Self-employment and bogus self-employment in the …efbww.org/pdfs/annex 16 - final report romania.pdf · Self-employment and bogus self-employment in the European Construction Industry

Self-employment and bogus self-employment in the European Construction Industry Country report: ROMANIA

1

Self-employment and bogus self-employment in the European construction industry

Expert Report

Self-employment and bogus self-employment

in the construction industry in Romania

Cristina M. ANA1

1. The author is a legal expert on justice, anti-corruption and home affairs matters in Romania. She provided expertise on justice, anti-corruption and home affairs to the EC during April 2005- present.

Project carried out with the financial support of the European Commission


2

SELF-EMPLOYMENT AND BOGUS SELF-EMPLOYMENT IN THE CONSTRUCTION SECTOR - ROMANIA

1. The demarcation between direct employment / genuine self-employed and

genuine self-employment / bogus self-employment. Direct employment: The employment relationship is the concept used to describe the relation between an employee and an employer, where an employee commits himself to perform labour under certain circumstances against the payment of a salary. The employment relationship is the legal link between an employer and an employee, which creates reciprocal rights and obligations between employee and employer and is also the basic concept through which workers gain access to rights in benefits associated with employment in the areas of labour law and social security. The definition for direct employment, in fact the definition for the individual labour contract in the Romanian national law is stated in article 10 of the Labor Code (Codul Muncii2 – in Romanian) - “An individual labour contract is a contract based on which a natural entity, called employee, undertakes to perform work for and under the authority of an employer, who is a natural or legal entity, in exchange for a payment, called salary”. The characteristic criteria for a direct employment relationship as it is stipulated in the legislation, regulations (collective agreements) and case law are: - The work performed- the work is performed for a certain period of time, according to the schedule established by the employer- usually 8 hours per day, 40 hours per week. - The risk for the work performed - the work is exercised for the profit of the employer who takes the risks of the activity. - The salary- for the work performed the employee receives a remuneration called salary. -The subordination of the employee to the employer- “the work is performed under the authority of the employer” according to the Romanian labour code. The Romanian labour code also gives a definition of employee and employer: -Article 14 of the Labour Code defines the employer as follows: “the term employer means a natural or legal entity that may employ, according to the law, labour force based on an individual labour contract”. -Article 10 of the Labour Code defines the individual labour contract and from this definition derives the definition of the employee: “the employee is a natural entity, who undertakes to perform work for and under the authority of an employer, who is a natural or legal entity, in exchange for a pay, called salary”. Genuine self-employment: the (genuine) self-employed are economically-active people, who own their own businesses and provide services to one/multiple beneficiaries/clients; economic activity was defined in a new normative act - Government Emergency Ordinance3 no 44/2008 that regulates the development of economic activities by authorised natural persons, individual enterprise or family enterprise. The self-employed are not the subject of the Labor Code. 2 http://www.codulmuncii.ro/integral.php 3 Government emergency ordinances (GEO) become law after being adopted through regular parliamentary procedure. GEO

Government Emergency Ordinance no 44/2008 only defines the economical activities - “the agricultural, industrial, commercial activity developed for obtaining goods or services evaluated in money and which are destined to be sold or exchanged on organized market or to determined or determinable beneficiaries for obtaining profit”. Such activity can be performed only by authorised persons, or individual or family enterprise. Other shape self employment contracts can take, besides the activities developed by authorised natural persons, individual enterprise or family enterprise (that can be services, commercial activities, production of various goods etc.) is cession of author rights - contract that can be concluded by any natural person (authorised or not) for specific intellectual property rights over a work (when the author transfers them to the other contractual party). The criteria (as it stipulated in the legislation, regulations and also work-contracts and case-law) seen as characteristics for genuine self-employment are, as follows: - the responsibility is civil (not disciplinary like for direct employment); - there is a minimum subordination towards the beneficiary of the work; - there is no fixed schedule; - the benefit obtained is called “remuneration” (instead of “salary” – term used for direct employment); - the time served is not considered as a working period and the self employed person does not benefit of social insurance benefits. Demarcation: the employee works for the benefit of an employer and works under the authority of the employer, being subordinated to the latter one, while the self-employed provides services for the benefit of his/her client and works independently. Bogus self-employment: is a situation of “false” self-employment, it means that the self-employed provides services for (in fact) an employer, not a client/beneficiary and de facto their relation is a relation of subordination (dependent employment): the self-employed does not use his/her own working tools, but the ones of the client/beneficiary, the self-employed does not support the risk of the working activity, the client does, the self-employed doesn’t have the responsibility for the provided services, the self-employed works under management of the “client” who is de facto employer and he/she indicates the place, the time and the criteria for the “business activity” (work) to be performed, so de facto all the conditions and criteria for an employee to work in. In the Romanian national law the phenomenon of bogus self-employment is not mentioned. No criteria, in the legislation, regulations or in case-law have been yet established as indicators that a person is working bogus self-employed. However, in theory, all forms of self-employment that can be encountered in the legal system could be vulnerable for non-genuine (bogus) using: -authorized natural persons to performed economic activities; -individual or family enterprises; -private companies; -intellectual property contracts.


3

Demarcation: while the self-employed is a person providing services for a client, the bogus self-employed is someone who acts as a regular employee, even if the legal basis of the services/work provided is not an employment contract, but a commercial contract. The similarity between the two is the type of contract and the fact that the payment for both is not a salary but remuneration received after filling in an invoice. The specifics of the work provided is what makes the distinction, while the self employed takes the risk for the activity performed for the client, is not subordinated to the client, works with his/hers own tools and the activity is not restricted to a fixed schedule, the bogus self-employed does not take the risk for the work done, does not use his own tools, he/she is subordinated to the client that establish a fix schedule.

The representatives of the National Labor Inspection have stresses that the National Labor Inspection has competence to undertake inspections on employment contracts and undeclared work, even if they do not have specific competences on self-employment. There was one case where the labor inspectors found that a person performed undeclared work, they applied a fine and recommended an employment contract to be concluded between the parties, when the parties concluded a service contract/self-employment, the labor inspection applied a second fine and maintained its initial suggestion for an employment contract to be concluded. This case is currently in court, because the parties contested the labor inspection decision. They did however applied fines and even closed down construction sites because of detecting a large number of workers that were not registered and because they were not included in the heath and safety training.

Undeclared work - the Labor Code stipulates the obligation of the employer to conclude an individual work contract in writing before starting work. If the contract is not concluded in writing, it is presumed that the contract has been concluded for an undetermined period of time. If the employer allows the employees to perform work without concluding an individual employment contract, the worker can requests the employment contract to be formalized in court , the company the work is executed for can in theory be obliged to conclude an employment contract, to pay taxes and social contributions retroactively, and it could also be fined.

However, this situation, according to all parties interviewed, has been encountered in practice.

According to the stipulations of the Labor Code undeclared work is a situation of employment if: - employment contracts and working conditions are not confirmed in writing ; - employee is not registered in the social security system;

According to the representatives of the trade unions both types of undeclared work – with no type of contract or with a contract covering only the minimum salary are massively encountered in the construction industry in Romania


4


5

Undeclared work in the construction industry in Romania takes three forms: a. the worker has no type of contract with the construction company; b. the worker has an employment contract with the company but for a undersized declared salary (usually the minimum legal salary) than the one agreed upon with the employer, and the difference is paid by the later and cashed by the employee as undeclared money. This sum is not declared anywhere by the worker, therefore, no tax or social contributions are deducted from it. c. the worker is in fact a non Romanian citizen holding a tourist visa. Undeclared labour using migrant workers in the construction industry has in the last years made its start also in the Romanian construction industry labour market.

Table 1. Structure of employment in construction sector (2005) Total employment (thousand persons) 507

Employees (%) 80,2

Employers (%) 2,0

Self employed (%) 17,0

Family Contributing member (not remunerated)(%)

0,7

Member of a co-operative (%) 0,1 Of total, women (%) 9,3

Employees (%) 8,9 Employers (%) 0,2

Self employed (%) 0,2 Family Contributing member (not

remunerated)(%) -

Member of a co-operative (%) - Source: Household labor force survey4 (HLFS 2005) 2. The impact of regulation and deregulation in this field. Employment relations are regulated by the following legal regulations: - The Labor Code5 (Codul Muncii - Legea nr. 53 din 24 ianuarie 2003) represents the main legal act defining relations between employers and employees, the health and safety provisions, the labor conditions etc.;

4 http://www.insse.ro/cms/rw/pages/arhivabuletine2008.en.do 5 Adopted through Law 53/2003 - www.protectiamuncii.ro/legislation/legi_in_domeniul_securitatii_si_sanatatii_in_munca.shtml - 42k

According to the recent news in the media in September 2008 some of the big construction companies use Turkish labour force that have a tourist visa to stay on the Romanian territory for 3 months. Informally confirmed by representatives of the construction companies the Turkish workers are recruited via Turkish Agencies that provide Romanian construction companies with illegal labour force that is renewed every three months (the duration of a valid tourist visa).


6

- Law no. 279/20056 on apprenticeship at the work place (Legea nr. 279/2005 privind ucenicia la locul de munca -Monitorul Oficial nr. 907/11.10.2005); - Law no. 203/1999 (republished) regarding the working permit (Legea nr. 203/1999 republicata privind permisele de munca); - Law no. 130/1996 regarding the collective labor agreement ( Legea nr. 130/1996 privind contractul colectiv de munca); The laws that govern self-employment and running of business activity (including in the construction industry) are: - Government Emergency Ordinance no 44/2008 and the Law no 184/2001 concerning the organization and the exercise of the architect profession. According to these laws certain conditions have to be met in order for registering as self-employed. Some activities are forbidden to be developed by the self-employed persons and some of them are subject to certain conditions that need to be fulfilled - as they are shown in the CAEN7 codes. The laws that define temporary employment are: - The Labor Code (Codul Muncii 2004), article 88, which defines temporary employment and the relationship between the temporary human resources agency and the user (employer/client of the temporary work agency); the labor code also on labor force leasing, this law restricts the personnel leasing to two situations: when the rightful employees are in annual/ medical or special leave, or have their contract suspended or when the company (employer) needs temporary seasons labour force or specialized work - Government Decision no. 938/2004 on the conditions for registration of temporary work.

Some of the laws that define employment of foreign workers are: - Law no. 202/2006 on the organization and functioning of the National Agency for Occupation of Labor Force (Legea nr. 202/2006); - Government Emergency Ordinance no. 28/2007 for reorganization of the National Agency for Occupation of Labor Force (Ordonanta de urgenta a Guvernului nr. 28/2007); - Government Decision no.640/2007 for dismantling the Migration of Labor Force office with the Natioanl Agency for Occupation of Labor Force (Hotararea Guvernului nr. 640/2007). The office is absorbed within the agency. - The Government Emergency Ordinance no.194/2002, on the regime of foreign citizens on Romanian territory (Ordonanţa de Urgenţă a Guvernului nr.194/2002,); - The Government Emergency Ordinance no.102/2005 transposing the EC Directive 38/2004/EC on the right to free movement and residence of EU member states citizens and their families - Law no. 56/2007 on the regime of aliens in Romania (Legea nr. 56 din 13 martie 2007) - The Government Emergency Ordinance no. 56/2007 on employment and secondment of aliens in Romania (Ordonanta de Urgenta nr. 56 din 20 iunie 2007).

6 www.inspectmun.ro/Legislatie/LegislatieB/legislatieb.html 7 CAEN codes the classification of all activities within national economy.

http://legislatie.resurse-pentru-democratie.org/130_1996.php

http://legislatie.resurse-pentru-democratie.org/130_1996.php


7

The laws defining subcontracting8 in the construction industry in Romanian law are: - Law no. 145/1999 modifying and completing Law no 114/1996 on interior and

exterior design, works and services subcontracting (Legea nr. 145 din 07/27/1999 si Legea locuintei 114/1996 ).

According to the law previsions services can be subcontracted to companies. In general, in the construction industry the subcontracting is done for accomplishing the working tasks together with the main employer/construction company, or for delivering building materials necessary for work to be accomplished or for providing main contractor with specialist services necessary to realizing the task.

2.1. Self-employment/ bogus self-employment and legislation

The laws that govern self-employment and running of business activity (including in the construction industry) are Government Emergency Ordinance no 44/2008 and the Law no 184/2001 concerning the organization and the exercise of the architect profession. According to these laws certain conditions have to be met in order for registering as self-employed. Some activities are forbidden to be developed by the self-employed persons and some of them are subject to certain conditions that need to be fulfilled - as they are shown in the CAEN codes, as follows: The conditions that are to be fulfilled in order to register as natural person, individual or private enterprise are: a) the person requesting the registration should be at least 18 years of age – for natural persons, that want to develop economical activities individually and independently, or as main founders of an individual enterprise or familial enterprise or 16 years of age – if they are members of a familial enterprise; b) the person requesting the registration has a clean fiscal record, meaning the person did not commit any actions that are sanctioned by financial, customs or financial and fiscal discipline, as the ones that are stated in the fiscal record; c) the person requesting the registration has declared work premises; d) the person requesting the registration fills in a declaration on fulfilling the functioning conditions stated in the law . e) the person requesting the registration provides documents attesting their professional experiences (education diplomas and certificates, professional competence certificates etc.) Regarding to controls on the qualifications when registering as self-employed, the director of the Registry of Commerce has the competency to verify the documents furnished by the applicants. In terms of the status a self-employed can have, these are the following: A self-employed can be one of the following: 1) An authorised person- the payment of VAT is an option up to 30.000 euro, after this threshold the payment of VAT being compulsory. - such person can’t hire someone else for performing the job - he/she is not considered as an employee. 2) Individual enterprise (it is not considered a legal entity);

8 Apart from the subcontracting in the construction industry, subcontracting is also defined in the law on services (including medical), public acquisitions, civil law etc.


8

- the holder of the individual enterprise is considered a tradesman; - the person owning the individual enterprise could hire third parties with individual labour contract. 3) Family enterprise: - it is constituted by two or more members of a family; - it can’t hire third parties with individual labour contract; - it does not have a patrimony and it does not become a legal entity; The members of the family are considered tradesmen. The registration procedure of the self-employed is: - The application has to be filled in to the Registry of Commerce where the applicant establishes a legal headquarter. The necessary documents are the same as for natural persons with a VAT number. The costs and benefits for a company in terms of tax and social security payments when engaging a self-employed worker instead of a direct employee are as follows: - when hiring an employee, the company has to pay taxes to the state in a percent of 26,9% (19,5% social insurances, 6% health insurances, 1% unemployment, 0,4%- the minimum tax- it varies up to 2%- for risks of accidents and professional illness). -when concluding a contract with a self employed person, the company does not have to pay any taxes or social contributions for that person. The disadvantages of self-employed persons in construction concerning social security benefits, compared to direct employees are that they are the only contributors to these social security taxes. The self employed have to fill in a declaration where to choose the amount of money to be ensured (it is not mandatory to ensure up to the total amount of money they receive and/or declare) therefore the social benefits (pensions, health, unemployment) are paid corresponding to the amount of money contributed to the state. The percentage is 29%. They do not benefit of unemployment services unless they conclude a contract with the unemployment agency and pay taxes- the taxes are 1%. In terms of taxes, the income contribution is 16%, same as for the employees. Table 2. Self-employment in Romania: general figures (2005)9

Status of employment Number (in thousands)Total 9147 Employees 5921 Employers 154 Self-employed 1795 Contributing family worker (not remunerated) 1267 Member of an agricultural holding or of a co-operative 10 Source: Household labor force survey (HLFS 2005). The question of bogus self-employment relates to the differences used in the different member states to describe the borderline between a genuine employment and a genuine self-employment. The costs of an employment contract for both the employee and employer are:

9 http://www.insse.ro/cms/rw/pages/arhivabuletine2008.en.do

A. taxes due by the employee: - income tax 16 per cent - unemployment tax - 0,5 percent - pension tax - 9.5 - heath insurance - 6.5 percent B. taxes the employer pays: - accident risk insurance - 0.5 percent - health insurance - 5.5 percent - medical leave insurance - 0.5 percent - pension tax - 19.5 percent - unemployment tax - 1 percent - guarantee for insolvability of the employer - 0,25 percent The tax system that regulates the construction sector is the national system; there isn’t any industry-specific one in Romania. 2.2 Comparison between the rights of the employees and the rights of the self-employed In comparison to the directly employed, the rights which the formally self-employed workers hold are visibly smaller, as they do not benefit of any of the rights in the collective labour agreements. Even though the self employed do benefit from the social security indemnities corresponding to the amount of money declared (pensions), health insurances and periods without working contracts (corresponding to “unemployment”) benefits, they tend not to declare the whole amount of money received and therefore their benefits in terms of pension, health insurance and unemployment are visibly smaller than the ones of the employees. Therefore, it can be concluded that the self employed workers: -benefit partially of social security indemnities: they have to fill in a declaration where to choose the amount of money to be ensured (they are not obliged to ensure up to the total amount of money they receive) and the public pensions are paid corresponding to the amount of money contributed to the state. - do not benefit of unemployment services unless they conclude a contract with the unemployment agency and pay taxes; The self-employed do not have the following rights stated in the collective labour agreements: - annual leave; - any special leave entitlement that the employees might have depending on their collective agreements (bereavement leave, child adoption special leave, child birth special leave, child/spouse sickness special leave, sabbatical leave entitlement, etc.) - right to training and professional specializations covered by the employer; - right to an 8 hour working day with break intervals; - right to be represented by trade union organizations and in negotiation of collective agreements and everything the collective agreements address; - right to participate in labour conflicts and strike when their contractual rights are not respected or any other matters in relation with their employment;


9


10

2.3 Self-employment/ bogus self-employment in the construction sector/ forms that could be assimilated to bogus self employment or at the margins of the law. 2.3.1 Semi-dependent workers The phenomenon of “semi-dependent” employment is not defined or subject to specific provisions or anywhere protected in the Romanian labour law, but in practice there are situations where people are working in conditions similar to a labour contract, however, without having formally concluded such a contract or they perform the activity based on a civil contract being authorised persons or having an individual or family enterprise, when in fact the subordination to the contractor is identical to the one in a typical employment situation. The labour relationships and trends in the construction industry, even though, in theory, the parties have the complete freedom to arrange their contractual relationship and the individual labour contracts have a legal part and a conventional part- subject of negotiation (the legal part refers to rights and obligations of the parties regulated by the law and the parties could only negotiate rights higher than the minimum standard ones stipulated by the law or collective agreement) and it may seem as if the employees would be in a favourable situation due to the law and collective agreements negotiated at national level, branch level or company level which have already stipulated rights in their favour and they could only try to negotiate above these rights, in fact such negotiation is possible only for important position within the companies or for critical positions, as for the rest of the employees (blue colour workers) such contracts are, in fact, adhesion contracts. The civil contracts (the case of self-employees) do not have any restriction and they could be negotiated entirely by the parties, in theory, although, in practice, in the construction industry the working party usually approves such contracts as they are unilaterally made by the employer/contractor and they are not really subject for negotiation10. Regarding the elements/indicators are predominant in determining a labour/direct employment relation, for Romania, it can be said that the intention of the parties to conclude an individual labour contract is essential. The following elements are considered to be of such importance that the existence of a labour contract is a priori included: - the attributes of the work performed- the work is performed for a certain period of time, according to the schedule established by the employer- usually 8 hours per day, 40 hours per week; - the risk: the work is exercised for the profit of the employer who takes the risks of the activity; - the salary- for the work performed the employee receives a remuneration called salary; - the subordination of the employee to the employer - the work is performed under the authority of the employer; - observing all the rights the worker is entitled to according to the collective agreement (annual leave, sabbatical leave, all special leave entitlements, training opportunities, right to be represented by a trade union association etc.).

10 According to the statements people interviewed.


11

The indicator that are considered to be of such importance that the existence of an employment relationship is a priori excluded is the presence of a service contract with all the legal traits of such a contract, both de facto and de jure, that lays all duties and obligations the two parties have in their relationship. There have been few court cases in relation to the employment status of workers; in fact cases in Romanian specialized labour courts refer to the establishment of an individual labour contract. The court examined the intention of the parties to conclude an individual labour contract and, in the same time, assessed the important elements of an individual labour contract: working conditions, salary, working time, location etc. The law in Romania does not contain any presumptions indicating that in certain circumstances or for certain jobs an employment or self-employment relation would be compulsory, nor have there been any instructions developed by the authorities (e.g. social security administrations, the tax offices) or the social partners, as to give indications for making a distinction between employee and self-employed status. There are no official statistics on the number of directly employed and formally self-employed persons in the construction sector. Although, from the interviews led11, it seems that more and more the work of the direct employees is replaced with subcontracting of services agreements, where the main construction company subcontracts a whole work activity in a construction site to a smaller company, which in fact does not provide the materials for accomplishing the given task but only the labour force. This is, in fact not a genuine subcontracting of services contract, but a disguised subcontracting of labour force contract. The contract between the subcontractor and the workers provided is either an employment contracts or none at all (and in this later situation undeclared work is encountered). It is legal, from the point of view of the Romanian legislation to have such a contract between the two companies. It is not checked by the labour inspection or any other state authority weather the work is realised buy the constructor using its own means or the ones of the main construction company. No such contract has been attacked in court for not being a genuine services contract or an atypical labour force recruitment agency type of contract exceeding its legal prerogatives. Considering that in the construction industry the private investments have exceeded the public investments and the crisis in human resources this sectors is confronted with it could be speculated that this impacts on the increase of the number of self-employed. As the bogus self-employed are concerned, it seems that in Romania, this sophistication of undeclared work has not yet earned a place for itself. Still undeclared work is the rule in the construction sector in Romania. More and more construction companies subcontract parts of their work either to specialised construction companies for several; specific activities or to subcontractors that only provide labour force. This can be explained by the will of the construction companies to cut costs (like the ones they have with employing workers), to ease the burden of the dismissal procedure (in case they do not need the workers for longer periods of time) and for not having to pay potential compensatory payments the employees might qualify for, 11 when the institution the representatives making the statement belonds to is not mentioned in the report it is because other witnesses interviewed then the representatives of the social partners have expressed their wish to remain anonymous.


12

training, the costly days when employees are entitles to be on annual and special leave etc. This type of subcontracting can be considered a rather recent development in the construction industry. Its legal version can be considered to be the contract of hiring temporary labour force. This later form of employment is also called personnel leasing, and it describes in fact the work through a temporary labour agent12. In this situation it can be concluded that bogus self employment is encountered, the labour/business relationship between the main construction company and the subcontracting company is a false one, while the labour relationship between the subcontracting company’s employees and the main constructing company (the user) should be a direct employment relationship. The second type of contract that can be considered a form of bogus self employment encountered in construction industry, however at a smaller scale, is the following one: In very few cases, for positions higher on the hierarchy of a construction company than what is called blue colour workers13, like architect, chief engineer or manager, the following labour relationship is quite frequent in Romania: The person (architect, engineer etc) has two contracts with the construction company:

- a. a direct employment contract, for usually the minimum legal salary; - b. a cession of author rights contract, in which the employee transfer his/her

rights for a construction project, report, scientific research etc, to his/her employer.

With this type of contract the employee does not have to be registered as a self-employed. This situation also occurs when a construction company does not declare all that it is paid to the employees and the later ones have an additional part of their remuneration undeclared14. For e.g., in the labour contract it is provided for the minimum legal salary, while the employee receives more from the employer, but the rest is not declared. This practice has been revealed during interviews with several people working in constructions that wish to remain anonymous.

12 An analysis of the personnel leasing can be found in annex 1 to this report. 13 A blue colour worker is the one with minimum qualifications required for construction, for e.g. painter, carpenter etc, according to the industry specific language code used by the persons interviewed. 14 Situation encountered often for blue colour workers, as explained at point IV.7.1 “Undeclared labour in the construction industry”.

What is predominant, however for the construction industry is not this type of bogus self employment but undeclared work; the parties interviewed have concluded that, according to their own experience, bogus self employment is a sophistication that hasn’t yet found its place in the construction sector in Romania.


13

3. Labour and market developments 3.1 Internal context for the employment in the construction industry in Romania/

Romanian migrant workers abroad In Romania, the construction industry was identified to be the one of the industries with the biggest deficit in workers in 2007. According to the Soros Foundation research - "The labour market in Romania and immigration", published on November 20th, almost half of the companies in the sample declared they encountered difficulties when recruiting and employing people and the majority of them expect that this type of difficulties will increase for the future. More than half of the interviewed managers declared they are confronted with serious difficulties in finding qualified available workers for approximately two years. The main cause of this deficit in qualified available workers is considered to be, by 70% of the managers interviewed, the migration of the labour force outside Romanian borders15. 3.2 External context for the employment in the construction industry in Romania A recent survey of the employment services company Manpower shows that Romania ranks first in Europe, the Near East and Africa in the employment intentions for the next three months. Worldwide, the study ranks Romania second to Singapore only, while the smallest employment intentions are to be found in countries such as Great Britain, France, Italy and Spain. The study shows that 43% of the employers intend to increase the number of employees in over the next period of time.

The Manpower study also identifies the fields with the highest employment expectations, among those, the construction industry.

Among the top ten leading sectors are constructions. The secretary general of the

Businessmen's Association of Romania, Cristian Pârvan, stated that the employers are now demanding highly specialized personnel. Among the fields that will rank in the highest number of employees will be constructions.

Overall, the net forecast for employment in the second quarter of 2008 is somewhere an impressive 36%. According to the Manpower Overall Trimestrial Study on employment forecasts, out of the 841 companies interviewed, 43% intend to increase the number of employees over the next quarter. On the other hand, only 7% of the employers expect the employment the drop, while 49% anticipate no changes at all16.

Until the breach of the financial crisis the construction companies estimated an increase of up to 54% of the number of employees.

ore details about the Romanian migrant force can be found in annex 2 to this report. 15 M16 However, it is worth noting that these assessments were made before the financial crisis occurringthe end of 2008.

at In fact, the Construction Employers' Association has announced that it

would massively import labour force over the next period of time, from countries such as China, Bulgaria, Turkey, Ukraine or the Republic of Moldova, i.e. places where wages are much lower than in Romania. Most workers come from China.

All employers answered one specific question: how do you envisage the modification of the total number of employers in your company during the next three months, by the end of June 2008, by comparison with the current quarter. The answers received vary from” an increase in the number of employees” to “a decrease or no new employee at all”.

The main advantage of this solution is that foreign workers come to Romania via

recruiting agencies and have contracts for one or two years, so that there is no risk of them migrating to other companies and they cannot return to the country of origin throughout the duration of the contract.

While these workers come to Romania, the local workforce prefers to go abroad, where their labour is more generously rewarded. In Italy, for instance, a construction worker earns around 1000 euro monthly; a foreman - around 1500, and an engineer - 4000 euro.

In Romania, the expenses incurred by foreign workers are minimal. While a Romanian worker who has returned from abroad will ask for 1000 euro, a Chinese worker will ask for 200 euro tops. With an average of six people accommodated in an apartment, 30 to 40 euros will be spent on rent, with an additional 10-20 for food. Assuming that all these people have the necessary conditions for a decent life, including a translator and a doctor for the whole group of a couple hundred people, it all adds up to 300 euro per worker, and this speaks for itself", adds Nimrod Zvik. „Romania ranks second in a worldwide estimate of increased employment in April-June 2008, on a tie with India and Peru, and outranked only by Singapore, where the expected increase is 60%", stated the representative of Manpower Romania.

Financial crisis puts construction industry "with its back to the wall''. The international financial crisis occurring at the end of 2008 has a direct

impact on the construction industry in Romania, and an indirect one, as well. Thus, besides the fact that it is more and more difficult for companies to obtain financing, Romanian workers who went abroad, now return to the country asking for jobs in this field, in which case there is no question of a crisis in personnel.

According to the Romanian Association of Construction Entrepreneurs (ARACO), the base word in construction industry is prudence. "The main problem of this industry is represented by the availability of financing for next year. There are two possibilities here, as long as financial problems aggravate, some projects will be cancelled for lack of funds, and the investment value will be reduced in the case of others. They would be among the first short-term effects that are felt on the construction market''. Moreover, ARACO representative pointed out that the only way of financing in the construction market, at present, would be the customer's money.

The construction sector, a sector where 423,000 people work, will also "adapt" to a falling market.


14

The ARACO representative also stated that it would be possible that only 370,000 employees remained in the sector, in early 2009. Not only the Romanians working abroad in the construction sector will remain unemployed, but also the employees in Romania. The drop in investments in real estate projects and in the pace of construction will make the number of employees who will enter technical unemployment exceed the figure of 53,000, at the beginning of next year.

4 Cross border employment effects on self-employment and bogus self-employment

In Romania the self employed intending to work abroad legitimately (profiting from social security system and protection rights) have to fill in the E101 form. In order to do that they need to provide the Administrative Commission for Social security of Migrant Workers (CNPAS) the following documents, as to obtain the E101 form. 1. The certificate for fiscal attestation- proving they don’t have any payment duties to the Romanian state. 2. The certificate for the current status of fiscal contribution for the last 12 months. 3. The updated financial record of the authorised natural person (NAP). 4. The registration as authorised natural person certificate. 5. The certificate attesting they function as an authorized natural person. 6. The certificate attesting the sum of the activity as natural authorized person. 7. The working contracts or pre-contract between the Romanian authorized person and the company abroad. 8. The identification card of the authorized natural person. Also, the following details about the independent activity of the natural authorized person have to be provided: registration number, the type of activity according to the CAEN codes, the address of the premises of the NAP, the date when the NAP was registered at the Office of the Commerce Registry, information about the activity that will take place abroad, the period envisaged for working abroad (up to 12 months). The person requesting the E101 form also has to provide the following data about the company the NAP will work for abroad: address, identification number (accompanied by as many details as possible, as to permit the identification of that company). Apart from these details the NAP will have to sign a declaration according to which he/she obliges to: - pay social contributions in Romania for the whole period working abroad; - maintain the authorization to work as a NAP; - maintain the necessary means to again undertake the independent activity in Romania after finishing the work abroad, including in regard to the obligation of paying income taxes due according to the law. - informing CNPAS about all changes that occur during the period of work abroad prior to the deadline when the period expires and to return the E 101 form for changing/cancelling it. As stated at poit 3.1 of this report, The number of the Romanian migrant workers that left Romania through the National Agency for Labour force (ANOFM) decreased after Romania joined the EU. 32.500 Romanians left the country through the ANOFM, this figure is with more than 40% lower than in 2006, according to the


15

statistics provided by the ANOFM. This tendency is explained by the ANOFM officials through the fact that once obtaining the statue of EU citizens, it came easier for the Romanians to find a work contract on their own. 5 Social security and fiscal (tax) developments The employees in the construction industry are subject of the same social contribution regulations and taxes calculation rules as regular employees from other sectors. The only specific regulations for this sector are the ones concerning health and safety norms and technical norms.

6 Abuse of the status of self-employment (causes, consequences, forms of

abuse) The causes of bogus self employment seem to be various if one tries to compare the benefits obtained from practicing this form of labor: From the employer perspective the benefits (that can be considered causes) are: - reducing the labour costs (taxes, social security contribution, vocational training programs, health and safety training/protection, covering for the periods when the employee is on annual or special leave); - gaining a more flexible human resources dynamics - transfer of risk; - avoiding trade unions to defend workers rights, and also avoiding the potential financial loses produced by strikes, labour conflicts etc, - maintaining a privileged position on the market (being able to keep the prices low, because of avoiding all the above mentioned costs). From the perspective of the self-employed: - reducing cost and therefore keeping a bigger amount of income by reducing the mandatory social security contribution one has as an employee. From the perspective of the state: - the state’s benefit form failing to detect bogus self employment and setting things in their rightful place is not having to pay social benefits as it would pay if employees would be entitled to them. The consequences of bogus self employment could be visible in the future for a range of domains related to social benefits, health and safety, vocational training, losses of the fidelity a long term employment ensures, the dedication of the worker that comes with long term employment and the possibility to control qualify, accountable workers. Health and safety: potentially more accidents and professional illness, invalidity because of non-compliance with the health and safety provisions in the case of self-employed. The total number of sanctions taken by the labor inspection for breaches of heath and safety provisions in 2007 was with 29, 6% bigger than in 2007. For the same reason a number of 5691 installations were closed by the labor inspectors in 2007 in


16


17

comparison with 3580 in 2006, 1440 in 2005, and 1414 in 200417. The statistics provided by the labor inspections did not reveal however if these increasing figures are mostly due to the increase of people working on construction sites without a formal direct employment contract. The representatives of the employers’ organizations have stated that the training on heath and safety issues is provided to all workers on a construction site. Vocational training is seldom encountered in regards with the self-employed in the construction industry and it is absent in case of temporary labour force and workers without any type of contracts. Pensions In the construction industry there are no other occupational pension schemes available. Starting with 2007, for all people paying social contributions to the state it became mandatory to register with a private pension scheme, the workers in the construction sector, irrespective of being employees or self-employed, make no exception. In theory self-employment shouldn’t have negative consequences on pension benefits, but in practice the self-employed tend to pay minimum social security contribution and this fact will probably have serious repercussions when these people reach retirement age. It will then be very difficult for them to keep a decent living standard. In the case of Romanian migrant workers working in other EU member states with direct employment contracts and paying contributions to the respective member state it would be interesting to see what system to collect their pensions (especially if they contributed to several member state and the country of origin) is going to be implemented, considering that in most of the member states there are no electronic archives for the national pension system, and, more important, considering that the Romanian national pension system has not yet signed any agreement with the homologous institution from other member states in this respect. No interviewed person was able to explain the use of the E202 form. 7 Prevention and combating measures to tackle bogus self-employment: Except for the inspections led by the National Labour Inspection and the sanction disposed by the labour inspectors, there are no other combating measures that tackle bogus self employment. As for prevention measures, to the extent the sanctions applied will have a dissuasive effect on bogus self employment, no other forms of prevention could be mentioned for Romania. If analysing the fines applied by the labour inspectors following their investigations, checks and controls, it can be concluded that the average of fines given for the absence of an employment contract where case, is not sufficiently discouraging in comparison with the financial benefits of the self employed. On the other hand, in the best majority of the cases the decisions as such, taken by the labour inspectors are contested by the person the sanctions applied to in courts of law and due to the civil procedure provisions the trials are suspensive of execution. Trials also take a long

17 http://www.inspectmun.ro/RAPORT%20ANUAL/RAPORT%20IM%202007web.pdf

time in Romania, and therefore the dissuasive effect of the sanction taken by the labour inspectors has again to suffer. Usually, the inspections undertaken by the National Labour Inspection’s territorial units take place when an employee have claims on their employment relation, when certain rights have not been respected. Also, unannounced controls can take place as to see if workers have legal basis for performing work. Another prerogative of the labour inspectors is to check the treats on construction sites in regards with health and safety norms. There have been numerous cases where higher fines have been applied (up to the equivalent of 24.000 euro) and the construction sites have been closed down, following a control of the Labour Inspection. 8 Conclusions and recommendations

Bogus self employment is still an unfamiliar concept for the Romanian construction industry. It represents a sophistication of the labour market that is underdeveloped, while its ancestor – “undeclared work”- is still far more used. The only two types of "bogus” self employment encountered, at little scale, similar to the ones used to correspond to the term “bogus self-employment” in other member states are: 1. subcontracting, when in fact the main construction company should have

direct employment contracts with the employees or self-employed that work for the subcontractor;

2. cession of author rights contract for the same beneficiary as the employer of the author. The work performed under the session of author rights contract should in fact be accomplished under the direct employment contract.

Both forms of bogus self employment, plus the undeclared work that is registered at larger scale than bogus self employment, as it has been assessed by the interlocutors interviewed are appealing mainly because of the financial benefits they bring. All parties: the workers, the construction companies and the state have to lose, even if it may falsely seem that that have something to gain, as well, from bogus self employment.

- the workers - even if it appears that they get to keep more money, because they do not have to pay social contributions that correspond to the whole amount of wages received, in the long term, their social benefits are diminished or, it may happen that they are deprived from their social benefits, in case they choose not to declare their income and contribute accordingly to income and social taxes.

- the employers – the advantages are that the employer reduces costs- with paying income and social taxes contributions to the workers, with firing them if encountering deficit in activity, with avoiding trade unions to defend workers rights, and also avoiding the potential financial loses produced by strikes, labour conflicts etc, with maintaining a privileged position on the market (being able to keep the prices low, as it avoids all the above mentioned costs). On the other hand, the employer loses the fidelity a long term employment ensures, the dedication of the worker that comes with long term employment and also the possibility to control qualified, accountable workers.

- The state – on the one hand the state wins by not having to pay social benefits as it would pay if employees would be entitled to them, on the other hand the state loses, because many of the people do not declare the entire sums of


18

money received in self-employment services contracts, and therefore the income tax contributions are also lower.

Recommendations:

- it should be stated in the legislation that no other forms of economic relationships can be presumes if in the presence of direct employment indicators, these indications should be clearly stated in the law;

- the labour inspection should start controls especially dedicated to bogus self employment;

- the way the Romanian state collects its income and social taxes from the Romanian workers working in other EU member states should closely be looked into;

- the subcontracting of a certain part of work on a construction site (a false subcontracting of services that is in fact subcontracting of labour force) should, if not genuine, be dissolved and the parties should be obliged to pay the subcontractor workers all their salary and rights retroactively, as if a valid personnel leasing contract should have been concluded instead of a service one.

- a further study should examine how a person working in several member states will be able to collect its pension rights and weather the existent system is sufficiently well equipped to deal with an increasing number of workers that are in this position.


19

Interviews: 1. Dan Cristescu- president FamiliaConstruct Trade Union Federation for

Construction Workers; 2. Emilian Ciongaru- president Romanian Federation of Trade Unions

Hidroconstruct; 3. Eugenia Maria Haida Florian - legal expert; 4. Laurentiu Plosceanu, president ARACO (Romanian Association for the

Construction Sector Entrepreneurs); 5. Adriana Ieftimie – general director, the Employers in the Construction

Industry Association 6. Mariana Silasiu, labour relations inspector, Labor Inspection- Brad Territorial

Office. Sources:

- Tratat de Dreptul Muncii 2006, author: Prof. univ. dr. Ion Traian Ştefănescu; Publisher Wolterskluwer;

- Tratat de dreptul muncii 2007, author: Ticlea, Alexandru, publisher Universul Juridic;

- Dreptul muncii, 2008 author: Radu, Roxana Cristina, publisher C.H.BECK; - Dreptul muncii - Contractul individual de munca 2007, author: Mesesan,

Adriana Georgetta, publisher Albastra; - Codul securitatii sociale. Legislatie tematica 2005, autor: Galca, Costel;

publisher Wolterskluwer;


20

Annex 1: Analysis of personnel leasing/ temporary labor force The Temporary labour contract/ personnel leasing contract establishes that the work is done through a temporary labour agent and it involves three different parties: - the temporary labour agent (the employer); - the temporary employee (the employee hired temporarily by the temporary labour agent); - the user (the firm for whom the work is performed). This kind of work is performed by a temporary employee from the disposal of a temporary labour agent and in favour of a user. The temporary employee is hired by the temporary labour agent who is a specialized firm authorized by the Ministry of Labour. There isn’t any kind of labour relation between the user and the employer in spite of the case that the employee has to perform the job for the user. The legal cases for using personnel leasing by a user, construction company (as well as any other type of company)is restricted in law by the fact that the company/user can appeal to personnel leasing only for performing specific and temporary tasks and only in the following cases: - for replacing an employee who’s individual labour contract is suspended, for the duration of the suspension; - for performing seasonal activities; - for performing specialized occasional activities. There isn’t any kind of sanction for the user in case of disobeying the cases mentioned above. The duration of the personnel leasing (the duration of the mission) is maximum 12 months. This period can be renewed only one time and the total period of the mission is maximum 18 months. If the user benefits from the work of the employee in case the leasing contract has expired it is considered that an individual labour contract on undetermined period of time has intervened between the user and the employee. This is the main sanction that could be applied to the user. Between the temporary labour agent and the user a contract must be concluded which has to refer at least to the following: - the reason for which is necessary to use temporary employees; - the duration of the mission and, if necessary, the possibilities of change of this duration; - the qualification necessary for the job, the place where the mission is going to be performed, the schedule; - the work conditions; - the individual protection and work equipments which the employee has to use; - any other services and facilities in favour of the employee; - the value of the contract and the remuneration to which the employee is entitled. All kinds of clauses stipulated within this contract and which forbids the user to employ the temporary employee is considered null.


21


22

Interdictions: the user can’t benefit of the temporary agent services if he/she intend to replace an employee whose individual labour contract is suspended because of going on strike. The salary of the temporarily employed - On the duration of the mission the temporary employee benefits of a salary paid by the temporary labour agent. This salary can’t be inferior to the salary paid by the user to his/her employees. The temporary labour agent pays all the social contributions and taxes to the state. If the salary or/and the contributions or the taxes aren’t paid by the temporary labour agent after 15 days from them being due, the temporary employee could request these amounts of money from the user. The probation period: within the personnel leasing contract concluded between the temporary labour agent and the user could be stipulation a probation period for the employees as follows: - 2 working days in case of a contract concluded for up to one month; - 3 working days in case of a contract concluded on a period between one and two months; - 5 working days in case of a contract concluded for a duration more than 2 months. The work conditions: the user is hold responsible for providing all the working conditions for the temporary employee, including health and safety training for the specific construction site/work place.

The advantages of personnel leasing: The main advantages of personnel leasing are as follows: - it gives the user a flexible workforce, in fact this could begin and end as the user wishes by a simple request (must be specified within the contract); - usually such employees are already evaluated and it’s not necessary to spend time for recruitment and evaluation; - the accounting is done by the temporary labour agent. The user has only to pay the invoice issued by the temporary labour agent; - the individual labour contract of the employee is concluded with the temporary labour agent and the user doesn’t have to concern about individual labour contracts management (conclusion, modification, suspension, cessation); - immediate replacement in case of incapacity of work indifferent of the cases in which it appears; - at the end of the contract, the user can conclude an individual labour contract with the temporary employee.

Some of the main companies proving such services admit that their clients use their personnel leasing services just to have less worries and for being able to concentrate on their core business. They admit as well that there are some barriers for implementing an effective temporary workforce, but they see plenty of possibilities to make it work and there is nothing what can’t be solved.

From the interviews led it can be concluded that most of the construction companies (users) do include these type of workers in heath and safety training, while a small percentage of them to rely solely on the held and safety training that they pretend the subcontractor should accomplish (even if on each construction site the heath and safety problematic is particular and individual and should be death with consequently).

The cost of personnel leasing The costs of personnel leasing are as follows: - the salaries of the employees (the salary includes all the benefits provided to similar employees own by the user- as example: seniority benefit, supplementary work benefit, lunch tickets etc); - the contributions and all other taxes to the state; - labour medical services; - working conditions; - individual equipments for protection and work; - any other bonuses accorded to user’s employees; - a fee which varies form 10 to 20 percent applied to the amount of money specified above. The main company proving personnel leasing in Romania are the following: - MANPOWER; - LUGERA&MAKLER; - ADECCO; - HR PROFESSIONAL.

The interviewed parties stated that in practice, however, in the construction industry it does not happen often that a typical contract for temporary personal leasing is concluded, but instead a services contract between the construction compact and subcontractor, that does not, in fact, accomplish the whole service task (for e.g. to lay the foundation of a building) but only provides the labour force to do that.


23

Annex 2: Romanian migrant workers The trade unions in Romania signed protocols with the trade unions in the member states where Romanian workers are posted, under the coordination of the Social House of the Constructor, as for their all rights to be recognised starting with 2003. Such a protocol was concluded for Italy first and then for Spain, France and Greece, between the FeNEAL UIL trade union federation of Italian builders and FamilaConstruct- the Romanian Federation of Builders.

The representative of the Romanian Federation of Builders, FamiliaConstruct, has stated during the interview, that the Italian construction companies pay the Romanian workers all rights, from social security taxes to the average salary in economy in Italy (between 1.500 and 2.000 de euro). All workers with valid legal forms are entitled to receive these rights. Unofficially, in Italy work approximately 35.000 Romanians in the construction sector, most of them practice undeclared work, only 9.250 of them work legally. The Romanians that wish to perfect their working skills in the construction sector in Italy can follow the classes of the Italian School for Constructors, within a project set in place by the FeNEAL UIL trade union federation of Italian builders and FamilaConstruct- the Romanian Federation of Builders and coordinated by the Social House of the Constructor.

Most of the Romanian migrant workers in 2007 went to Italy, Spain or Germany, keeping the tendency from the last years, even if these states decided to apply restrictions for the Romanian workers once Romania has joined the EU. The number of the Romanian migrant workers that left Romania through the National Agency for Labour force (ANOFM) decreased after Romania joined the EU. 32.500 Romanians left the country through the ANOFM, this figure is with more than 40% lower than in 2006, according to the statistics provided by the ANOFM. This tendency is explained by the ANOFM officials through the fact that once obtaining the statue of EU citizens, it came easier for the Romanians to find a work contract on their own. Approximately 15.000 Romanian migrant workers left the country through private agencies. The main destination countries are, according to the data obtained from private agencies, Italy and Spain, but also UK, Cyprus and Ireland.

The representative of one of the private agencies for placement of workers abroad stressed that many EU countries are confronted with lack of qualified and unqualified labour force, therefore more than half of the EU member states have decided the gradual opening of the labour market for the countries last joining the EU, leaving free access only for some qualifications and temporary work in agriculture.

The majority of the EU member states that have imposed restrictions to the Romanian migrant workers in 2007 have kept them for 2008, as well. From the 15 member states (Germany, the UK, Ireland, France, Hungary, Austria, Belgium, Italy, Greece, Denmark, Spain, Luxemburg, the Netherlands, Portugal and Malta), imposing restrictions for the Romanian migrant workers, Hungary was the only one that


24

announce early 2008 the liberalization of the labour market for the Romanian workers, Austria relaxed the conditions for obtaining a work permit and the UK reserved the whole segment of workers in agriculture for Romanians and Bulgarians and also for the activity domains where there is a deficit on the labour market Romanians access is permitted; for all the other sectors Romanians do still need an accession worker card that they must obtain before employment. However they can work as self employed, and this could be encouraging bogus self-employment as few of the Romanian working abroad as self employed in the construction industry are genuinely self employed, but are often registered as such either because of the restrictions against them taken by the respective member state. Italy partially opened the labour market for Romanian workers in 2007, and maintained the same regime for 2008. Free access was given to workers with high qualification in a range of sectors among with constructions. As for the other sectors and types of workers, an authorization is needed form the Unique Office for Immigration, this authorization is issued through a simplified procedure. France also imposed restrictions for the labour market in regard with Romanians, these restrictions being similar to the ones used since May 1st, 2006 for the countries joining the EU in 2004. For Romania, the restrictions refer to a list of 62 professions and trades divided in 4 big categories: - constructions, restaurants and hotels, agriculture and industry – maintaining as a prerequisite the obligation of getting a work authorisation. According to ANOFM, France plans to extend the current list to 150 trades (the order is already approved and will be published in the French Official Journal). Spain imposed in January 2007 restrictions for two years, however in October 2008 Spain decided to increase the restrictions and formalized a decision according to which 35% of the migrant workers will have to cease their work as for the vacancies to be distributed to Spanish workers. Portugal followed the Spanish example and imposed restrictions for a period of two years. Germany also limited the access of Romanians to the labour market and during the period when these transitory measures are applied the Romanians continue to need an approval for work prior to starting the work activity. This approval is issued in principle in the form of a work permit and it is limited to 1 year. Belgium, Greece, Denmark, Luxemburg and the Netherlands have also imposed transitory measures for Romanians to access their internal labour market for two years, usually similar to the ones applied for the countries that joined the EU in 2004 and with simplified rules of obtaining the working permits, probably due to the lessons learned in the previous enlargement step. In Ireland, Romanian migrant workers continue to need working permits the restriction being envisaged for two years, with the possibility for revision prior to this deadline, depending on the evolutions of the labour market In Malta, all foreigners need a work permit for being able to access the labour market and accomplish lucrative activities. Romanian migrant workers need to identify an employer that will request on their behalf the issuing of their working permits; subsequently, the Office for Work permits evaluates the request considering the labour market developments in Malta for deciding to issue or not the respective work permit. According to the Accession Treaty with Romania, the old member states can limit the free movement of workers from the new member states for a period of maximum


25


26

seven years. This transition period was divided in three distinct phases, the so called 2+3+2 formula. Except for migration, other causes identified as causing the deficit on the Romanian labour market in the construction industry are the lack of satisfactory qualification, competition and the level of salaries. The research reveals that the deficit in personnel is approximately 16% for 2006 and 2007. The legitimate question would be: how is this deficit being covered in the construction industry – speculation could be made on undeclared work or bogus self –employment. Regarding the weight of the deficit in personnel compared to the volume of new employment, in the construction industry, the rate appears to be 10%. The research indicates that the quota of personnel fluctuation (number of employees that left the employment during the year) was more than 20% for more than 35% of the companies in the construction industry.

Documents

Self-employment and bogus self-employment in the …efbww.org/pdfs/annex 16 - final report romania.pdf · Self-employment and bogus self-employment in the European Construction Industry