Illegal employment, where employers fail to pay taxes, social or health insurance contributions and workers are not officially registered, does not only disadvantage the individuals concerned. According to the Supreme Audit Office, the state loses significant revenues every year as a result.
A recent Supreme Audit Office (NKÚ) audit revealed that state authorities did not cooperate sufficiently between 2019 and 2023 and failed to exchange important information in a timely manner. As a result, employers fined for hiring foreign workers without valid residence permits were often not required to make additional social and health insurance contributions. Moreover, the Ministry of Finance (MF) failed to reclaim overpaid health insurance contributions that the state had paid for unemployed persons who were simultaneously working illegally. Tax inspections by the financial administration, despite indications from other control bodies, had only a minor financial impact – over three years, merely about one million crowns were additionally collected.
Since there have been no official estimates since 2014, the NKÚ made its own calculations: according to these, the state lost on average around 92 billion crowns per year due to illegal employment between 2019 and 2022 – based on minimum and average wage levels. A study by the European Commission estimated the revenue loss for 2019 alone in the Czech Republic at almost 89 billion crowns, around 1.5 per cent of GDP.
The audit also highlighted that, to this day, it remains unclear which authority is responsible for reclaiming social security contributions when employers hire illegal workers without residence permits. The reason for this is the inadequate implementation of a European directive.
Between 2019 and 2023, the Labour Inspectorate (SÚIP) imposed a total of 2,450 fines amounting to around 740 million crowns. More than 35,000 inspections uncovered 16,109 cases of illegal employment, nearly 80 per cent of them involving third-country nationals.
As early as 2018, the NKÚ had criticised the Ministry of Finance for failing to reclaim wrongly paid health insurance contributions. Since then, however, no analysis has been carried out to assess the actual damage to the state budget.
