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Grey economy

Updated: 16.01.2020

The grey economy means the failure of businesses to comply with statutory fees and obligations. In the service industry, examples of the grey economy include taking payments from customers in a restaurant but not entering the sale into the cash register, or working without a tax card. In its most severe forms, grey economy practices can constitute human trafficking, as some cases in the cleaning industry have shown in recent years.

For example, in the hotel and restaurant industry, more than €100 million in tax revenue is lost every year due to unreported employment. This money could be used to fund public services.

According to the Finnish Hospitality Association MaRa, any restaurant that consistently sells its products at a significantly low price is probably operating unlawfully. For example, it is impossible to consistently sell a pizza for less than six euros, as this sum leaves no margin to cover costs associated with business activities, including taxes. According to a 2015 estimate by MaRa, raw materials accounted for just over 30% of the price of a restaurant meal. The percentage of employment costs, i.e., salaries and indirect labour costs, in the price of a pizza is 36.5. VAT is 11.5%, rent on average 9.5% and other fixed costs, 8%.

It is significant that the ultimate cost for the grey economy is paid by the ordinary taxpayer.

How can an employee make sure that the employer is above board?

• You can be reasonably certain that your employer is honest, if:
• You make an employment contract in writing, clearly specifying the salary, working hours, form of employment as well as the primary duties.
• The salary is no lower than the minimum wage specified in the collective agreement.
• You give your employer your tax card. If your employer does not ask for your tax card or refuses to accept it, you should suspect that the employment is unreported and that your employer is not paying taxes on your salary.
• You receive a salary slip for each payment, clearly indicating the taxes, social security contributions and other fees which the employer has paid. Nevertheless, check your pre-completed tax return which you will receive by mail once a year to make sure that your employer has handled these responsibilities appropriately.
• Request a written certificate of employment when your employment ends. The employer must provide a certificate if the employee requests one at the end of employment. Join a trade union. A union can help you in problematic situations.

More information about the grey economy can be found from the tax authority’s website.

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