Bulgaria: Reduction of shadow economy and undeclared work, according to BICA

Bulgaria: Reduction of shadow economy and undeclared work, according to BICA

The Bulgarian Association of Industrial Capital (BICA) presented its National Charter of Undeclared Employment in an online event on Monday. The event was attended by more than 60 representatives of the executive and legislative branches, employers, trade unions, scientific and non-governmental organizations and the media.

Undeclared employment in the Bulgarian economy according to employers is 25.3%, and according to employees about 33%, as became clear during the online round table.

“For more than 10 years, BICA has been consistently pursuing policies and launching actions before the executive branch to reduce the shadow economy. The latest record of the underground economy index in Bulgaria, which is mentioned in the Composite Index is 21.48% while in 2010, when we started measuring it, it was 36.65%. Despite the sharp decline, its rate is significantly higher than the European average. Since 2019, special emphasis has been placed on our effort to reduce and prevent undeclared work. The purpose of the National Charter of Undeclared Employment, which we are presenting today, is to make specific recommendations for the implementation of measures and policies through which permanent and sustainable changes in attitudes towards shadow practices will take place in Bulgarian society, so that tolerance of undeclared employment to be reduced to a minimum”, said at the beginning of the online event the Chairman of the Board of BICA Vasil Velev.

“The issue of undeclared employment is extremely important for all participants in the labor market. We are seeing a downward trend, which we can attribute to a series of legislative and executive measures taken by the government in recent years. I believe that by continuing our joint efforts we will contribute to an even greater reduction of the shadow economy in Bulgaria, said Deputy Minister of Labor and Social Policy Lazar Lazarov, who is also Chairman of the Public Council for Restriction and Prevention of Informal Economy and Undeclared Employment. His statement was also supported by Marinela Petrova, Deputy Minister of Finance, who said that “the crisis caused by the COVID-19 pandemic has helped to change attitudes towards the employment declaration, because only in this way businesses and citizens stand to benefit from government aid measures against the crisis. People need to understand that the job declaration leads to an improvement in revenue, which in turn gives the state the opportunity to use more investment funds”.

The President of the Economic and Social Union, Zornitsa Rusinova, shared with the participants in the round table that “the Council is an extremely suitable platform for the continuation of the next discussions on the reduction of undeclared employment. I can certainly say that the Committee’s group is ready to work with the government and the social partners to study the relationship between existing shadow practices and new forms of employment”.

The National Charter is the first such document of its kind not only in Bulgaria but also at European level. It is the result of a year of work by more than 50 experts who analyzed the results of two national representative surveys, in focus groups, in office surveys, in-depth interviews and more.

According to research, five are the most common forms of undeclared employment. Non-contract work, contract work but with fictitious clauses and additional payment of non-taxable amount in cash, covert employment contracts, false self-employment and unpaid overtime.

According to Dr. Milena Angelova, who is the general secretary of the association and project manager, both employers and employees have pointed out that the most common practice is to enter into a contract with fictitious clauses and additional payment of non-taxable cash. “The range is between 25% and 30%. In second and third place, both teams placed the performance of unpaid overtime work and disguised labor contracts, respectively. Our results show that the most vulnerable sectors are trade, the repair of motor vehicles and motorcycles, construction, hotels and restaurants, transport, logistics and couriers, as well as agriculture, forestry and fisheries”.

The highest rates of undeclared work are reported in Vidin (33.5%), Yambol (32.6%) and Sofia (32.5%), while the lowest are in the regions of Kyustendil (24.1%), Smolyan (23.6%) and Targovishte (21.1%). The most vulnerable groups are young people entering the labor market, as well as retirees, ie people who have already reached the end of their working age and are looking for ways to increase their income.

The ongoing investigation confirmed BICA’s initial assumptions about the dependence between employees’ training characteristics and qualifications and their chances of being involved in shadow practices in the workplace. This is likely to happen to less educated and unskilled employees.

In order to reduce the form of undeclared employment, the need to reduce the possibility of making cash payments, which are a source of shadow practices, was highlighted.

Among the main recommendations of the surveyed employers is to change the current model to 57% average insurance amount for all insurance funds at the expense of the employer and 43% average amount of insurance at the expense of the employee. It is proposed to increase the share of social security contributions to the detriment of the employee while maintaining the amount of net remuneration. This will significantly reduce the financial interest of the employer from undeclared employment and at the same time will increase the financial interest of the employee not only to work under an employment contract, but also to be insured for the full amount of gross wages.

“In recent years, undeclared work has always been the focus of the work of the General Labor Inspectorate. In 2021, our teams will inspect 2,000 companies that we believe have a high-risk profile for working with fictitious contracts. I fully support the proposals made, believing that they should be part of a unified national strategy to reduce undeclared work, in which the social partners should also be involved”, said Rumyana Mihaylova, Executive Director of the General Labor Inspectorate.

The results of various analyses show that wider public campaigns are needed between employers and employees for the benefits of declared work, as well as the research for mechanisms to introduce bonus and incentive systems to the right employers who comply with labor law./ibna