Illegal employment

What it means

Illegal employment, under the act on illegal work, is a situation where a company uses a person’s dependent work without a proper employment relationship, without registering them with the Social Insurance Agency before work starts, or uses a foreign national without the required permit.

Dependent work is work in a relationship of superiority and subordination, on instructions, during working hours, for wages and at the employer’s responsibility. If work has these features it must be done under an employment contract or one of the work agreements, not through a trade licence, which is known as the Švarc system.

Both employer and worker face sanctions. The company is fined, with statutory amounts running into thousands or tens of thousands of euros and a higher minimum where several people are involved, and the worker can be fined for illegal work. The breach is published in a list kept by the labour offices.

How it works in practice

When a new person starts we watch the order of steps: first the signed contract, then registration with the Social Insurance Agency, and only then the first working day. For clients who hire students on work agreements we prepare a simple procedure so that registration is never late, even when someone steps in at short notice.

When employing foreign nationals we check that the worker has a valid work permit or temporary residence for employment, and that the duty to notify the labour office has been met. We archive copies of the documents, because inspectors ask for them on the spot.

We assess work with self-employed people by its real substance, not by the title of the contract. If a contractor works only for one client, with that client’s tools and to its schedule, we suggest changing the arrangement before the labour inspectorate does it for the company.

What to watch out for

A fine is not the only consequence. A company penalised for illegal employment cannot receive a grant or state aid for a statutory period and is excluded from public procurement, which for many companies does more damage than the fine itself.

Inspections are carried out by labour inspectorates together with labour offices, often unannounced and directly at the workplace. One person working their first day who is not yet registered is enough to put the company on the list. Registering the day before is therefore the cheapest prevention.