The percentage of part-time contracts is 16%, lower than the European average of 19.9%. The difference, however, is that such contracts are real in other countries, while in Romania they are used to avoid paying certain taxes.
There were 5.6 million active contracts in Romania’s economy at the end of last year, and employers paid taxes and social security contributions on time for 5 million employees (one employee may have one or more contracts). However, looking at the same time in 2012, the statistics of the Labor Inspection Department show the labor market was flat in 2013. The number of employees rose by fewer than 33,000 people, while the number of employment contracts rose by only 73,000.
The trend of the number of employment contracts ranked by work time (full-time, eight hours a day and part-time of at least two hours a day), reveals an alarming situation: more than 940,000 are part-time contracts, and 70,000 of them were the ‘new’ contracts signed in 2013.
There are several explanations to this, experts say: either part of the full-time contracts turned into part-time contracts (so employers could avoid paying taxes and social security contributions), or the new people who joined various companies signed only part-time employment contracts. Some people may have taken a second job, hence the part-time contracts.
“I am appalled by what is going on right now. Everywhere possible you are asked whether you want an invoice for the product you buy or not,” said an expert of a company providing accounting services to other local businesses.
“As for employment contracts, companies, especially those in the manufacturing business, pay their full-time employees via part-time contracts. I know of a catering company that shifted all its employees to six-hour/day contracts and of a hair styling salon chain where all employees work under four-hour contracts, get paid the minimum wage [under the contract] and the rest is paid cash in hand.”
The expert believes a small business cannot ‘survive’ if it pays all the taxes, which is why it resorts to all sorts of solutions to avoid payment thereof.
An average net wage of 1,600 lei (EUR353) as recorded in October 2013, according to the National Statistics Institute data, entails a total of cost of RON2,890 (the wage plus taxes and social security contributions) for the employer.
If an employee agrees to have the work day halved on paper and get paid legally a net average wage of RON800 and the remaining RON800 as cash in hand, the total monthly cost for the employer drops to RON2,189, which means almost 25% savings.
“What we call ‘gray employment’ and is a rather frequent phenomenon in Romania is not the fixed-term or part-time employment but the fact that [employers] pay the minimum wage under the contract and the rest as cash in hand,” says Sorina Donisa, country manager of part-time employee leasing company APT.
“Unfortunately, Labor Inspection Department inspectors cannot penalize employers doing this, which is why the solution has to come from employees, they have to report it.”
Moreover, almost 1.5 million people were informally employed in 2012 and informal employment ended up costing the government more than EUR4.1 billion in lost taxes and social security contributions for hidden work per year, Fiscal Council experts calculated.
Although the labor legislation has improved, offering a greater flexibility since May 2011 when the new Labor Code was enacted, and labor inspectors were given greater power (may recommend prison sentence for managers of companies with more than five informal workers), informal employment has not been significantly curbed.
The high taxation, as well as the increase in the minimum wage from RON700 to RON800 in gross amount per month in 2013 and from RON800 to RON900 by the end of 2014 makes employers looking to avoid paying taxes resort to all sorts of illegal solutions to keep their businesses afloat.
However, job seekers most often are asked to agree to fixed-term contracts (several months at a time), which may later be extended. (EUR1=RON4.5290)
(English version by Loredana Fratila-Cristescu)