In June 2017, the House of Representatives adopted the Social Insurance (Amending) (No2) Law of 2017 (the Law) and the Social Insurance (Contributions) Amending Regulations of 2017 (the Regulations). The purpose of these changes are to fight undeclared employment and ancillary phenomena, such as failure to register an employee for social insurance or understating remuneration in order to reduce social insurance contributions.
What are the main provisions? The law imposes penalties for undeclared employment up to €500 for each month of infringement for each employee. Further, the Law imposes penalties for understated remuneration up to €500 for each employee. The fine applies regardless of whether the employment was contractually valid. The total fine imposed should not exceed €10,000 for each employer who employed up to ten insured employees. The fines can only be imposed for infringements which occur after the implementation of the Law. The Law provides that the employment inspector must state prior to the imposition of the fine his findings regarding undeclared work and understated remuneration. Furthermore, there is a period of five days for the employer to present evidence to prove that he has not committed an offence. If the employer fails to provide evidence or the time limit expires before the evidence is provided, the inspector will assess the fine and issue a payment demand in this regard. If payment is not made within 30 days, the fee will increase by 50% for each day of delay. If the payment is made within the 30 day period, then the fee is reduced by 30%.
The Law also sets out a presumption, on the basis of which the employee for whom the violation occurred was employed as from six months prior to the date of identification of the offence. If the employee worked for less time, the employer must prove a shorter period of employment or lower remuneration. If the employee has worked for a period greater than six months or the amount of remuneration was greater than presumed, then this will be taken into consideration when deciding the total fine. There are also strict provisions for repeated offenses. If an employer is fined twice within two years, then the case is referred to a committee comprising the Director of Social Insurance and two officers from the Ministry of Labour, Welfare and Social Insurance. The Committee has the right to impose strict fines and other sanctions to the employer, including the possibility to suspend the employer’s business. An opposition procedure safeguarding the employer’s right to be heard is also provided.
What is expected of employers and employees? Every employer needs to ensure that all of its employees have been duly registered with the Labour Department for social insurance purposes and that their remuneration is properly reflected in the relevant declarations. Also, for any employees who are not EU citizens, the employer needs to ensure that they hold a proper license, allowing them to work lawfully in the Republic of Cyprus. Registration shall occur at least one day before the first day of work. Additionally, every employer must maintain an employee register which records the relevant information, including remuneration and date when employment has commenced.