Foreign labor, underpayment, and the shadow economy have recently been given more attention. The news has reminded the construction industry of how important it is to keep your eyes open and address any shortcomings you notice immediately. There are many effective tools for rooting out abuses.
The construction industry is far from the level of previous years, but many construction sites, especially in Southern Finland, still rely on foreign labor.
According to the Construction Industry Federation's (RT) workforce survey, for example, more than a third of workers on building construction sites in Uusimaa come from abroad. Elsewhere in Finland, the share of foreign builders is around ten percent on average.
According to statistics received from the Finnish Construction Industry and the Finnish Construction Federation by the Tax Administration, on average one in five people working on construction sites is a foreigner. This ratio has not changed during the downturn.
Previously, workers from the Baltics and Poland in particular seem to have returned to work sites closer to their home countries. However, they have been replaced by workers from third countries outside the EU, such as Kosovo, Kyrgyzstan, Uzbekistan and Ukraine.
This group is also more vulnerable to abuse and outright extortion, as they often lack sufficient knowledge or understanding of local labor laws, employer responsibilities, or employee rights. They are also afraid to ask questions if they are threatened with losing their job and returning home.
Negligences often occur at the end of contract chains
Most often, abuses are related to the neglect of employees' statutory obligations, such as pension, accident and unemployment insurance contributions. In practice, this means undeclared work, underpayment and employment discrimination or unauthorized foreign labor.
The most recent mitigating phenomenon is light entrepreneurship, which can cause premium levels to fall well below recommendations. At the same time, accident or YEL insurance policies are also not taken out when the light entrepreneur's income is not sufficient for them.
According to statistics, abuses are most common in small and unorganized companies. The highest number of cases is in Southern Finland, where construction is also the busiest.
Construction Industry RT Building Construction Industry Uusimaa Regional Director Ville Wartiovaaran According to the report, the problem is also encountered elsewhere in Finland, especially in larger construction projects.
"Amidst all the commotion, it is good to remember that the majority of companies fulfill their obligations according to the articles. However, seamless monitoring of labor-related exploitation in contract chains is challenging. For example, the legislation does not directly give the main contractor or the client the opportunity to check the correctness of the salary or the payment of overtime compensation," Wartiovaara states.
The theme is also central to RT's industry-wide responsibility program, which emphasizes, among other things, a healthy and safe working environment, ethical principles, and the prevention of abuse throughout the entire production chain.
"The goal is zero tolerance for discrimination, harassment and inappropriate treatment. At the same time, the responsibility of everyone working in the construction industry is emphasized. Observed shortcomings must be addressed and the message must be conveyed. Warning bells must also ring on the client's side at the stage when an offer seems significantly more advantageous than others," Wartiovaara emphasizes.
Tools for more efficient use
Efforts have been made to curb the grey economy and abuse of foreign labor in the construction industry through increasingly strict legislation.
The overall situation has improved compared to previous years, but at the same time, operators who disregard the rules of the game have become more innovative.
Several measures have already been introduced in the construction sector to combat the grey economy and labour abuse, such as:
- employee tax number
- the main contractor's obligation to report employees working on the site
- an up-to-date list of employees working on the construction site kept at the joint construction site
- the customer's obligation to report the contract sums paid
- expanding the reporting obligation according to the Subscriber Liability Act
- the main contractor's extended supervision obligation in supervision of the right to work
- advance notification to the authorities and the main contractor about the workforce to be sent to Finland from abroad
- Reverse VAT liability in the construction sector.
The Employers' Confederation of Finnish Construction Workers and the Workers' Confederation of Finnish Construction Workers are working closely together to combat this. Examples of this include the tax number of the ID card found on the list, advance notification of workers sent to Finland from abroad, and reporting obligations to the Tax Administration, the introduction of which the organizations actively promoted.
Next on the industry's wish list is an employment/employment contract register, which is commonly used in Europe. This would allow authorities to determine the employer based on the employee's personal data.
"There are tools to combat it, and now they need to be properly implemented in companies. Internal control, supervision and sanctions must be tightened for employers who violate their obligations. It must be made clear to everyone in the production and supply chains that there is zero tolerance in these matters. It is worth fixing processes and operating methods now, when the economic situation is calmer and there are fewer foreign workers on construction sites," Wartiovaara emphasizes.
The Construction Union on the same front
Senior expert at the Finnish Construction Association Toni Malmstrom is largely along the lines of Wartiovaara. The rules of the game and responsibilities between the main contractor and its direct contract partner are usually clear. However, they become greyer as the subcontracting chains become longer and more complex.
The situation at construction sites has improved, for example in terms of access control, but even that is not without loopholes.
"The personal identification number with the tax number must be visible at all times. You should also always use the card to stamp yourself in and out of the construction site. Those in an employment relationship must have their own employer's information on the card, not the contract partner's. There are difficulties in ensuring this, and even the card supplier is not able to do it," Malmström states.
He acknowledges that this development requires an attitude, stricter supervision and seamless cooperation with other construction site operators, especially from main contractors.
Reporting channels are important, but they alone do not solve the problem. In addition, an atmosphere must be created where there is no fear of the consequences of reporting.
"Many foreign workers are also suspicious of the authorities, as they are not trusted even at home," Malmström reminds.
The already mentioned employment contract register would help with the problem of light entrepreneurship, among other things. In addition, the Regional State Administrative Agency would need sufficient resources for inspections and the authority to impose proper sanctions. The overall liability of the main contractor would also curb chaining and remove unnecessary “front companies” from the chain.
"If the entrepreneur's hourly billing is 30 euros, then the client must also understand that some obligations are being compromised. At the current rate, the construction industry is sawing off its own branches, as labor abuse is a bad reputation and gives organized crime a foothold. You can start a behavioral movement with the Construction Information's instruction card (Preventing labor abuse in the construction industry), which the Finnish Construction Federation and RT were preparing last year," Malmström advises.
The taxpayer and the state need their own
The Tax Administration has also observed that financial crimes that have been uncovered in recent years are increasingly related to labor-related exploitation and fake and forced entrepreneurship.
Disguising an employment relationship as entrepreneurship has become more common, especially in the construction industry, but it is also spreading in the cleaning industry and car repair shops.
In addition, tax fraud is more international and complex than before, and it increasingly targets small businesses. On the other hand, statistics and detected cases suggest that supervision has become more effective and cooperation between authorities has improved.
The tax authority's responsibility for supervision includes, among other things, notifications related to the construction disclosure obligation and notifications regarding salary payments. These can be left unprocessed and, in the worst case, salaries may not be paid at all.
"If the information does not match, we can carry out an inspection visit. We also carry out spot checks with other authorities, such as the Finnish Centre for Pensions and the Occupational Safety and Health Authority," Chief Inspector of the Tax Administration Anne Andstén says.
Like Wartiovaara and Malmström, he states that the control system is not without loopholes. For example, the obligation in use in Estonia and Greece to report information about employment to the authorities would increase transparency and, in particular, reveal hidden chaining.
It also does not necessarily reveal the final "payer", as most often only the name of the company providing invoicing services would appear in the register.
"Ultimately, this is a common issue for everyone. Underpayment and abuse also reduce the state's tax revenue," Andstén reminds.
Text: Timo Sormunen