at reinforcing their cooperation. In some cases, they have developed practical forms of coordination (such as joint inspections[38]). However, this coordinated action between labour inspectorates and other relevant enforcement bodies of different Member States has been rather the exception than the rule.[39]

Box 2. Multilateral cross-border cooperation The Prime Ministers and the Ministers responsible for the enforcement of social policy regulations of Belgium, Luxembourg and the Netherlands signed a joint declaration on 13 February 2014[40], to intensify their cooperation in the fight against fraud, social dumping and exploitation in the field of social policy. This cooperation will cover practical implementation of their laws and regulations in cross-border situations as well as joint approach to enforcement issues within the European Union. The governments of the Benelux countries will, for the purpose of the implementation of these intentions, initiate a number of specific actions, such as carry out pilot projects to inspect cross-border subcontracting chains and liability as well as cross-border enforcement of administrative fines and penalties; support each other in their actions to curb abuse, in particular by improving exchange of information on fraud and social dumping cases and stimulate the exchange of best practices including ways of improving identity controls at working places and instruments to fight fraud, social dumping and unfair competition. Ministers in charge of Labour inspectorates are to implement this agreement and report regularly to the Prime Ministers.

Attempts to deal with the phenomenon could benefit from EU level cooperation so to speed-up the exchange of information and make it more efficient. They could also benefit from exchanges of information and best (and worst) experiences with smaller scale cooperation. It would widen the knowledge about the practices, laws, policies and procedures in different countries.[41]

Box 3. Temporary projects establishing multilateral cooperation "CIBELES: Convergence of Inspectorates building a European Level Enforcement System"[42] aimed at assisting the Senior Labour Inspectors' Committee (SLIC) and the Commission to improve and enhance the co-operation between Labour Inspectorates, setting up principles in order to establish a network for exchanging information. CIBELES concentrated on situations which required mutual assistance in occupational health and safety cross-border enforcement matters in relation to the posting of workers. A number of country reports also elaborate on undeclared work in the context of posting. The "ICENUW - Implementing Cooperation in a European Network against undeclared work" – project investigated how a better cross-border cooperation of labour inspectors could function.[43] It focused on the documents and procedures necessary to conduct an inspection and the need for comparability between Member States mostly in connection with social security fraud. One of the results of this cooperation was the Bruges Charter "Pathways in cross border fight against undeclared work", which was signed by 11 EU Member States and Norway on 18th of February 2011. The purpose of the ILO and the European Commission joint project on "Labour inspection and undeclared work in the EU"[44] was to consider the role that national labour inspection systems in the EU have as a part of a strategic policy response to undeclared work. The study concluded that the European financial crisis was leading governments to look more carefully at labour market problems and the positive impact the proper tackling of the phenomenon of undeclared work could have on the creation of formal employment, improved working conditions and the increase of tax revenues. The conclusions also stated that the international dimension of undeclared work is today a reality. Giving the opening of EU markets to free movement of services and workers, the effects of non-compliance with national legislation can influence businesses, societies and governments beyond a country's borders. It states further that there is still much to be done, especially in terms of international cooperation as a consolidated forum where national institutions could exchange their views or even go further on common planning strategies and initiatives, is still inexistent.

Table 1: multilateral projects/cooperation between Member States

Project name || Scope of cooperation || Field || MS participating

CIBELES || - Information exchange - Mutual cooperation in enforcement procedures when investigating breaches - Cross-border execution of fines || - Labour inspections (covering also tax, social security, customs, justice and data protection issues) - Health and safety - Posting of workers || AT,BE, DE, ES, FR, HU, IT, MT, PT

ICENUW || - (Common) features of inspection procedures - Plans for the future ICENUW Web Platform - Description of legal environment for fighting UDW and social fraud - Information regarding deterrence and prevention measures in the MS || - Fight against transnational social security benefits and contributions fraud - Charter of Bruges (signed by all of the participants, except LU) endorsing the need for further cooperation on cross-border fraud and illegal work || AT, BE, BG, ES, FR, IT, LU, NL, NO, PL, PT, RO

Mutual Learning Programme peer review on "Upgrading of mechanisms to monitor undeclared work" || - Exchange of best practices || - Labour inspections || CZ, EE, DE, GR, IE, LV, LT, SK, HR (and Serbia and Turkey)

Labour Inspection and Undeclared work in the EU (ILO/COM) || - Exchange of good practices - Recommendations for strengthening Labour Inspectorates in combatting undeclared work || - Labour inspections || ES, IT, FR, IE, BE, RO, NL

These are three projects, which brought together different Member States with the aim to enhance administrative cooperation in cross-border situations and exchange best practices. Overall, such cooperation remains patchy, rather than comprehensive, both in terms of the countries involved and the issues covered.

Countries participating often in international cooperation tend to be also countries where undeclared work is relatively low, suggesting that stepped up policy efforts have been comparatively more successful in mitigating the extent of the problem. It can be concluded also that these are countries with a high level of awareness of the urgency of the problem. These Member States could also be categorized as mostly immigration countries, suggesting that these countries have a higher interest in tackling cross-border undeclared work. Examples are: Austria, Belgium, France, Germany, Italy, Netherlands, Portugal, Romania and Spain.

On the other hand, it can be concluded that in Member States, which take part of the international projects only occasionally, or not at all, awareness of the urgency of the problem is low. This group includes countries with higher levels of undeclared work These Member States could be categorised as mostly emigration countries.

3.3. What are the underlying drivers of the specific problems?

Driver 1: A lack of knowledge of the division of competencies between enforcement agencies, the precise legal definitions of undeclared work in other Member States as well as of the links between different EU policies and tools hinders effective cooperation. The absence of a dedicated common forum does not facilitate Member States efforts to exchange their views and experiences on different practices. Stakeholders agree on this analysis and confirm that ad hoc exchanges are too rare and not adequate to address the complex subject. [45]

Driver 2: Enforcement authorities' traditional mechanisms and resources are meant to tackle mostly domestic aspects of undeclared work. In case they need to tackle cross-border cases of undeclared work, the enforcement authorities do not know who their counterparts in another Member States are and what their competencies are. In addition, in every Member State there are different rules in place regarding data protection and exchange of personalised information, which can hinder the development of common data sharing facilities. Also, carrying out the inspections and application of sanctions in cross-border cases is limited due to lack of competences outside national territories.

Driver 3: While in general all Member States agree on the need to fight undeclared work, in practice in some Member States there might be a low sense of urgency to tackle the problem and this might end up with not giving sufficient political priority to the fight against undeclared work. Also awareness about the negative consequences of undeclared work cannot always be assumed. While in the mid to long term a low share of undeclared work is important for the overall economic and social development, reducing undeclared work might in the short term make some people lose (parts of) their income or reduce their consumption.

3.4. Who is affected, in what ways and to what extent?

Directly affected by the fight against undeclared work are the enforcement bodies of the Member States, such as labour inspectorates, tax and social security authorities and/or other special authorities.

Undeclared work as such affects suppliers and customers of undeclared work and also those people who abstain from using this option. The extent of affection differs very much between Member States and also between economic sectors. Difficulties in detection of undeclared work and lack of cooperation between different enforcement bodies result in the increase of the workload and subsequently lead to the need for additional resources for the enforcement authorities and less efficient and effective interventions regarding fight against undeclared work.

3.5. How would the problem evolve, all things being equal? (Baseline scenario)

Member States would continue to carry out their policies in isolation or small groups of countries would conclude bilateral agreements addressing the most pressing needs such as exchanges of data. The 2013 Eurofound study, which looked at developments since 2008, confirmed that since the beginning of the recession, a wide range of policy approaches and measures to tackle undeclared work have been introduced across the Member States. It can be assumed that Member States would continue like this in the future. However, this kind of cooperation would probably leave out Member States, where undeclared work poses a big challenge.

In case of voluntary multilateral cooperation, there is no obligation for Member States to participate nor is there a mechanism to make participation mandatory in case the participation is found necessary by others. Member States' capability to step up efforts by themselves could be limited by a low degree of political priority and sense of urgency in tackling the problem, especially its cross-border dimension as appraised by mostly emigration countries. In addition, Member States' capability to take part in international cooperation may also be diminished by limited resources (human and financial) or the lack of knowledge about relevant EU means in this field and of programmed financial backing at EU level.

Closer cooperation is needed in order to bring together the most relevant authorities of all Member States in tackling undeclared work. The existing forms of cooperation (such as different committees and working groups) have induced discussions on undeclared work on very rare occasions, and without any form of coordination. Some of the fora (Senior Labour Inspectors Committee, Directors General for Industrial Relations) explicitly welcome more focused action at EU level[46].

Member States would not be able to benefit from the EU level cooperation in order to be in a better position to tackle the phenomenon and discover new forms of undeclared work early on thanks to sharing of experiences and learning from each other. Detection of cross-border cases of undeclared work would remain low and challenging due to the lack of cooperation mechanisms. For national enforcement bodies, this could mean that limited possibilities exist to make progress in fighting undeclared work, which would on the other hand at least indirectly encourage undeclared work.

In times of tight budgets, the losses suffered due to undeclared work are felt more severely and it will be more difficult to provide the resources to actually discourage undeclared work.

There are several EU level working groups whose work is somehow linked to undeclared work: the Senior Labour Inspectors Committee (SLIC) looks at undeclared work from the occupational health and safety angle; the Expert Committee on the Posting of Workers deals with undeclared work in relation to circumventing the rules on posting of workers; the Employment Committee (EMCO) discusses the impact of employment policy on undeclared work; the Administrative Commission for social security coordination is looking at error and fraud in the framework of social security coordination. On tax issues, the Committee on administrative cooperation in taxation has put in place legal and practical instruments which allow the exchange of information between Member States when instances of possible cross-border undeclared work are identified. For more information see also the Mapping table in Annex IV.

These working groups would continue their work, looking at aspects of undeclared work from their specific angle. There would be no comprehensive approach to undeclared work.

Without the establishment of EU level cooperation, there would be no pooling of experience and no forum of persons dealing directly with undeclared work to address the issues regarding all pillars of undeclared work.

3.6. Does the EU have the right to act and is the EU added value evident?

3.6.1. The EU's right to act

Preventing and deterring undeclared work contributes to a better enforcement of EU and national law, especially in the areas of employment, labour law, health and safety and coordination of social security. Fighting undeclared work related to cross-border mobility is essential to maintain the credibility of the fundamental right to free movement.

It would contribute to the creation of formal jobs, increase the quality of working conditions, and help to increase inclusion to the labour market and overall social inclusion.

The EU has the right to act in the field of undeclared work based on the Social Policy articles in the TFEU. In particular, Article 151 TFEU stipulates that the Union and the Member States "shall have as their objectives the promotion of employment, improved living and working conditions, […] proper social protection, […] with the view to lasting high employment and the combating of social exclusion." In doing so "the Union and the Member States shall implement measures which take into account of the diverse forms of national practices, in particular in the field of contractual relations, and the need to maintain the competitiveness of the Union's economy." Article 153 TFEU lists the fields where the Union shall support and complement the activities of the Member States, which include working conditions, integration of persons excluded from the labour market and combating social exclusion. Article 153 (2) (a) that "the European Parliament and the Council may adopt measures designed to encourage cooperation between Member States through initiatives aimed at improving knowledge, developing exchanges of information and best practices, promoting innovative approaches and evaluating experiences, excluding any harmonisation of the laws and regulations of the Member States."

The legal basis for this initiative will be Article 153 (2) (a). It allows for the adoption of an EU initiative with the main objective to promote employment and improve working conditions by supporting Member States efforts in the prevention and deterrence of undeclared work. It will allow for the cooperation between all Member States by exchanging information and best practices, developing expertise and more operational coordination of actions involving the enforcement authorities covering the pillars of undeclared work, in particular: labour, social and tax.

3.6.2. Added value of EU action

The main responsibility when tackling undeclared work lies with the Member States. Therefore, the question is whether EU action can add significant value over and above what Member States would be able to achieve on their own. On a general level, EU level support can help to reduce the serious budgetary implications caused by undeclared work as well as to increase formal job creation and social inclusion.

The challenges faced, such as detection of undeclared work and lack of cooperation between different enforcement authorities, are common to all Member States. Action at the EU level has the potential to improve effectiveness and efficiency of Member States' actions when tackling undeclared work. The EU can support exchange of good practices as well as more advanced coordination of actions.

In addition, the EU dimension lies in the cross-border aspects of distortion and destabilisation linked to high levels of undeclared work, the benefits of mutual learning and the need for cooperation across borders to fight some forms of undeclared work.

The EU action would support the efforts of Member States by enhancing cooperation in the deterrence and prevention of undeclared work at EU level, making it more effective and efficient and thereby adding value to Member States' actions. As national enforcement authorities play a key role in the prevention and deterrence of undeclared work, it seems to be the most appropriate level to tackle the challenges linked to undeclared work.

4. Objectives

The general policy objective is to support Member States in their efforts to prevent and deter undeclared work.

Within this general framework, the specific objectives of this initiative are:

(1) To improve cooperation between Member States different enforcement authorities at EU level to prevent and deter undeclared work more efficiently and effectively.

(2) To improve Member States' different enforcement authorities technical capacity to tackle cross-border aspects of undeclared work.

(3) To increase Member States' awareness on the urgency of the problem and to encourage Member States to step up their efforts to fight against undeclared work.

On the operational level the initiative aims at the following:

(1) Providing a forum for experts of different Member States to make contacts, share information and best practices. The deliverables which the forum would strive to achieve could be:

· creation of a "knowledge bank" of different practices used in order to prevent and/or deter undeclared work;

· development of guidelines for inspectors or of guides of good practice e.g. on how to conduct inspections to detect undeclared work;

· adoption of common principles and/or standards for inspections.

Setting up a knowledge bank, containing information on different measures as well as on how undeclared work is defined in different Member States, will be the first practical step of cooperation. It will improve the knowledge of the phenomenon and develop better understanding about how undeclared work is tackled, and who the main actors are, in other Member States. Having an overview of what has been put in place in Member States would provide a basis for agreeing on common definitions and to develop common guidelines and or common principles and standards for inspections. Such guidelines would also help in technical cooperation to tackle cross-border forms as they imply that some basic rules/procedures are established as standard in all Member States. These actions would contribute to improved cooperation between Member States different enforcement authorities. The pooling of information and the visibly increased attention to the topic is expected to also contribute to a higher awareness of the urgency of actions targeted to tackle undeclared work.

(2) Providing a framework to develop expertise with the possible objective of :

· adopting a common framework and carrying out joint trainings;

· establishing a research facility for conducting evaluations of different policy measures identified in the "knowledge bank".

Joint trainings would provide the ground for a substantial practical cooperation, i.e. contribute to the second specific objective. The effectiveness of measures identified in the "knowledge bank" should be evaluated thereby developing expertise in the Member States on what actually works and what not. In addition, transferability of different measures could also be evaluated. These evaluations would increase knowledge, thus contributing directly to the first specific objective.

(3) Developing a mechanism for a more operational coordination of actions. The functioning of the mechanism could lead to:

· identifying solutions for data sharing;

· adopting regional or EU wide strategies;

· organising EU wide awareness raising campaigns;

· organising peer reviews to follow Member States progress when fighting undeclared work and

· agreeing on a common framework for joint operations for inspections and exchange of staff.

These are rather ambitious deliverables, which require some preparatory work. Identifying solutions for data sharing would help liaise better with other Member States. Agreeing on joint inspections would help Member States to tackle the cross-border aspects of undeclared work. These deliverables would develop forms of technical cooperation, which contribute to the second specific objective, i.e. increased technical capacity for cross-border cooperation. The adoption of (regional and EU wide) strategies, organisation peer reviews and also awareness campaigns, are expected to contribute mainly to the objectives of better cooperation and increasing awareness of the urgency of the action.

5. Policy options

5.1. Policy option 1: No new action

No action would be taken beyond the existing working groups and initiatives (see description under Baseline scenario and the table in Annex III).

5.2. Policy option 2: Better coordination of the work of the different existing working groups/committees at EU level

There are several EU level groups whose work is somehow linked to undeclared work (see Chapter 3.5 and Annex III). DG EMPL would be in charge of the coordination of these groups. The coordination would include the following activities: establishing contacts with chairs of the groups in order to have an overview over their work plans; negotiate the inclusion of topics linked to undeclared work on the agenda of the different groups; or coordinate common topics discussed by several groups (from different angle, depending on the speciality of the group) and taking part in the meetings of different groups. The coordinator would have to provide regular overviews over topics discussed in the groups.

For this coordination two officials should be appointed, one on higher level, in order to guarantee cooperation and commitment from all sides and the second official to support the work of the coordinator.

5.3. Establishment of a European Platform to enhance EU cooperation in the prevention and deterrence of undeclared work

Setting up a European Platform is supported by various stakeholders including the social partners. They agree that cooperation between and coordination of different enforcement agencies, such as labour inspectorates, social security and tax authorities, in order to fight undeclared work[47] should be improved and that the European Union is well placed to take initiative. The question remains how such a platform should be organised and what its assignment should be?

The analysis indicates that such a platform needs to take into account different institutional structures of the fight against undeclared work in the Member States. Some Member States have established dedicated structures while in other Member States the main responsibility is with the labour inspectorate, the tax authority or social security authority with varying degrees of overall coordination. While a more integrated approach is in general considered more adequate, such integration should not be considered a condition for participation. In that sense the new platform should be neutral in respect to the institutional background of the delegates from the Member States. Also the question whether the platform should work exclusively on forms of undeclared work having a cross-border dimension or choose a broader approach was resolved early on: limiting the approach to cross-border phenomena would reduce the possibilities of mutual learning to a great extent and the objective of increasing awareness about the problem would be very much limited.

The following ways of setting up a platform are considered:

5.3.1. Policy option 3: Individual body with voluntary membership

The platform would be set up by the Commission. It would comprise of representatives of different enforcement bodies of the Member States and other stakeholders, such as social partners.

Members and alternate members of the platform should be selected and appointed by the Member States. They should represent the national enforcement authorities who are leading and/or participating in the prevention and/or fight against undeclared work in that Member State. When appointing their member(s) to the platform, Member States should also provide the Commission with the list of other authorities, which are involved in the fight against undeclared work. The member appointed by the Member State should act as a single point of contact which should have the necessary authority to liaise with national authorities dealing with the multifaceted aspects of undeclared work. The single point of contact would be responsible for the coordination and inclusion of these other authorities to the work of the Platform. Other authorities could be invited to the meetings of the Platform, in particular, when issues discussed involve their field of competence.

Once established, the Platform would adopt the rules of procedure, which would include the decision-making arrangements of the Platform. Furthermore, the Platform would have to adopt work programmes, which would establish its tasks in detail. Tasks could include: developing the knowledge on undeclared work by developing common concepts; adopt guidelines for inspectors or handbooks of good practices to tackle undeclared work and develop forms of cooperation to strengthen the technical capacity to tackle cross-border aspects of undeclared work. The Platform would prepare regular reports which would include an overview of its activities and the results of its work. In order to assist its work the Platform could decide to establish working groups to examine issues specified in the work programme of the Platform.

The platform would be chaired by the Commission and it would have a secretariat.

The human resources needed by the Commission are 2,5 Commission full-time employees. The Commission would be responsible for the overall coordination and the management of the platform.

While participation as such is voluntary, once a Member State agrees to engage itself, participation in the activities of the platform would become mandatory.

The platform with voluntary membership could be set up by a Council Recommendation based on Article 292 TFEU as the legal basis referred to in Chapter 3.6.1 allows for the establishment of the Platform with mandatory member ship.

5.3.2. Policy option 4: Individual body with mandatory membership

The platform would be established with the decision of the European Parliament and the Council on the basis of a proposal of the Commission. Therefore, it could not be considered as a Commission expert group and consequently, the framework for Commission expert groups[48] does not apply. Instead, the rules of the functioning of the Platform would be defined in the decision establishing the platform.

Members and alternate members of the platform should be selected and appointed by the Member States. They should represent the national enforcement authorities who are leading and/or participating in the prevention and/or fight against undeclared work in that Member State. When appointing their member(s) to the platform, Member States should also provide the Commission with the list of other authorities, which are involved in the fight against undeclared work. The member appointed by the Member State should act as a single point of contact which should have the necessary authority to liaise with national authorities dealing with the multifaceted aspects of undeclared work. The single point of contact would be responsible for the coordination and inclusion of these other authorities to the work of the Platform. Other authorities could be invited to the meetings of the Platform, in particular, when issues discussed involve their field of competence.

Once established, the Platform would adopt the rules of procedure, which would include the decision-making arrangements of the Platform. Furthermore, the Platform would have to adopt work programmes, which would establish its tasks in detail. Tasks could include: developing the knowledge on undeclared work by developing common concepts; adopt guidelines for inspectors or handbooks of good practices to tackle undeclared work and develop forms of cooperation to strengthen the technical capacity to tackle cross-border aspects of undeclared work. The Platform would prepare regular reports, which would include an overview of its activities and the results of its work. In order to assist its work the Platform could decide to establish working groups to examine issues specified in the work programme of the Platform.

The platform would be coordinated and chaired by the Commission and it would have a secretariat which would, prepare the meetings, the work programmes of the Platform and its reports.

The human resources needed by the Commission are 2,5 Commission full-time employees. The Commission would be responsible for the overall coordination and management of the platform.

Appropriate information and cooperation links would have to be established between the platform and other groups already in in place at EU level working in areas which are adjacent or overlapping to undeclared work (EMCO, SPC, SLIC, Expert Committee on posting of workers, Administrative Commission for the Coordination of the Social Security Schemes). However their remit would not be changed.

The platform with the mandatory membership could be created by the Decision of the European Parliament and the Council based on Article 153 (2) (a).

5.3.3. Policy option 5: Attaching the platform to an existing body

The platform could be set up as a subgroup to an existing body or become an integrated element of an existing body. In discussing this option, it was found that an attachment to a specific expert group, such as SLIC, would mean to link the fight against undeclared work to a specific theme, in this case i.e. health and safety at work. Even if tax and social security experts etc. were invited, this would give those topics which are linked to the thematic focus of the main group a certain advantage. Considering the existing institutional diversity in the fight against undeclared work, this was not considered a good solution. Therefore, it needed to be a body which is thematically equally competent and attractive to representatives fighting undeclared work but with different institutional affiliation. Such a neutral hosting structure could be provided by the European Foundation for the Improvement of Living and Working Conditions (EUROFOUND) in Dublin.[49]

To make Eurofound responsible for coordinating action to prevent and fight undeclared work in general would mean going beyond the research focused approach of this Agency. This would require a change in the founding regulation, so to give Eurofound a new mandate.

Furthermore, under this option the exact design of the platform would be delegated to Eurofound, which is a decentralised agency governed on a tripartite basis, and it would no longer be under the direct control of the Commission. Therefore the design is difficult to predict. However, for the purpose of an analysis certain assumptions to develop a plausible scenario are necessary.

Eurofound operates with contact points in the Member States, these would continue to contribute to the analysis of the phenomenon. If the Eurofound Governing Board so decides a new undeclared work observatory could be created and also a network of contact points representing national enforcement bodies, could be put in place. However, tasks of these contact points would be limited to providing information to the observatory regarding the phenomenon in the Member States. Also in this case this will probably involve the work of two to three employees of the Eurofound.

5.4. Options discarded

An option to create a European Union decentralised agency responsible for enforcement of EU law and fight against undeclared work was considered.

In the past some Members of the European Parliament have called for the establishment of a European Agency for cross-border matters concerning the abuse of employment protection rules and undeclared work[50]. Also the European trade unions[51] have suggested the establishment of a "Social Europol – Sociopol", an agency to coordinate cooperation between national labour inspectorates and being responsible for the correct enforcement of EU law and fight against undeclared work[52].

The 2012 Common Approach of European Parliament, Council and Commission[53] on decentralised agencies has discouraged the creation of new agencies and urged existing agencies to streamline their activities, improve their performance and develop synergies, including by merger. In the present political and economic context and taking into account the administration costs for establishing a new agency, the three institutions urge decentralised agencies to pursue their efforts to streamline the activities of existing agencies and increase their performance. Instead of creating new agencies, synergies should be created between the existing ones.

Given the thematic proximity of Eurofound on the one hand and – although to a lesser extent – EU-OSHA on the other, it seems politically unrealistic to propose the creation of a new agency to deal with undeclared work. Under the present circumstances, option 5, i.e. entrusting Eurofound with this task will be preferable over the creation of a new agency, as Eurofound – being a functioning body – is likely to have similar advantages at significantly lower costs than a new body.

Due to the reasons described above, setting up an agency was not considered a suitable option for the time being. However, when the platform has developed into a more stable form of cooperation, this option may at a later stage deserve further examination, especially to support the development of new tools, which could be deemed necessary to fight cross-border fraud and abuses.

This approach is in line with the views collected in the Regioplan study and in line with the principle of proportionality in Article 5 TFEU.

6. Analysis of impacts

The initiative under discussion concerns governance issues. Overall good governance is expected to have an impact on the social situation and the economic performance. An enhanced cooperation could lead to more effective fight against undeclared work, which would mean that undeclared work could be reduced, some jobs could be transformed into regular employment, whereas in some cases the jobs could be lost. Administrative burden for enforcement authorities as well as for enterprises could be decreased because sharing information and best practices and use of common tools could provide them with more effective ways to conduct inspections in order to detect undeclared work.

However, the incidence chain from the establishment of a platform against undeclared work to reduced undeclared work is rather long. It was impossible to establish a sufficiently direct link between the functioning of a platform, the reduction of undeclared work and economic performance or social wellbeing. While such chains are always very difficult to establish, the difficult measurability of undeclared work adds another layer of complication. Therefore, in the course of the assessment it was found that it was not realistic to assess the social or economic impact per se.

What was considered possible was to answer the question to what extent the different options will achieve the specific objectives set. Furthermore, the costs directly linked to the establishment of such a platform could also be identified and are described below. Also the objectives were defined in such a way as to support socio-economic wellbeing. In that sense the most effective and economic achievement of the objectives can also be considered as the best alternative from a socio-economic perspective.

In analysing the different options, no environmental impacts have been identified. Therefore this document does not consider environmental impacts as a criterion to differentiate between the options.

6.1. Option 1: No new action (Baseline scenario)

6.1.1. Awareness of the urgency of the problem and stepping up efforts to fight undeclared work

The Commission has highlighted the problems linked to undeclared work and all Member States have undertaken reforms in that area in the recent past. However, from estimations on the size of undeclared work (Annex II, Table 5) it can be concluded that in some Member States the activities undertaken are far less effective than in others. This might be linked to a lack of experience, but could also be due to a lack of serious effort, taking into account the short-term costs of seriously fighting undeclared work.

The status quo suggests to these Member States that although the Commission has identified the problem, it does not really intervene on the subject, which might be equalised with not being serious about tackling the phenomenon.

6.1.2. Contribution to better cooperation between different enforcement authorities

The EU level will not provide the infrastructure to address undeclared work in an integrated way. Instead different bodies will continue to work in a segmented way on the problem. The only forum in which integrated approaches could be developed are mutual learning seminars and specific projects. However, they are purely informal and not only voluntary but also regularly limited to a small number of Member States. A mid- to long-term follow-up and discussion amongst peers is not facilitated by these structures, thus not helping a continuous cooperation between enforcement bodies and the building up of knowledge and mutual trust.

6.1.3. Technical capacity to address cross-border aspects of undeclared work

The EU will not help Member States to address cross-border aspects of undeclared work. Instead this will need to continue on a bilateral basis.

6.1.4. Costs

Per definition this option does not imply any costs.

6.1.5. Overall assessment

Keeping the status quo suggests that the Commission has identified the seriousness of the problem, but does not really intervene on the subject, which could be equalised with not being serious about it.

In addition, the operational objectives regarding establishing a forum of experts and a framework to develop expertise as well as developing a mechanism for a more operational coordination of actions will not be achieved.

This assessment is confirmed by the responses to the questionnaire from Regioplan to different stakeholders, by Social Partners’ responses to the consultation and also by Member States consulted in the framework of consultations with stakeholders.

6.2. Option 2: Better coordination of the different existing working groups/ committees at EU level

6.2.1. Awareness of the urgency of the problem and stepping up efforts to fight undeclared work

None of the existing bodies has as its main tasks to address undeclared work. Whether and how undeclared work will feature on their work programme/agenda will depend on issues which are not under the control of people actually working on undeclared work.

There could be some positive impact. If the Commission representatives manage to bring undeclared work on the agenda of different working groups, awareness of the problem might increase. However such coordination – unless arranged on a very high level, as to attract visibility – does not give the impression of a strong prioritisation by the Commission.

6.2.2. Contribution to better cooperation between different enforcement authorities

The dissemination of information across working groups will exclusively depend on the selected Commission officials. The experts from different areas (such as tax authorities and labour inspectorates) will not really meet. Suggestions developed at the European level are not likely to adequately take into account the multidimensional aspects of undeclared work.

6.2.3. Technical capacity to address cross-border aspects of undeclared work

Different problematic aspects could be discussed in one or more of the working groups. However, these would be one-time discussions. Although the results of these discussions could be distributed to different fora, the approach would remain fragmented, piecemeal and without any serious follow-up. Therefore this option does not provide substantial improvements in this respect.

6.2.4. Costs

As described before, this option implies the appointment of a so called 'task force' or similar structure. A high ranking official (senior management level) would most likely be needed to be able to have an influence on the respective agendas of different working groups. Such official would need to be supported by some staff.

However, given the nature of the proposal, no additional costs for Member States’ officials would be involved. Only in cases where groups meet significantly longer because of additional agenda points, this might imply slightly higher costs (in terms of travel but also absorbing working time of those officials).

6.2.5. Overall Assessment

Overall a very limited impact is to be expected. The problems related to visibility and hesitation to prioritise might be addressed to some extent because of the high level political support. The objectives of interdisciplinary and cross-border learning and coordination will hardly be achieved. It will be very difficult to get a holistic picture of the problem.

The results of the social partner consultation, showed that the most of the employers were of the opinion that the EU level cooperation could be carried out by coordinating better already existing groups.

6.3. Option 3: Individual body with voluntary membership

6.3.1. Awareness of the urgency of the problem and stepping up efforts to fight undeclared work

The establishment of the Platform should not modify the status of other working groups or committees or introduce a hierarchy. However, it can be assumed that once the Platform is established, such groups would tend to shift the discussions regarding more specific issues of undeclared work to the Platform. Overlaps can be avoided by coordination between Chairs of different expert committees and groups. However, it can happen that other groups might decide to discuss matters related to undeclared work. In this case, these discussions should be communicated between the Chairs.

Assuming a voluntary membership implies that Member States will have to take a decision whether to participate in the group or not. Thus participation becomes a signal of commitment to address the problem. However, as leading authorities on undeclared work from the Member States' administrations will meet, this will raise their profile and increase awareness of the urgency of the action in the national context.

Definitely, setting up a group as such will not be enough. It will need to be supported by accompanying activities (e.g. in the form of press releases). However, it could be seen as a good starting point and it is in line with the expectations of the stakeholders.

6.3.2. Contribution to better cooperation between different enforcement authorities

A voluntary membership will have the advantage that with joining the group the Member States express explicit commitment to the common action, so a more profound cooperation could be expected.

Once operational, we could expect closer cooperation amongst its members. These will most likely be those Member States which already undertake efforts and which already have reasonably good connections among each other such as the members of the CIBELES or ICENEW network. Other Member States might not feel encouraged to participate.

The question of how many Member States actually will participate, is difficult to answer. In the recent past all Member States have undertaken at least some efforts to fight undeclared work at national level. So also in the light of peer pressure, it might be rather difficult for a Member State to abstain from participation in the group, even though a Member State so far has not been very active in international cooperation. On the other hand, although difficult, it might still be easier to abstain than to risk a strong criticism from other Member States.

In that sense a voluntary participation which misses out countries, is a wrong signal. Even those Member States where undeclared work is not considered to be a critical problem in domestic terms, will need to be involved and encouraged to participate in international cooperation, given their role as sources of mobile workforce.

Such group would allow for officials from the participating Member States to discuss on a regular basis and in a structured way the relevant topics. This should help to build up trust between involved organisations and to better understand how measures to tackle undeclared work function in other countries. Understanding the context within which an activity takes place is thereby a precondition for mutual learning.

Furthermore, in Member States where the topic is not dealt in an integrated way, the members of the group would have to collect information from different national bodies or agencies dealing in a partial way with undeclared work (social security, tax, labour). Therefore the setting up of the EU platform would have an indirect effect of contributing to greater coordination internally to each Member State.

6.3.3. Technical capacity to address cross-border aspects of undeclared work

The group will provide the participating Member States with a platform to conclude specific cross-border arrangements. It might even manage to develop agreements which bind all members of the group. However, the voluntary nature of participation might bring about the situation where the Member States participating do not have their counterparts (i.e. Member States where their workers most often go to work or from where workers mostly come to work) taking part in the Platform and therefore they could not fully benefit from this cooperation to solve cross-border problems and as a result cooperation would not be as effective as one could wish for. In addition, there is a risk that if only a very small number of Member States participates in the Platform, the decisions made by the group will not be regarded as European decisions as they do not have the support of all of the Member States.

6.3.4. Costs

As indicated, the group will need to have a secretariat, which is to be provided by the European Commission. Realistically it would involve 2,5 full time employees. However, in practice work might be distributed amongst more colleagues. Taking into account the specificities of the subject a mix of competences, with experiences in the areas of legislation, economics and administration will be useful.

Next to the costs for the secretariat to the platform, the Commission would have to reimburse the travel costs of the nominated experts, The Member States would – indirectly – pay for the experts by sending them to take part in the meetings of the Platform and allowing them to prepare for these meetings.

Depending on the national structure, e.g. level of integration and investments already made to deal with undeclared work, and on the agenda of the group meetings, the time necessary to prepare for a meeting might differ widely, from a few hours to a week or even more.

There will be additional operational costs related to different tasks, which the Platform will undertake. The tasks will be identified in work programmes of the Platform. These costs will not exceed 2.1 million euro per year.

6.3.5. Overall Assessment

The improvements linked to this option depend very much on the question how many Member States will actually decide to participate in this group. Before setting up the group it should be ensured that at least a broad majority of Member States (if not all) participate. As the Member States have in discussions expressed a preference for this option and are obliged to show activity against undeclared work, it is realistic to assume that participation would be high even in a voluntary group. However, the uncertainty whether all Member States would participate or not, remains and as such presents a shortcoming of this option.

If – in a very positive scenario – all Member States participate, there is only one difference as compared to a mandatory membership: Member States will have decided to participate voluntarily, i.e. they have committed themselves.

This option would allow for the achievement of all operational objectives, taking into account the principle, that the more Member States participate, the better in order to achieve a comprehensive approach, which would be supported by and followed in all Member States (i.e. common awareness raising campaigns, common principles for inspections etc.).

However, with the voluntary approach, the uncertainty whether all Member States would participate or not, presents a shortcoming of this option.

The results of the social partner consultation showed that most of the the trade unions favoured the establishment of an independent body. The majority of social partners underlined that participation of this EU level cooperation should be mandatory to all Member States. Some employers representatives, however, favoured voluntary membership. Member States favoured voluntary membership over mandatory one.

6.4. Option 4: Individual body with mandatory membership

6.4.1. Awareness of the urgency of the problem and stepping up efforts to fight undeclared work

As with option 3, the establishment of the Platform should not modify the status of other working groups or committees or introduce a hierarchy. However, it can be assumed that once the Platform is established, such groups would tend to shift the discussions regarding more specific issues of undeclared work to the Platform. Overlaps can be avoided by coordination between Chairs of different expert committees and groups. However, it can happen that other groups might decide to discuss matters related to undeclared work. In this case, these discussions should be communicated between the Chairs.

Assuming a mandatory membership implies that Member States will not have to take a decision whether to participate, but it will from the outset be ensured that all Member States participate. As leading authorities on undeclared work from the Member States' administrations will meet, this will raise their profile and increase awareness of the urgency of the action in the national context.

Definitely, setting up a group as such will not be enough. It will need to be supported by accompanying activities (e.g. in the form of press releases). However, it could be seen as a good starting point and it is in line with the expectations of social partners.

6.4.2. Contribution to better cooperation between different enforcement authorities

Such a group would allow officials from all Member States to cooperate on a regular basis and in a structured way with each other. This should help to build up trust between the involved organisations.

Furthermore, in Member States where the topic is not dealt in an integrated way, the members of the group will have to collect information from different national points. Doing that also increases the awareness about links between different aspects at national level.

While setting up a group with mandatory membership would be more difficult, per definition all Member States would be involved. Such a group could add value to the work of relevant Committees in the European semester: it would allow the Platform to discuss ways to further support the practical implementation of recommendations to fight or prevent undeclared work.

6.4.3. Technical capacity to address cross-border aspects of undeclared work

This organisation provides the possibility to conclude bilateral, multilateral as well as EU-level agreements. As all Member States are participating, it would allow for developing expertise as well as engaging in operational actions equally in all Member States. If there was reluctance in Member States to engage in these activities, progress with actual cross-border cooperation could be relatively slow, meaning that bi- and multilateral agree