Shadow economy
‘Shadow economy’ refers to companies trying to gain financial benefits by neglecting some of their obligations as employers.
Phenomena of the shadow economy include, for example:
- undeclared labour, which means that the employer pays its employee without withholding the statutory contributions and taxes from the employee’s pay
- applying for social security benefits without the right to receive them
- companies trying to gain financial benefits by using leased labour providers and subcontractors that have not taken care of their obligations as employers.
The shadow economy does not exist if everyone follows the rules.
The shadow economy is detrimental to you and the society. If the statutory employer contributions and taxes are not withheld from your pay, you will not accrue a pension. It also means that your employer has not insured you against accidents. Furthermore, you will not have the right to receive earnings-related sickness allowance or unemployment allowance. The society is deprived of the taxes normally paid for the work.
In Finland, authorities, policymakers and trade unions, among others, work together to avoid having a shadow economy.
For example, the occupational safety and health authority works to prevent a shadow economy. It monitors the following among other things:
- employers only hire foreign employees who have the right to work in Finland
- employers pay wages to the employees according to a collective agreement at a minimum
- the employees’ working hours and overtime are in compliance with legislation and agreements
- companies only enter into leased labour and subcontracting agreements with companies and employees that comply with legislation.