The real cost of undeclared employment: an example

The decision "let's employ them uninsured for a few months and see" is one of the most expensive attempts at saving for businesses. Below we show, in order and using a single employee, what is faced when it is detected.

Scenario

A business did not report to SGK, for 6 months, a person working on the gross minimum wage. This is detected in an SGK inspection.

Cost item by item

1. Fine for the hiring notification Because the failure to file the hiring notification was detected in an inspection, the fine is twice one month's gross minimum wage: 2 × TRY 33,030.

2. Fine for the months not reported For each month not reported, administrative fines relating to the withholding and premium service return are applied separately.

3. Back premiums Six months of employee and employer premiums are demanded from the employer. The share that should have been deducted from the employee often also stays with the employer, because this amount was not deducted when the wages were paid.

4. Late payment penalty and interest Premiums are demanded together with late payment penalty and interest from the dates they should have been paid: Late payment interest

5. The tax side Because the wages paid were not reflected in the payroll and the withholding return, income tax withholding and stamp duty also arise, with penalties. Because the wages were paid off the books, they may not have been expensed; conflicts with cash and bank records also create a further risk.

6. Loss of incentives A finding of undeclared employment, where it exceeds a certain proportion, means premium incentives cannot be used for a certain period; if repeated within three years, this period is longer. For support such as the minimum wage support, the ban and reclaim are heavier. In a business using incentives, this item alone may be larger than all the others: SGK incentives

Calculate the fines with your own figures: SGK administrative fine

The heaviest risk: a work accident

If an unreported employee has a work accident, SGK provides the statutory benefits to the employee and reclaims all its expenses (treatment, temporary incapacity allowance, and the capitalised value of any pension awarded) from the employer. Compensation claims brought by the employee or their relatives come on top. These amounts alone can put a small business in difficulty.

The lawsuit the employee can bring

A person employed off the books can bring a service determination lawsuit within five years from the end of the year in which the work took place. If the court establishes the work, premiums, late payment charges and fines are again demanded from the employer. Severance and notice pay, overtime and leave claims can also be made on the basis of the actual period of work.

Correcting it voluntarily

If there is undeclared work, correcting it before an inspection is always less costly:

• For a hiring notification filed voluntarily, the fine is one times the amount, instead of twice when detected in an inspection.
• If supplementary returns for past months are filed voluntarily, some fines are applied at a lower rate.
• The incentive ban arises when there is a finding.

Let us assess the situation together before taking these steps; how the months will be declared and how the wages will be reflected in the payroll and tax returns must be planned separately.

Common "grey" situations

• Unreported work during a probation period: this is undeclared: Hiring notification
• Showing the minimum wage and paying the difference in cash: this is under-reporting; the same consequences arise for the difference.
• Not reporting a voluntary intern: this is undeclared: Employing interns and apprentices
• A foreigner without a work permit: in addition to being undeclared, there are separate and heavy administrative fines: Employing foreign workers

Legal basis: Law No. 5510 arts. 8, 21, 23, 86, 89 and 102; Law No. 4447 relevant incentive provisions; Labour Law No. 4857.