Interior ministry to make life difficult for subcontractors

The ministry shed light on a planned amendment yesterday that would bring greater responsibility for companies that make use of short-term foreign labor. The press event initially caused confusion as it seemed main contractors would have to take responsibility for foreign labor in the future. In truth, new obligations concern subcontractors.

One proposed change would obligate subcontractors to check whether a foreign rental labor mediator has real business activity at home. Head of the ministry’s citizenship and migration policy department Ruth Annus gave the example of a Polish construction company that while active in Poland also has the right to offer services in Estonia. “However, if it is just a legal body created to bypass our regulations, and the company has no real business activity in Poland, the responsibility will also fall on the Estonian company that benefits,” Annus explained.

The obligation is regarded as extremely difficult to comply with even by the Estonian Police and Border Guard Board (PPA). PPA expert Liis Valk said the amendment concerns mediators created for the sole purpose of avoiding Estonia’s foreigner’s pay criterion.

A legally hired foreigner needs to be paid at least the average gross salary of €1,310 a month in Estonia. Rental labor schemes are used to bypass the requirement.

Valk explained that it is very difficult to determine such a company’s activities in another country. “If the police develop suspicions regarding a company that is in the business of importing foreign labor to Estonia, we can ask for proof of tax obligations, contracts or transactions in another country,” she said. “If we find the company is attempting to misuse the rental labor regulation or present us with inaccurate data, we can refuse to register their workers, revoke existing registration or ask the company to apply for registration in general procedure.”

If a foreigner is working in Estonia illegally, their employer will have to reregister their right to work. Otherwise, subcontractors could be looking at fines of up to €64,000.

Member of the board of metal structures designer and manufacturer AMV Metall Andre Aavastik said that it is very difficult to keep an eye on a rental labor provider. “Our labor comes through Lithuanian construction companies, but it is very difficult for me to make sure the company engages in construction back home,” Aavastik said.

The change only concerns main contractors if they use foreign subcontractors. In that case, main contractors would also be obligated to make sure foreign labor is in Estonia legally. Executive manager of the Estonian Construction Companies Association Indrek Peterson described the planned obligation as peculiar as how is one supposed to control their partners if a contract listing both sides as construction companies has been signed.

Peterson said that €64,000 is a lot of money for subcontractors. “Because this problem usually concerns subcontractors of subcontractors, those who are really violating regulations will not be able to pay,” he said. “These are small swindlers who would immediately disappear, with no one left to charge. It would be a shame if claims would then be aimed at main contractors. Peterson added that an obligation placed on businesses making use of foreign labor to run checks is disproportionate and the task should fall to the state.

He feels draft legislation needs more work. “It seems this thing is being steamrolled into effect because market participants have not been consulted. Even if there would be feedback, I doubt anyone would listen,” he ventured.

The association admits there is a problem with rental labor companies bypassing regulations. “I am less than convinced this change can solve that problem,” Peterson said.

The association has proposed giving contractors access to legal foreign labor by making it easier to secure residence permits. “We could have separate conditions for workers and companies and the motivation to import labor using shady channels would disappear,” he said.

Ruth Annus from the interior ministry said that changes affect Estonian companies that hire foreign rental labor providers. “If the main contractor has procured some of the work from a subcontractor, these changes do not affect them directly as the subcontractor will be held accountable.”

What main contractors need to keep in mind is that in cases where foreigners working for their subcontractor have been registered illegally, they will not be allowed to work until they have been reregistered.

Annus said that cases where short-term work was not properly registered cost the state €8.7 million between early 2018 and March 2019. The finance ministry estimates in the bill’s explanatory memo that the amendment would bring the state budget an additional €3.5 million in 2020.

The number of short-time work permit applications has grown compared to previous years, driven by Estonian employers’ interest in foreign labor and rapid depletion of the residence permit quota.

The government’s annual quota of 1,315 people was filled in early January, meaning that employers turn to the alternative of short-time labor.

Another change would extend the period the PPA has for registering short-time labor from 10 working days to 15. The amendments are set to enter into force from December 15, with the processing period becoming longer from September 1.