Cleaning up the labor market

 In some sectors, the lowest paid workers can earn as little as PLN 5 per hour under current regulations. The government is making efforts to eliminate this negative phenomenon by setting the minimum wage at PLN 12 per hour. But the law has its critics By Wojciech Rylukowski Following a sweeping victory in last year’s general election, the conservative Law and Justice party has begun to deliver on its social election pledges. After it passed the child benefit program through parliament, the party targeted the labor market. Recently, the government has launched public consultations over a draft bill that sets a minimum hourly wage at PLN 12 gross for those employed on civil work contracts. Companies that fail to comply will be punished with a fine of between PLN 1,000 and PLN 30,000. “Labor contracts are often used instead of full-time contracts to lower the costs of hiring,” the draft read. Minister of Family, Labor and Social Policy Elżbieta Rafalska said that the project would eliminate the labor market issues concerning wages of a few złotys per hour in selected sectors, such as security or housekeeping/cleaning services. In these businesses the hourly wage is often significantly lower than the minimum monthly salary of PLN 1,850 legally set for those employed based on a labor contract. The draft bill also includes provisions that step up the powers of the Chief Labour Inspectorate (PIP), allowing it to run controls without prior notice. [caption id="attachment_98284" align="alignleft" width="300"] Image: Shutterstock[/caption] The Polish specificity Since they were first implemented in Australia and New Zealand more than a century ago, minimum wage laws have provoked discussion all over the world concerning their effect on employment. Basically, the division exists between employers’ associations and unions, with the former arguing that the minimum wage would harm the economy and increase unemployment, as entrepreneurs would not be able to afford raises. The latter proclaim that, by boosting domestic demand, the minimum wage would stimulate growth. Supporters add that it is the proper tool to secure the rights to self-sufficiency of those working in the lowest paid occupations. In looking for more balanced and empirically backed evidence, one might be disappointed, as the results of research on the effects of the minimum wage on employment are ambiguous. Although many studies show very little effect, there is also substantial literature that states otherwise, and no consensus is reached. Be that as it may, the Polish case is somewhat different, as the minimum monthly salary is already in force, but it excludes some 1.3 million workers who are not employed based on a labor contract. As it was already said, these people tend to work in the lowest paid occupations, taking jobs as cleaners, security guards or construction workers. Until January 2016, civil work contracts were not burdened with obligatory social insurance contributions; hence they were preferred by employers, as the costs of hiring were lower. In addition, such contracts are not subject to the Labor Code, which requires a notice period of up to three months before letting an employee go. Although it operates on the edge of the law in most cases, this form of employment has become widespread in Poland over the past couple of years, depriving low-paid employees of their social security and workers’ rights. As the situation has been generating losses to the budget due to unpaid contributions to the Polish Social Insurance Institution (ZUS), the state has started taking measures. In order to fight with this phenomenon, the previous ruling PO-PSL coalition tied civil contracts with obligatory social insurance payments. Another step in tackling the problem will be setting the minimum wage at PLN 12 gross per hour, roughly the equivalent of the PLN 1,850 minimum monthly salary. Although the lawmakers expect that this move will discourage employers from abusing unwanted types of contracts, the outcome of the legislation is a riddle. Good Idea, Bad Execution According to Tomasz Czerkies, Compliance Manager at ADP Polska, a human capital management company, the proposed law would likely have a different impact on small and large sized companies. In the former case, it will result in pushing people into the grey economy, while large companies would probably move away from civil work contracts and offer labor contracts to their workers. Employers’ union Pracodawcy RP (the Employers of Poland) has prepared a lengthy list of objections against the proposed law. The association argues that it may prove counterproductive, as instead of employing on labor contracts, entrepreneurs may rather chose another type of agreement — a specific task contract. This type of agreement is mainly suited to the creative class, as its duration is determined by a specific assignment to be undertaken (for example an article, a piece of art, etc.) Applying it to cleaning services or alike would no doubt constitute an abuse of law, but the contracts are already in use. Pracodawcy RP further asserts that the legislation may result in broadening the scope of the grey economy and that it is questionable from a legal point of view, as it interferes with the principles of the freedom of contract. The biggest drawback of the project, according to trade union Solidarność, is the ease with which it can be [caption id="attachment_98286" align="alignright" width="300"] Image: Shutterstock[/caption] circumvented. Under the law, civil work contracts can include the return of expenses needed to perform the job. For example, in cleaning services one can include two contracts: a civil one for cleaning and another for renting a mop from the ordering party, thus a cleaner would get less than PLN 12 per hour. Marek Kowalski, from employers’ association Lewiatan, which represents Poland’s biggest companies, is also skeptical: “Setting a fixed wage of PLN 12 would be detrimental to companies’ growth,” he said. His assessment of the legislation is negative, as it upholds the dualism of the labor market, where two employees performing the same duties in the same company are employed based on two different contracts. Kowalski admits that he supports the idea of workers getting decent pay and he is not against the rate of PLN 12 in and of itself. But, he deems the underlying concept of the project to be wrong.  “Workers deserve to be employed based on a labor contract,” because only in this way can they benefit from social securities guaranteed by the Labor Code, and this legislation won't achieve it. What the government is doing is a makeshift solution, which as the saying goes, lasts the longest. Moving in the right direction Although criticism is piling up, even from contending parties, it doesn't mean that the planned law is entirely bad. Solidarność’ expert Barbara Surdykowska claimed that setting the minimum wage rate at PLN 12 per hour is a good move in tackling “the exploitation of workers, which in some sectors is particularly visible. These situations undermine human dignity and are of a pathological nature.” But a fundamental issue, Surdykowska strongly underlined, is the monitoring of compliance of law as under the Labor Code. Currently, most civil work contracts ought to be transformed into labor contracts. That is also why Solidarność thinks that stepping up the powers of the Chief Labour Inspectorate (PIP), included in the law, is a positive signal. “We would go further, nonetheless, and equip the institution with the right to transform civil work contracts into labor contracts. This kind of permission is present in many European countries,” said Surdykowska. Presently, if the labor inspection finds irregularities, employees can file the case with labor courts, which will settle the matter. In practice, it is not easy to convince low-paid and often poorly-qualified people to enter into a legal dispute. Both Lewiatan and Solidarność agree that the dualization of the labor market is negative, but their proposals on how to fight against it are completely different. Lewiatan thinks that the government should act towards enticing employers to hire on regular contracts by decreasing labor costs. Solidarność, in turn, tables two possible solutions. The first one stipulates that every employment relationship should be regarded as a labor contract and parties should bear the burden of proving otherwise. The other possibility is to stretch some social benefits regarding holidays, maternity leave etc. stemming from regular labor contracts for those working based on civil work contracts. Although employers’ associations argue that the law would inhibit firms’ growth, there are examples that prove the contrary. Some of the largest companies (Amazon, IKEA) operating in Poland have already set the minimum pay at their firms at PLN 14-15 per hour, and despite that, they still struggle with staff shortages. Considering that over the last couple of years, the productivity of Poland’s economy has grown faster than salaries, it is unacceptable to tolerate hourly rates of PLN 5-7. In this respect, the project is worth pursuing because it changes the way the state perceives the labor market. Workers are entitled to social security and decent pay, so let's hope the law is just a transition phase in eliminating labor market ills and not a makeup solution that will go on and on.