When deciding to take a job in any company, it is important to first verify the terms of employment. In the past, this issue was much more common, but even today some employers still offer candidates undeclared work, which is illegal.
What is undeclared work?
Undeclared work is often used interchangeably with the term shadow economy employment . It refers to situations where work is performed without any formal contract, whether an employment contract or a civil law agreement. All arrangements are made verbally, with no written record of duties, salary, or notice period. The lack of a formal agreement means that none of the legal employment requirements defined by labor law are fulfilled.
It is worth noting that undeclared work includes not only the complete absence of a contract, but also incorrect salary declarations, underreporting working hours, or fictitious civil law agreements. Unfortunately, these practices are still relatively common.
An employee working without a contract has no legal protection and does not receive social security contributions or income tax coverage. This is disadvantageous for the worker, but the risks are not limited to employees. The consequences of undeclared work also affect employers, and in many cases they are even more severe. So why do some companies still choose this approach despite the risks?
Why do companies hire employees without contracts?
Undeclared employment used to be a major issue when employers had greater control over the labor market. As a result, many job seekers accepted such conditions due to limited opportunities. Today, however, the market has shifted toward employees, and awareness has increased. As a result, many candidates refuse to accept work without a contract or do so only rarely . So why does this practice still exist?
There are several reasons. Most often, employers try to avoid paying social security contributions, health insurance, and taxes. Contrary to appearances, these are significant costs. It is not just the difference between gross and net salary — companies may also try to avoid expenses related to workplace safety requirements, employee benefits, and paid leave. In such cases, the employer does not take responsibility for the employee under labor law. When it comes to foreign workers, the lack of a contract is sometimes motivated by an attempt to avoid administrative formalities. Regardless of the reason, this practice is illegal and unfair, and should not be accepted.
What are the consequences for employers?
Signing a contract with an employee is important not only for retention, but also to avoid legal risks. In the event of an inspection, the company may face significant financial penalties. Fines can reach up to PLN 5,000. In some cases, the matter may be taken to court. Beyond direct financial losses, employers also face reputational damage and a weakened market position.
What are the consequences for employees?
While employers may see undeclared work as a way to reduce costs, the long-term consequences can be serious. But what about employees? What are the risks of working without a contract?
First and foremost, there is no social protection. Without a contract, the employee has no access to public healthcare, paid leave, or sick leave benefits. Time worked without a contract does not count toward employment seniority, which can significantly impact future pension benefits. Additionally, just like employers, employees may also face fines exceeding PLN 500. Without a formal contract, there is no legal basis to claim compensation in the event of an accident. Legally, the person is not recognized as an employee, and therefore has no protection.
Penalties for lack of an employment contract
The penalties for undeclared employment have already been mentioned. Financial liability primarily falls on the employer. If an inspection reveals irregularities in employment practices, the case is reported to the tax office and social security authority. The tax office may impose penalties of up to 720 daily rates, while the social security institution (ZUS) may impose fines of up to PLN 5,000 and demand payment of overdue contributions, even if they would otherwise be time-barred. In some cases, such matters are brought before a court, further increasing costs. Additionally, undeclared work may result in imprisonment of up to 3 years.
Undeclared work — how big is the problem in Poland?
We now understand the risks and consequences of working without a contract . But how widespread is this issue in Poland? Inspections are carried out every year across many companies, and violations of labor law remain significant. According to a report by Business Insider, in the first half of 2022 alone, inspections revealed violations in 38% of companies. Approximately 1,500 people were working without contracts, and 7,700 were not registered with social security on time. To combat the shadow economy, the National Labour Inspectorate has announced even more frequent inspections.
Authorities most often target industries where undeclared work is particularly common. These include sectors such as gastronomy, retail, warehousing, industrial processing, transport, and construction.