COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a Decision of the European Parliament and of the Council on establishing a European Platform to enhance cooperation in the prevention and deterrence of undeclared work
Date: 2014-04-09
Institutions: European Commission
Subjects: fraud, intergovernmental cooperation (EU), job creation, labour inspectorate, labour standard













EUR-Lex - 52014SC0138 - EN











|



52014SC0138

COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a Decision of the European Parliament and of the Council on establishing a European Platform to enhance cooperation in the prevention and deterrence of undeclared work /* SWD/2014/0138 final */









TABLE OF CONTENTS
1........... Background.................................................................................................................. 3
2........... Problem definition........................................................................................................ 4
2.1........ Governance – the problem
requiring action.................................................................. 5
3........... The EU right to act and
subsidiarity............................................................................. 6
4........... Objectives..................................................................................................................... 7
4.1........ General objectives......................................................................................................... 7
4.2........ Specific objectives........................................................................................................ 7
4.3........ Operational objectives.................................................................................................. 7
5........... Policy options............................................................................................................... 8
6........... Analysis of impacts....................................................................................................... 8
6.1........ Option 1: No new action.............................................................................................. 8
6.2........ Option 2: Better coordination of
the different existing working groups/ committees at EU level  9
6.3........ Option 3: Individual body with
voluntary membership............................................... 9
6.4........ Option 4: Individual body with
mandatory membership............................................. 9
6.5........ Option 5: Integrating the fight
against undeclared work into Eurofound................... 9
7........... Comparison of the options............................................................................................ 9
8........... Monitoring and evaluation.......................................................................................... 10

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],
which stressed the need to move from informal or undeclared work to regular
employment.
The Employment Package[3], adopted in
April 2012, the Commission additionally underlined 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 highlighted the need for improved cooperation among Member
States and announced the launch of  consultations on setting up an
EU-level platform between labour inspectorates and other enforcement bodies to
combat undeclared work, aimed at improving cooperation, sharing best practices
and identifying common principles for inspections. 
In 2012 and 2013, several Member States
received Country Specific Recommendations concerning undeclared work, the
shadow economy, tax evasion and/or tax compliance. 
In the Employment Guideline[4] Nr 7 on
"Increasing labour market participation of women and men, reducing
structural unemployment and promoting job quality", Member States are
urged to step up social dialogue and tackle labour market segmentation with
measures addressing precarious employment, underemployment and undeclared work.
The Annual Growth Survey 2013[5] states that
social partners have a key role to play alongside public authorities to fight
undeclared work in order to prepare for a job rich recovery. In the context of
tackling unemployment and the social consequences of the crisis, the Annual
Growth Survey 2014[6],
highlights the need to reinforce the fight against undeclared work. 

2.                      
Problem definition

In the 2007 Commission Communication[7],
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 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 lowering quality of work, putting at risk the financial
sustainability of social protection systems and undermining the competitive
environment for businesses[8].
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 have been used to approach and measure undeclared
work (they are explained in detail in Annex II).  
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. Secondly, there
exists undeclared own account or self-employed work, providing services either
to a formal enterprise or other clients, such as households. 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, sometimes provided as a sort of
mutual aid. This third category is not at the heart of this initiative. 
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.
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 growth of the informal economy is often
seen as a reaction to imperfections in the formal labour market[9].
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.  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[10]. Other influential
factors are the transparency of legislation and its enforcement. If control
mechanisms are unclear, inefficient or absent, people will be more prone to
evade taxes by performing undeclared work. 
The consequences of undeclared work are often
poorer working conditions. Employment rights, such as annual leave and working
time, health and safety obligations are not respected. The training needs of
undeclared workers are not taken into account. They have less employment
security, they might not have the 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.
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. 

2.1.                
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.
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, social partners[11] are also involved in
these tasks. In addition, in some Member States, customs authorities, migration
bodies, the police and the public prosecutor's office are involved (See Annex
III). In some cases new authorities, inter-ministerial agencies, national
steering groups and tripartite committees have been created[12]. 
Member States do not sufficiently use the
experience collected in other Member States. They do not learn from each other
how to avoid or to reduce undeclared work. 
(2)         
Difficulties in tackling 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.
Identifying the employment status of a person from another Member State, verifying the rights and obligations applicable to that worker, is a very
difficult task for the authorities. In order to detect undeclared work in
cross-border situations, there is an increased need for cooperation between
Member States. 

3.                      
The EU right to act and subsidiarity

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 Social Policy articles in the TFEU, in particular
Article 153 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 Member States by exchanging information and
best practices, developing expertise and more operational coordination of
actions involving the enforcement authorities covering all the pillars of
undeclared work, in particular: labour, social and tax.
The EU competences lie in addressing 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 challenges of tackling undeclared work,
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. 
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.

4.                      
Objectives
4.1.                
General objectives

The general policy objective is to
support Member States in their efforts to prevent and deter undeclared work. 

4.2.                
Specific objectives

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 of the
urgency of the problem and to encourage Member States to step up their efforts
to fight undeclared work.

4.3.                
Operational objectives 

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.
(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". 
(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.

5.                      
Policy options

Five policy options have been analysed during
the Impact Assessment: 
Policy option 1: No new action. No action would
be taken beyond the existing working groups and initiatives. 
Policy option 2: Better coordination of the
work of the different existing working groups/committees at EU level. Several
EU level groups discuss topics linked to undeclared work. DG EMPL would nominate
a coordinator for the discussion and activities of the different groupings in
respect to undeclared work.
Policy option 3: A European Platform as an
individual body with voluntary membership. The Commission sets up a
platform which comprises of representatives of Member States' enforcement
bodies and other stakeholders, such as social partners. Member States have to
decide whether they participate or not in the platform.
Policy option 4: A European Platform as an
individual body with mandatory membership. The Commission sets up a platform
which comprises of representatives of Member States' enforcement bodies and
other stakeholders, such as social partners. Member States are automatically
members of the platform. 
Policy option 5: Attaching the platform to an
existing body. A possible way forward could be to entrust the European
Foundation for the Improvement of Living and Working Conditions (EURFOUND) in Dublin with this task. 
Other options such as the creation of a new
decentralised agency responsible for the enforcement of EU law and fight
against undeclared work were looked at, but discarded as not realistic at this
point in time.

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. 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. The difficult measurability
of undeclared work makes this particularly difficult. Therefore, the analysis
limits itself to the question to what extent the different options achieve the
specific objectives. Furthermore, the costs directly linked to the
establishment of such a platform are described. As the objectives were defined
in such a way as to support socio-economic wellbeing, the most effective and
economic achievement of the objectives is considered as the best alternative
from a socio-economic perspective. 

6.1.                
Option 1: No new action

Keeping the status quo suggests that although
the Commission has identified the seriousness of the problem, it does not
really intervene on the subject, which could be equalised with not being
serious about tackling the phenomenon.

6.2.                
Option 2: Better coordination of the different
existing working groups/ committees at EU level

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. 

6.3.                
Option 3: Individual body with voluntary
membership

The improvements linked to this option depend
very much on the question how many Member States will decide to participate in
this group. Before setting up the group it should be ensured that a broad
majority of Member States (if not all) participate. As 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 major
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. 

6.4.                
Option 4: Individual body with mandatory
membership

The strength of this option lies in including
all Member States from the start. Since it does not involve a decision on
whether to join or not, some Member States could be less committed to engage in
more operational coordination of actions or developing expertise. They might
want to limit the cooperation to the exchange of information and best practices
without proceeding to substantial cross-border cooperation.  

6.5.                
Option 5: Integrating the fight against
undeclared work into Eurofound

As Eurofound's tasks are limited to research
and development of projects to provide knowledge and support to EU policies, it
can be expected that this might become the limits for the activities of the
Platform. Its activities would be mainly related to exchange of best practices
and information and contribute to the development of expertise.

7.                      
Comparison of the options

The comparison was done based on the analysis
of impacts in Chapter 6. According to this while Option 1 is the baseline,
meaning that there are no significant changes introduced, options 2 and 5 bring
about some, but very limited, improvements at very low costs. 
Options 3 and 4 generate almost similar costs
(costs for Option 3 have been calculated assuming that all Member States take
part of the Platform): yearly costs for the Commission staff, organising the
work of Platform and the meetings would not exceed EUR 600 000 and yearly
operational costs related to different tasks carried out by the Platform would
not exceed 2,1 million EUR. In addition, the effectiveness of options 3 and 4
would be similar if one assumes that all Member States take part of the
voluntary cooperation foreseen with Option 3. 
Hence, clear advantage of option 4 as compared
to option 3 is that the success of the voluntary platform depends very much on
the willingness of Member States to become a member in the first place. Thus,
there is an additional element of uncertainty as compared to option 4. The
clear advantage of option 4 as compared to option 3 is the mandatory
participation. It is considered to be a necessary element of the Platform,
because cooperation to tackle cross-border aspects of undeclared work, which is
one of the essential objectives of the initiative, could not be fully achieved
if some Member States were in and others out.
Therefore Option 4 is considered as overall
preferable. It can be realised by adopting a Decision of the European
Parliament and the Council based on Art 153 (2) (a) TFEU.

8.                      
Monitoring and evaluation

The Commission would regularly report to the
Council and the European Parliament on the work of the Platform. These reports
would inform about the detailed work programmes of the platform, the
deliverables and the frequency of meetings.
Four years after the Decision establishing the Platform entered into force it
will be evaluated. The evaluation will, based on the regular reporting plus
further research, assess to what extent the Platform has contributed to the
achievement of the specific objectives and whether there has been progress
towards the general objective. This report will be submitted to the European
Parliament, the Council, the European Economic and Social Committee and the
Committee of Regions.
[1]               Communication from the
Commission Europe 2020 – A Strategy for smart, sustainable and inclusive
growth, COM (2010)2020 of 3 March 2010 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:2020:FIN:EN:PDF
[2]               Communication from the
Commission "An agenda for new skills and jobs: A European contribution
towards full employment" COM 2010(682) of 23 November 2010 
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52010DC0682:EN:NOT
[3] Communication from the Commission "Towards a job-rich recovery
COM (2012)173 of 18 April 2012
http://ec.europa.eu/social/main.jsp?langId=en&catId=101&newsId=1270&furtherNews=yes
[4] 2010/707/EU Council Decision of 21 October 2010 on guidelines for
employment policies of the Member
States" http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32010D0707:EN:NOT
[5] Communication from the Commission  "Annual Growth Survey
2013" COM (2012)750 of 28 November 2012 http://ec.europa.eu/europe2020/making-it-happen/annual-growth-surveys/index_en.htm

[6]               Communication from the Commission "Annual growth
survey 2014" COM(2013)800 http://ec.europa.eu/europe2020/pdf/2014/ags2014_en.pdf

                See also Draft Joint
Employment Report accompanying the Communication from the Commission on Annual
Growth Survey 2014 http://ec.europa.eu/europe2020/pdf/2014/jer2014_en.pdf
[7]"Stepping up the fight against undeclared work" COM(2007)628,
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52007DC0628:EN:HTML

[8] Regioplan, 2010
[9] Undeclared labour in Europe: Towards an
integrared approach of combatting undeclared labour, Regioplan 2001  http://www.lex.unict.it/eurolabor/ricerca/dossier/dossier7/cap6/mateman_renooy2001.pdf
[10]             Regioplan 2001
[11] In Germany agreements between Federal Ministri
of Finace and social partners in construction, painters and industrial textile
services sectors, in Bulgaria the establishment of the national "Rules for
business" centre and in Luxembourg introduction of an ID card for every
worker on the construction site.
[12] National Employment Rights Agency (NERA) in Ireland, Inspectorate SZW
(reorganised in 2012) in Netherlands, Social Information and Investigation
Service in Belgium, Inter-administrative unit to fight illegal work (CIALTI) in
Luxembourg, Inter-ministerial delegation for fight against illegal work DLNF in
France. ILO/LABADMIN, 2013