The shadow economy distorts competition and weakens the position of employees, the legal protection of customers and society's tax collection. The construction industry has been working to combat the gray economy for a long time.
Financial crime and the gray economy connected to it reduce the opportunities for honest companies to operate and provide employment. An actor who avoids his obligations evades taxes and tax-related payments. Economic criminals are not interested in quality, and there is no guarantee certificate for the work. Employees, on the other hand, are at risk of being exploited.
The person ordering the construction contract and the contractor have an obligation to combat the gray economy. The obligation is based on both legislation and an agreement between organizations representing customers and contractors.
Many methods are used
During the last few years, many internationally progressive methods have been introduced in Finland to combat the gray economy, for example
- 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
- reversed VAT liability of the construction industry
We have actively participated in the preparatory work and are strongly committed to combating the gray economy in the industry. For example, the tax number, the advance notification of the workforce to be sent and the notification procedure are based on a joint initiative of the Construction Industry and the Finnish Construction Association. In connection with the reform of the Aliens Act, the obligation to monitor the right to work of construction site workers was extended to all labor, specifically at the proposal of the Construction Industry.
The industry has created its own practices
The industry itself has also created many practical means, such as pictorial identification (Valtti card), site-specific access permits issued at the construction site, and in cooperation with several Vastuu Group Oy (formerly Suomen Tilaajavastuu Oy) services. They make it easier, for example, to report to the Tax Administration and to make statements in electronic form under the Subscriber Liability Act.
Vastuu Group's Supervisor service simplifies keeping information according to the Customer Liability Act up to date and makes it easier to check it for the entire contract chain.
The construction industry also has ethical principles and common ethical guidelines for construction sites and production facilities. RT's member companies are committed to complying with good construction and contracting practices, the industry's general rules of the game, and the provisions of collective agreements.
Supervision of contract chains is challenging
Long contract chains in the construction industry make eradicating the gray economy difficult, as it is difficult to control them. The main contractor has a contractual relationship only with its own, direct subcontractors.
The content of contracts made within the contract chain is not public. The main contractor has no legal right to receive information from the subcontractor that could be used to monitor the payments made by the subcontractor (wages, employer contributions, taxes).
The main contractor or the work orderer in the contract chain cannot access the salary or working time information of a subcontractor's individual employee without the latter's separate permission. Therefore, the client of the work cannot monitor whether the salary standards according to the collective agreements are followed, unless it has required in the contract documents that each employer in the contract chain obtain written permission from the employees to provide the above-mentioned information before starting the work.
In connection with the site orientation, the main contractor may require the employee to be familiarized with the site to obtain the right to inspect information related to the employee's salary and working hours.
The customer or the main contractor can also limit the length of the contract chain by contract and require the approval of subcontractors.
Gray economy in the construction industry
The construction industry is prone to the gray economy due to long subcontracting chains, international operators and a mobile workforce.
According to the definition of the Tax Administration, the gray economy means the avoidance of statutory obligations, i.e. taxes, statutory pension, accident and unemployment insurance premiums or customs duties and, among other things, the neglect of various registration, notification and payment obligations.
In practice, it is seen, for example, as violation of business prohibitions, employment pension insurance fraud, undeclared work, underpayment, employment discrimination, or the use of unauthorized foreign labor.
The most recent form is the abuse of light entrepreneurship. Workers in a weaker position, mainly foreign workers, are guided or even forced to act as small entrepreneurs and even under such conditions that it is not possible to take care of, for example, accident insurance or YEL insurance.
In the construction industry, the gray economy is most common in small, unorganized companies and private construction sites. 90 percent of cases of the gray economy in the construction industry occur from companies with a turnover of no more than one million euros. The gray economy of construction sites is most common in southern Finland, especially in the capital region.
Elsewhere online
Ville Wartiovaara
Executive Vice President, Regional Director
ville.wartiovaara@rt.fi + 358 40 564 7939Talonrakennusteollisuus ry, Uusimaa
