Undeclared labour can be expensive!
Characteristics of undeclared labour:
No employment contract, or a contract for undeclared work -
ATTENTION = INVALID!!!
Money is paid out in cash; no pay slip is issued.
You have not received an insurance card from your health in-
You do not have a social security number and/or tax number.
Consequences of undeclared labour for
employees and fictitiously self-employed persons:
No contributions to health insurance = You are not insured in
the event of illness!
No contributions to social security insurance (unemployment and
pension insurance) = no entitlement to unemployment benefit
(ALG I) or social welfare benefits; little or no future pension
Wages or fees are not taxed = tax evasion = criminal procee-
dings may be initiated!
No entitlement to file claims against employers or clients
What is undeclared labour?
Undeclared labour is characterized by the fact that the
is performed for re-
muneration without being registered with an
authority or insurance company
As a rule, workers are paid in cash and no receipt or other proof of employment is
Employers supposedly benefit from such arrangements because they save on
and social security contributions
and because no one checks to verify compli-
ance with the statutory provisions of labour law. Undeclared workers receive their
wages immediately and without tax deductions.
Both parties run a
considerable risk! Undeclared labour is illegal
and is consid-
ered a misdemeanour, at the very least, and in many cases even as a criminal of-
fence. There is also
no valid employment contract
, which means that neither
employers nor undeclared employees are entitled to assert legal claims against
the other party.
Example: If the employer does not pay the promised wage after the work has been
performed, the undeclared worker has no way to demand it
by legal means
can the worker compel the employer to take precautions in the interest of work
Undeclared labour also has disadvantages for the employer. For example, the em-
ployer cannot demand compensation for damages resulting from work performed
by the undeclared worker.
German Law Against Undeclared Labour and Illegal Employment
(Schwarzarbeitsbekämpfungsgesetz, SchwarzArbG) took e ect on 1 August 2004.
The term undeclared labour refers to the performance of work in
, to include:
violations of tax laws - tax evasion
violations of social security law
non-compliance with the obligation to notify authorities and social welfare
failure to register a trade
absence of an entry in the register of craftsmen
The statutory provisions on undeclared labour described above (§ 1 Para. 3 Schwarz
ArbG) are subject to certain restrictions.
Services or work performed for relatives, as a courtesy, for neighbours or as self-
help measures and which are not aimed at making
, are not regarded as un-
declared work and are therefore not illegal. If only a
for the work performed, the requirement of the absence of profit orientation is
regarded as met in the eyes of the law. If you do voluntary work for family mem-
bers, friends, neighbours or colleagues without expecting any remuneration and
they pay you
a small amount of money
as an expression of gratitude, then it is
not undeclared labour.
There is no limit to how high remuneration may be. Generally speaking, however,
remuneration that is significantly lower than the economic value of the work per-
formed is more likely to be viewed as evidence of the absence of profit orientation
and therefore does not fall under the definition of undeclared labour.
Fictitious self-employment as a special form of
We speak of so-called fictitious or bogus self-employment when a person per-
forms independent work or services for another company under the terms of a
corresponding contract, but actually performs non-independent work within
the context of an employment relationship. Many freelancers and self-em-
ployed persons are actually fictitiously self-employed – and do not know it.
This can have costly legal and other consequences.
If the authorities determine that you are working as a fictitiously self-employed
person, you will be subsequently classified as an employee. The client must then
pay all social security contributions and income taxes retroactively for you. You
will have to pay your share of social security contributions yourself (up to a max-
imum of 3 months). You may then have to pay a fine, and your client may even
face a very high fine.
Self-employed people are their own bosses. Unlike employees, they do not receive
instructions. They are paid to do a certain job and not for the hours they work.
They negotiate the price for their work with the client. They decide for themselves
when to go on holiday. They do not receive holiday pay or sick pay from their clients.
Self-employed people are required to issue invoices; they maintain their own
business premises, they have to buy their own tools and working materials, and
they also take care of transport.
If you suspect that you are employed as a fictitiously self-employed person or are
not sure of your status, you should go to an Advisory Center!
More information on this subject is provided at:
Accident insurance coverage for undeclared labour
Employees are covered by statutory accident insurance pursuant to § 2 Para. 1 No.
1 SGB VII. This also applies if the employee performs undeclared labour in the
However, undeclared labour is ordinarily not performed within the framework of
a dependent employment relationship. In the vast majority of cases, undeclared
workers are not employees of the client, but work for the employer on the basis of
a general or independent service contract.
However, undeclared labour in the form of self-employment is generally not
covered by statutory accident insurance
. The employers‘ liability insurance asso-
ciations primarily a ected by undeclared labour in particular those in the con-
struction industry, insure self-employed persons (entrepreneurs) against occupa-
tional accidents and occupational illnesses only on request.
Undeclared workers receiving Hartz IV benefits:
obtaining social security benefits by way of fraud
Anyone who receives Hartz IV benefits and engages in undeclared labour is guilty
of benefit fraud. Hartz IV recipients may be fined for benefit fraud if they are en-
gaged in undeclared labour. Hartz IV is a social security benefit which is intended
to ensure a basic level of security for people whose income is not su cient to
cover their basic needs. Therefore, recipients of this benefit are obliged to
all income to the Job Center
Anyone who performs undeclared labour and conceals the resulting income in
order to obtain Hartz IV is liable to prosecution. § 263 StGB (German Criminal
provides for a fine or imprisonment of up to 5 years
for persons found
guilty of doing so. In addition, the recipient can ordinarily expect that the benefit
will be discontinued or reduced.
Undeclared labour is performed not only by unemployed and self-employed per-
sons. Many employees also work “on the side” in addition to their regular, legal
jobs in order to supplement their income. If, however, the employer learns that the
employee is performing such undeclared labour, the employer may be justified in
dismissing the employee. This is possible, for example, if the undeclared labour is
performed for a competitor of the employer.
The following types of employment are considered illegal:
the employment of foreign nationals without the required residence and
work permits and the employment of such foreign nationals under less
favourable working conditions than comparable German employees (
employment of foreign nationals
Note: Since 28 August 2007, self-employed third-country nationals have also
been required to obtain a residence permit entitling them to engage in this gain-
employment without payment of the minimum wage in accordance with
the Minimum Wage Act (MiLoG), the Employee Posting Act (AEntG) or the
Temporary Employment Act (AÜG), or in the absence of compliance with
the provisions of the AEntG regarding minimum working conditions (e. g.
leave entitlements, holiday fund contributions);
the illegal provision of employees to third parties (
illegal agency work
provision of temporary workers to third parties always requires a licence
and providing construction firms with agency workers is prohibited.
The duties and requirements set forth here, the monitoring of which is the respon-
sibility of the Customs Administration, are not based on the Undeclared Labour
Act, but on other statutory provisions, such as the Social Security Code, the In-
come Tax Act, the Trade Code, the Residence Act, the Minimum Wage Act, the
Posting of Workers Act and the Temporary Employment Act.
Where can I report undeclared labour?
Your point of contact in cases of undeclared labour or illegal employment is the
Financial Control of Undeclared Work Department of the
Customs O ce
, to which you can report possible cases of undeclared labour in
writing or by telephone.
In principle, your name and your statements are subject to data protection regu-
lations, which means that your data may not be passed on without your consent.
Of course, you may also provide information anonymously.
The fight against undeclared work and illegal employment requires support from
various other agencies. The following authorities and sites are obliged to cooper-
ate with each other - tax authorities, Federal O ce for Goods Transport, Federal
Employment Agency, health insurance funds, pension insurance institutions, Em-
ployer‘s liability insurance associations, trade authorities, social welfare o ces,
competent authorities under the Asylum Seekers Benefits Act, foreigners‘ o ces,
Federal Network Agency, police enforcement authorities of the federal states,
occupational health and safety authorities, Ordnance departments.
What does Customs seek to verify?
Among other things, the employees of the Financial Control of Undeclared Labour
O ce of the Customs Administration check to determine whether
employers have correctly registered their employees for social security;
social security benefits, such as unemployment benefits I and II, have been
obtained under false pretences;
employment certificates or supplementary income certificates have been
foreign nationals are not engaged in gainful employment without the
foreign workers are employed under less favourable working conditions
than comparable domestic workers,
employers are complying with laws regarding working conditions, such as
the obligation to pay the minimum wage in accordance with the Minimum
Wage Act (MiLoG) and the industry minimum wage according to the Em-
ployee Posting Act (AEntG) as well as the minimum wage limit as set forth
in the Employee Lending Act (AÜG),
there are indications that taxpayers have not met tax obligations arising
from services or work performed, such as payment of wage and value-
Customs performs unannounced checks without reference to suspected violations.
It also takes past periods into account.
Documents which must be presented by employees and self-employed persons:
identity cards, passports, replacement passports or ID cards
for foreign nationals: passports, passport and identity card replacements,
residence permits, temporary exemptions from deportation, certificates of
temporary permission to remain in Germany
Employer must provide proof that they have informed their employees in writing
of the obligation to carry and present their identity cards, passports or replace-
ment passports and/or identity cards. Said notice must be kept for the duration of
the service or labour performed and presented on request.
Minimum wage violations?
The Customs Administration is responsible only for prosecuting your employer for
minimum wage violations. You must take legal action to enforce your claim for
payment of the minimum wage.
If employers do not provide their employees the working conditions required by
law or collective agreements in accordance with the Minimum Wage Act (MiLoG),
the Employee Posting Act (AEntG) or the Temporary Employment Act (AÜG) or
working conditions based on regulations issued for the health-care sector,
employees may assert their claims against their employers in court. Employees
can file claims with the Labour Court for that purpose.
If, as a contractor as defined in § 13 MiLoG or § 14 AEntG, the employer has been
commissioned by another entrepreneur (client) to provide labour or services, em-
ployees may also assert their claims against their employer’s client before German
labour courts on the basis of the statutory provisions regarding guarantor liability.
The right to take legal action does not apply only to German employees. Employ-
ees who have been posted to Germany may also file claims for compliance with
working conditions in accordance with collective agreements as set forth in the
AEntG or the statutory provisions of the MiLoG. Such action can be filed against
employers based abroad or against their clients. Claims are admissible only as
they pertain to periods of employment in Germany.
Further information on the subject of undeclared labour and illegal employment
is provided at
This is how you can reach us:
Counselling center in Dresden
Schützenplatz 14 (1st floor), 01067 Dresden
Phone: +49 351 85092728
German, Slovak, Polish,
Phone: +49 351 85092729
Counselling center in Leipzig
Listhaus Leipzig – Rosa-Luxemburg-Str. 27
(ground floor), 04103 Leipzig
German, Polish, English
Phone: +49 341 68413085
Phone: +49 341 68413086
O ce Management Dresden and Leipzig
Phone: +49 351 85092730
This publication contains general information in-
tended for your guidance. No guarantee can be given for the accuracy
of any information provided herein, nor can any legal claims be derived
on the basis of the contents of this publication.
The counselling center for foreign employees in Saxony (BABS) is
an initiative of the Saxon State Ministry of Economic A airs, Labor
and Transport and is financed from tax funds on the basis of a
resolution passed by the members of the Saxon State Parliament.
BABS – Counselling Center for Foreign Employees in Saxony
Schützenplatz 14, 01067 Dresden, Germany
Phone +49 351 8509 2730
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