INTERNATIONAL LABOUR OFFICE Decent Work Technical Support Team and Country Office for Central and Eastern Europe

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1 INTERNATIONAL LABOUR OFFICE Decent Work Technical Support Team and Country Office for Central and Eastern Europe TERMS OF REFERENCE (TOR) External Collaboration contract: 2 consultants Data and legislation collection and analysis for an overview of the informal economy in Bosnia and Herzegovina I. Background The share of the informal economy is typically estimated in the range of 30 to 50 per cent of the official GDP in the Central and Eastern European region. Inadequate economic and social policies, the lack of appropriate legal and institutional framework, poor enforcement of regulations, reduced confidence into institutions and excessive administrative procedures, combined with economic downturn are the main drivers for a share of economic activity being moved towards informality, either by evading legal obligations when operating in formal economy or by a complete shift to informal economy whereby the economic activity/entity is utterly unregistered. High instances of informal employment have various negative effects on the economy of the region as a whole, on working conditions generally, and on the policy making process. Endemic informal employment limits the effectiveness of employment as a tool to reduce poverty. Low tax revenues, due to the non-payment of payroll taxes, constrain the governments capacity to introduce effective labour market and social protection policies. In addition, the large informal economy and widespread practice of under-reporting of wages create serious problems for the coverage and financing of social security systems, thereby rendering these workers and their families unprotected against substantial social risks. For employers, informal economy brings unfair competition and uneven level playing field. For employees, working in the informal economy means being confined in an activity which is low paid and precarious. Informal employees are generally not organized and labour inspections may not have the means to reach out. The ILO has identified the formalization of the informal economy as one of eight areas of critical importance (ACI). A standard-setting item on facilitating transitions from the informal to the formal economy was discussed by the International Labour Conference in 2014 and will continue in In this context, the ILO is implementing a project which aims to contribute to the design and implementation of policies that, through the formalization of the economy, will improve the quality and productivity of jobs in Bosnia and Herzegovina. An initial assessment of the informal economy in the country will provide the basis for development of strategies, policy design and advocacy to reach out to entrepreneurs and workers in the informal economy. Appropriate measures will be proposed for enterprises to achieve enabling environment for sustainable growth and for workers in informal employment to enjoy decent work. Along the implementation process, technical assistance will be provided to different partners, including social security institutions and labour inspectorates, to expand their outreach to the informal economy. 1

2 II. Description of work and expected outputs Under the administrative supervision of the Director of ILO DWT/CO Budapest and the technical supervision of the specialists of ILO DWT/CO Budapest and in coordination with the ILO National Coordinator, the External Collaborators will perform the following tasks/outputs, acting as a team: 1. Conduct a desk review of existing national and international research regarding the informal economy and undeclared work in the Bosnia and Herzegovina; 2. Collect available statistical data concerning the magnitude, depth and structure of the informal economy (see Annex 1); 3. Collect information and draft the following short reports in English (max. 40 pages each) including conclusions, recommendations and bibliographic references, to serve as chapters basis for the national overview on the informal economy that will be produced by ILO DWT/CO Budapest, covering the following issues: a) National context (employment, social dialogue) and profile of the informal economy in Bosnia and Herzegovina, reviewing both the prevalence of informal sector or informal employment in the formal sector (see definitions in Annex 2), access to education/training and skills in the informal economy; b) Overview of the regulatory framework regarding business registration; administrative burdens; fiscal and parafiscal burdens; access to justice and rule of law; fair competition; access to financial services and Interest rate spread ; access to technology; labour inspection (see details in Annex 3) and other inspections in law and in practice; c) The definition, regulation and protection of non-standard forms of employment by law, collective agreements and practice, as well and the number of workers in such forms of employment (see details in Annex 4); 4. During information collection, identify and analyze cases of success and lessons learned from experiences of government institutions and social partners from Bosnia and Herzegovina to reduce the size of undeclared work and to promote transitions from informality to formality. For example, outreach approaches to the informal economy involving public and private stakeholders, in particular social partners and reach-out experiences to vulnerable groups of workers or remote/ isolated areas. This information shall be reflected in the above chapters; 5. In collaboration with the National Coordinator, and under the supervision of the technical specialists, conduct interviews with relevant stakeholders, notably government institutions and social partners, to validate information; 6. Participate in and give short presentations on the above mentioned issues during the validation workshop which is tentatively foreseen to take place in May/June 2015, and incorporate the comments of the participants and the results of the workshop, if applicable. 2

3 7. Submit the draft technical reports with analysis to the ILO for comments and review it based on inputs received. The process of commenting/revision will be undertaken before and after the validation workshop. It may envisage several rounds to ensure the quality of product to the satisfaction of the ILO. The current ToRs are complemented by other ToRs for developing a Technical report on extending social protection to the informal economy. They will all contribute to the national overview of the informal economy in Bosnia and Herzegovina. The translation into the country s official languages will be performed separately from these ToRs. All data and reports shall be submitted in English. III. Delivery: The consultants will submit the data collected and the technical reports with the analysis in draft form to the ILO for comments by 15 April 2015, the latest. The consultants will review the reports based on ILO comments received. The process of commenting/revision may envisage several rounds. The pre-final draft will be submitted to the ILO for comments within 2 weeks after the validation workshop. Based on inputs received, if any, the consultants will finalize the document. The External Collaborators shall strictly respect deadlines, failing of which payment shall be withheld according to ILO rules. IV. Quality/Content Control ILO will have editorial control over the final version of the Report. The design of the Report shall be taken into most serious consideration as it is produced for further publishing. V. Required qualifications of consultants Academic background: University or Master degree in economics, statistics, finance or related field Work experience: Proven experience in collecting and analysing statistical data on socioeconomic development, employment University or Master degree in law, with preference to labour law Proven experience in analysing complex legislation, collective agreements and policies on industrial relations and employment issues issues Excellent knowledge of the Bosnia and Herzegovina policy and legal context, with a particular reference to industrial relations, socio-economic development, employment Working experience with UN and other International or Regional Organizations and Donors in the area of research and analytical report development will be considered an asset Excellent English writing skills and knowledge of the country s official languages 3

4 Application procedure: Interested candidates are welcome to apply individually or in group by the 8 March 2015, by sending through applicantbh@ilo.org the following: 1. Personal CV outlining the academic background and work experience relevant to the current ToRs, and 2. Financial proposal (in USD, specifying the total amount for the work, including all costs). 4

5 Annex 1: List of general data to be collected, if available 1. Quantitative data (main source: statistical survey reports, research papers) Size of informal economy as % of GDP Number of workers in the informal economy (also as a % of labour force) Period of working in the informal (formal) economy Incidence of undeclared work from labour inspection or tax inspection Magnitude of undeclared work (as % of total wage bill) Contribution rates and contribution income of social security systems Number of workers employed in non-standard forms of employment (by type) (see Annex 3) Number / type of enterprises/business using non-standard forms of employment (see Annex 3) Coverage by collective agreements? Socio-economic characteristics of rural population (income, family size) Social protection spending as % of GDP (impact) Contributors (members) of social security schemes Qualification, skills, education of workers in (formal and informal) economy Trade-union membership Tax collection according to income groups All data should be collected for the last 10 years (or from the year 2000 onwards) disaggregated by sex, age group, and industry. 2. Qualitative data (sources will include research papers and consultations with key stakeholders): Patterns and reasons for working in the informal economy (by employer and worker) Transition between formal and informal economy (case study) Reasons for paying/receiving envelop wage Positive experiences (good practices) All data will be provided in English. 5

6 Annex 2: Statistical approximation of employment in the formal economy, extracts from Measuring informality: A statistical manual on the informal sector and informal employment 1 Building blocks of informal employment Identifying the statistical criteria for informal sector enterprises (vertical axis): 1 Document can be found at 6

7 Some examples of informal sector definitions: If no possibility like the expressed above exists, another older measure of informal sector would be by size and training (unskilled workers in micro and small enterprises), but this is at most a second best. The statistical criteria for status of employment with respect to formality is summarized by employees who are subject to national labour legislation and income tax and are entitled to social protection and employment benefits. As a summary proxy, contributors to social security, or people who are registered as employed (written contract) are considered formally employed. It is possible to have formal employees holding formal jobs in informal sector enterprises, however, they would be considered employed in the informal economy (they are formal according to job status, but informal according to enterprise. Some examples of informal employment according to status: 7

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9 Annex 3: Labour inspection and undeclared work The following questions should be addressed by the study: a) Is there a legal definition of undeclared work? In the affirmative, what does it cover? b) How is undeclared work expressed in the country (e.g. informal employment, wage envelopes) c) What is the size of undeclared work in the country (if available)? d) Are there cases where undeclared work and social fraud have a cross-border dimension? e) Are there supranational initiatives dealing with prevention or control of undeclared work and related social fraud? f) Is there any national policy or strategy to address undeclared work? g) Does the legislation provide for an enabling environment for employers to register their workers? Are administrative burdens, where appropriate, reduced for employers in a way to improve labour law compliance, namely by making registration of workers, declaration to social security and payment of social contributions easier, through expedite and accessible procedures? h) Are roles and responsibilities of concerned bodies and coordination mechanisms clearly defined, including expected results, time frame, follow up and evaluation? i) What is the precise role of labour inspection? j) Do national strategies for undeclared work include an awareness raising dimension, with campaigns aiming at changing the mentality of people on what is not socially acceptable? k) Are both prevention and deterrence measures included in compliance strategies? l) Are there legal tools such as presumptions, reversals of burden of proof or other allowing for labour inspectorates and other authorities to better investigate cases and build legal action? m) Are there guidelines for labour inspection approaches for undeclared work? n) Is labour inspection focusing on the rights of vulnerable groups of workers such as undeclared third country nationals, rural workers or domestic workers? o) Are sanctions for undeclared work dissuasive, in terms of the seriousness of the sanction and effectiveness of the procedures for imposing it? p) Is there a solid cooperation with the judiciary? q) Is there any specialization of labour inspectors dealing with undeclared work? r) Do inspectors receive adequate and regular training namely on applicable legislation and expressions of undeclared work, labour and social fraud, and the complementary roles of other institution tackling these subjects? s) Is there inter-agency cooperation? In the affirmative, are joint inspection actions, particularly between labour inspectorates dealing with labour relations and occupational safety and health, social security and tax authorities happening under a holistic approach of undeclared employment related aspects? t) Do different authorities exchange data on registration of workers, declaration and payment of social contributions? Is the information of different databases crossed with a view to discovering infractions at all levels (social security, taxes, and labour law, including occupational safety and health)? u) Is there tripartite consultation and collaboration with social partners on undeclared work? 9

10 Annex 4: Data collection on non-standard forms of employment The aim of this section of the report is to: a) take stock of the existing regulations and policies regarding non-standard forms of employment (fixed term, part time, agency work, short term work, seasonal work, casual work, economically dependent work); b) assess the incidence of these forms in both the formal and informal sector, as well as the impact of regulatory and policy frameworks on formalization of informal employment. Particular attention shall be given to the effect of the regulatory and policy measures on the employment relationship, wages and other working conditions, as well as social security. Scope and methodology: This section, of 30 pages (excluding references and statistical annexes), in English, shall include: 1. Desk review of primary and secondary materials regarding regulations and policies, including relevant laws (labour law, labour inspection, tax, social security, employment, maternity, other benefits related laws and regulations), explanatory statements, policy documents and existing academic literature. The research will aim at examining; 1.1. Existing definitions and regulation (if any) of the following categories of forms of employment: i) Fixed term employment, including: temporary work; short term contract; seasonal employment; casual employment (daily labourers, intermittent work); ii) Temporary agency work and other forms of triangular employment relationships (including outsourcing, subcontracting, contract labour; iii) Part time work (including marginal part-time less than 15 hours per week, zero hours contracts, on-call work); iv) Dependent self-employment / economically dependent workers; v) Bogus self employment / disguised employment (masking the identity of the employer by hiring the worker through a 3rd party or by engaging the worker in a civil or commercial contract instead of an employment contract); vi) Domestic work Criteria laid down by law, collective agreement or set out in jurisprudence for establishing the existence of an employment relationship irrespective if there is a written employment contract; legal provisions setting presumptions, indicators or reversals of the burden of proof that facilitate the action of the labour inspectorate; 1.3. How the workers employed under the above mentioned forms of employment are covered (or not) by law, collective agreements and in practice regarding: i) Freedom of association and collective bargaining; ii) Non-discrimination in the workplace; iii) Working conditions, namely minimum wage and working time limits; iv) Occupational Safety and Health; v) Social contributions and access to social security benefits; vi) Maternity benefits; vii) Access to training; viii) Unemployment benefits; 10

11 ix) Labour dispute resolution mechanisms; x) Labour inspection and access to justice. 2. Analysis of available data as captured in the Labour Force Survey, Labour Inspection reports or other sources regarding the number of workers employed and number of economic units using forms of employment listed in 1., above, broken down by - formal and informal employment 2 - type of production unit (formal sector enterprise, informal sector enterprise, household) - size of enterprise/ business in both formal and informal sector - gender - age - migrant status - geographic area (urban / rural) 3. Interviews of representatives of the social partners and government institutions, such as law enforcement agencies (labour inspection, tax authorities), to validate data collected, identify relevant examples and good practices on this issue and collect the views of such stakeholders. The interviews shall be to be organized in articulation with the National Coordinator. 2 Informal employment encompasses persons in employment who, by law or in practice are not subject to national labour legislation and income tax or entitled to social protection and employment benefits. 11