Azerbaijani citizens do not believe in the pension system

Baku/06.10.21/Turan: For four years, the Labor Relations Monitoring Center of the State Agency for Citizen Services and Social Innovations under the President has checked 7848 people at construction sites and revealed that 1426 of them were involved in work without an employment or service contract.

This is stated in the statement of the department.

Fines and sanctions totaling 1 million 900 thousand manats were imposed for the registered violations.

It was noted that along with the verification activities carried out as part of the fight against informal employment, various promotional and educational activities aimed at encouraging the formalization of labor relations are being carried out.

Experts note that cases of refusal to conclude an employment contract are widespread not only in the construction sector, but also in other areas.

So why are employers and employees not interested in concluding an employment contract? How to avoid this? Should administrative or other methods be chosen?

Economy Minister Mikail Jabbarov said at the end of 2020 that one of the reasons for the increase in revenues to the non-oil sector is the inclusion of wages of non-oil sector workers in the tax system. "This has also led to a reduction in the shadow economy in the country."

According to the Ministry of Economy, as of August 1, 2021, the number of employment contracts concluded in the non-state sector amounted to 748,309, which is 208.4 thousand more people than at the beginning of 2019, when reforms in the field of transparency of labor relations were launched. "In July 2021 alone, more than 9,800 cases of an increase in the number of employment contracts were registered in the non-state sector. Consequently, there is a significant increase in income from compulsory state social insurance and unemployment insurance premiums, which is an indicator of the processes of transparency in the labor market and indicates the fiscal effect of the application of income tax benefits."

The Ministry noted that in January-July 2021, in the context of the process of "bleaching" the number of employees and the payroll, receipts for contributions to mandatory state social insurance amounted to 2 billion 218.2 million manats, an increase of 8.4 percent compared to the corresponding period last year. "Revenues from extra-budgetary organizations increased by 14.4 percent compared to the same period last year and amounted to 1 billion 386 million manats, the forecast was fulfilled by 113.8 percent."

The Ministry stressed that the conclusion of an employment contract is the right of every person and the duty of the employer. "An employer cannot refuse to conclude an employment contract. There are serious amounts of fines for cases of evasion from entering into an employment contract. According to the tax legislation, an employer who has not concluded an employment contract is subject to a financial sanction in the amount of 2000 manat for the first time during a calendar year, 4000 manat for the second time, 6000 manat for 3 or more times."

It was noted that along with the time provided to entrepreneurs and employers to include their activities within the framework of the law, they were given incentives. "So, serious changes have been made to the legislation on income tax, the amount of wages of employees of the non-oil and non-state sectors up to 8000 manats has been exempted from income tax. After the introduction of these long-term benefits, there has been a significant increase in the number of employment contracts."

Economist Natig Jafarli told Turan that in the situation with jobs in Azerbaijan, there is a great need for "bleaching" jobs. "In this regard, the government has been trying to take certain steps for several years. But the problem is that it is impossible to achieve a solution to the issue by administrative means or fines. We need to make it so that both employers and employees benefit from working under an official contract."

According to the expert, currently there are very high social protection payments, which create an additional financial burden for the employer and employees. "For this reason, in the private sector, there is often a deal between an employer and an employee – either a very low salary is issued, or attempts are made to work without any formalities at all."

He noted that according to the current legislation, an employee must pay 10 percent of the upper part of the minimum wage and plus 6 manats, 15 percent of the upper part of the minimum wage and 46 manats to the Social Protection Fund.

"Therefore, with a high salary, neither the employee nor the employer need to issue it, they agree with each other or work without a contract, or show a low salary in the documents."

The economist says that it is impossible to prevent this by administrative means. "Such a system should be built here so that the state, on the one hand, and businessmen and citizens, on the other, are satisfied. Since this is currently not possible, the creation of informal jobs is becoming increasingly common. The state should propose such rules of the game so that it would be beneficial to the parties. For example, in Turkey, the state has taken over half of the payments to the Social Protection Fund."

According to him, there are about 5.7 million able-bodied people in Azerbaijan. "Only 1.6 million of them are employees. And about 4 million residents face problems where to work.  Of these, a little more than 600 thousand people work under VÖEN, about 1.7 million people are on state registration as employees of the agricultural sector, and about half a million people are registered under the self-employment program. But these figures do not reflect the truth. And the reality is that in Azerbaijan, at least 1 million people work without any registration."

The expert stressed that the citizen should understand that the funds paid by him will be returned to him in the form of a pension. "But the citizens of Azerbaijan do not know whether they will reach retirement age, and do not believe in the pension system itself. Therefore, from the very beginning they are trying to save on social benefits and collect money under the pillow for a rainy day."—0—-