The Ministry of Employment and Poverty Reduction commented on plans to increase fines for illegal hiring practices Monday.

According to the August 4 presidential decree employers who allow informal employment shall be fined 30 BCUs (12.36 million soums), and for repeated violations - 100 BCUs (41.2 million soums).

After the decree was published, opinions surfaced on social networks that this initiative could lead to corruption and negatively affect legal hiring.

Economy blogger Kobil Khidirov believes that in the current conditions, it is best to combat informal employment with the help of reasonable tax rates. "The proposed measure also paves the way to corruption," he wrote.

Bekhzod Khoshimov stressed that the introduction of these sanctions could result in enterprises refusing to hire workers.

"The corruption is a separate topic, how dangerous it is is debatable. But the outcomes of this measure may be such that the alternative solution for the enterprise is not to hire people at all. The problem of legal hiring requires a delicate approach. That is, if there is some corruption, the damage to employment will be less. And if there is none, the damage may be greater," he stressed.

The Ministry of Employment in a statement emphasized that raising fines for failure to register workers is part of a comprehensive reform aimed at legalizing employment and protecting workers' rights.

"International and national practices show that control is not a way to ensure revenues to the budget, but a tool for protecting workers' rights, and the penalty must be significantly higher than the benefit from the violation," the statement says.

Now, the regulations penalize that employers that illegally hire with fines of from 5 to 10 BCUs (from 2.06 to 4.12 million soums). If the violator voluntarily pays 50% of the fine within 15 days or 70% of the fine within 30 days from the date of delivery of the decision to impose the fine, it shall be exempt from paying the remaining fine.

In most cases, the benefits from violating significantly outweigh the fines. This limits the possibility of eliminating violations, the Ministry of Employment added.

The agency referred to the experience of foreign countries, where the size of punishment "significantly exceeds the benefit from the violation."

According to the ministry, in Germany, Great Britain, France and the United States, along with financial fines for informal employment, from 3 to 10 years imprisonment may be applied. In the CIS countries, the following fines are applied for such violations: in Belarus - from 915 to 2980 US dollars, in Russia for enterprises and organizations - from 629 to 1258 US dollars, in Kazakhstan - from 466 to 1550 US dollars.

Meanwhile, the fine for informal employment is applied not to the business entity, but directly to the employer - in order to protect the labor rights of employees established by laws.

For example, for individuals entering into informal labor relations, there are the following negative consequences:

• lack of official protection and recognition (including the right to maternity leave, child care, paid leave, compensation for work in harmful conditions, etc.);
• low income and wages;
• lack of labor protection and safety;
• failure to comply with working hours;
• problems upon retirement and in old age.

Relevant presidential decree

Today, out of 14.213 million employed (94% of the working-age population), 5.5 million people (38.8%) work in the informal sector. Of these, about 88.6% are in the following areas:

• Construction — 147,009 (2.7%);
• Restaurant, cafes and bars — 133,665 (2.4%);
• Agriculture — 3,120,851 (56.6%);
• Services — 1,478,408 (26.8%).

The decree focuses on four key areas of combating informal employment.

Prevention of violations. Simplified hiring and firing procedures have been adopted for employers with up to 50 employees, which are especially relevant in the services, construction and agriculture sectors. Employment contracts can now be entered into using Face-ID and standard forms. This should reduce administrative barriers and encourage formalization of employment relationships.

Incentives for legalization. Unemployment benefits are now paid only if there is work experience, which is expected to motivate individuals to formalize employment. Receipt of a number of subsidies, such as for housing, is also directly linked to confirmed income. In addition, as a result of the 2019 tax reform, "the burden on the wage fund was significantly reduced," which reduced incentives to go "shadow."

For reference: insurance premiums collected from citizens (8% of the payroll) have been cancelled and the social payment rate has been reduced from 15 to 12%. A flat personal income tax rate of 12% has also been introduced (instead of a progressive three-stage scale with a maximum rate of 22.5%).

“If tax rates were one of the main reasons for not inking employment contracts, then everyone would enter into employment contracts with a minimum salary (1.27 million soums), and would not operate without employment contracts,” the Ministry of Employment emphasized.

Inevitability of punishment. Any detection of non-registration must necessarily entail the application of a liability measure and not allow employers to think that they may avoid punishment. For this purpose, a record of all inspection activities and mandatory entry of their results into a single database have been organized. A risk analysis system based on electronic interaction with other agencies is being introduced. This should improve the efficiency of inspections and minimize the possibility of "resolving the issue" unofficially.

Promotion of official employment. The Ministry believes it is important to inform citizens about the benefits of formalizing labor relations, especially for workers employed in areas with increased health risks.

According to the state agency, the combination of strict control measures and incentives for legalizing employment will:

• reduce the level of informal employment;
• increase the transparency of labor relations;
• minimize corruption risks during inspections;
• strengthen the social protection of workers.