Undeclared work

Undeclared work means that someone performs work in return for payment, but without being registered with an authority or insurance company. As a result, taxes and social security contributions are not paid. In addition, these cases can result in high fines and even prison sentences.

Which services belong to undeclared work?

This does not include services and work that are not aimed at sustainable profit. These include services between life partners and favors of neighborly help.

Undeclared work is usually agreed verbally and paid for in cash after completion. So if a self-employed tradesman carries out some work on a client’s house and is paid for it, he must write an invoice and pay the taxes.

However, if this craftsman carries out some work at his daughter’s or brother’s home and receives a small payment for it, this is not illegal work.

What is the penalty for illegal employment?

It is usually associated with the following violations of legal requirements:

• Evasion of taxes and wages according to § 370 AO
• Administrative offense according to § 8 SchwarzArbG
• Contribution fraud according to § 263 StGB
• Violation of the obligation to render accounts in accordance with § 14 UstG
• Violation of a statutory prohibition pursuant to Section 134 BGB

As this is at least an administrative offense according to §§ 8 to 11 SchwarzArbG, fines of up to €500,000 are possible. A prison sentence of up to 10 years is also possible.

The following penalties are possible for clients and employers:

• Failure to register employees for social security can result in a fine of up to €25,000.
• Failure to register a business can result in a fine of up to €50,000.
• Commissioning undeclared work can result in a fine of up to €50,000.

In addition, unpaid taxes and social security contributions must be repaid. Proceedings for tax evasion or a breach of duty vis-à-vis social security and other offices subject to reporting requirements are also possible.

Penalty for the employee

Not only clients, but also employees and the self-employed can be fined for illegal employment. This can result in a fine of up to €500,000. A prison sentence of up to 10 years is also possible in particularly serious cases. This can also result in back payments of taxes and social security contributions. An investigation for tax evasion, among other things, is also to be expected here.