‘Labor inspectors’ are traditionally one of the worst ‘pains’ of Ukrainian business. The State Labor Service plans annually to conduct more than 15 thousand inspections taking the third place by their number among the supervision bodies. What’s wrong with them?
Historically, the State Labor Service is another hybrid body established during the so-called optimization of the number of state supervision (control) bodies in 2014. At that time, the government decided that the businesses were being inspected by too many inspection agencies and resolved the problem radically – simply by merging them. This is how the modern State Labor Service of Ukraine combining functions of control over employment, labor, workplace health and safety, observance of the rights of persons with disabilities in employment and mining supervision was established.
Similarly, the State Service of Ukraine for Food Safety and Consumer Protection inspecting enterprises in almost 20 areas, which are not always comparable to each other, was created. The labor and labor protection areas generate the biggest challenge for entrepreneurs: they cover virtually all entrepreneurs who have at least one employee. Moreover, there is the outdated and still Soviet legislation and almost no electronic administrative services in both areas. Let’s look at these two areas in more detail.
In Ukraine, employment relationships as a process look very simple: an employer enters into an employment contract with an employee and submits the relevant notification to the tax service (this can be done through the Taxpayer’s E-cabinet). However, more than 3 million people work illegally in Ukraine, and only 40% of them work in the ‘official’ sector of the economy, that is, in registered enterprises. All the others are doubly illegals. Why is this happening? There are several reasons.
The first and most important reason is the evasion of the payment of taxes and social contributions. Often, business owners simply do not understand what services they receive from the state in return and try to minimize the costs of their business activities.
The second reason is the combination of the outdated Labor Code and the attempts to implement the requirements of the International Labor Organization Conventions into the national legislation. On the one hand, the Code creates significant inconvenience for employers and, on the other, provides for the penalties for non-compliance, which are less costly to appeal to the courts for years than to comply with them. The requirements of international conventions, in turn, provide for a level of autonomy in decision-making for inspectors, which is unprecedented for Ukraine. But in the current environment, it is practically the same as arbitrariness and corruption of inspectors and catastrophic pressure on businesses.
Control over compliance with labor safety requirements extends to fewer businesses, but this area is still problematic. Entrepreneurs are most affected by outdated and excessive requirements and the need to obtain unnecessary expert opinions and permits in cases when it is sufficient to declare their compliance with legislative requirements. And, of course, it includes the amount of paper to be used.
The main document that creates these problems is the Procedure for granting permits for high-risk works and for the operation (use) of high-risk machines, mechanisms and equipment approved by the Resolution of the Cabinet of Ministers of Ukraine of October 26, 2011 No.1107. It covers everything: a list of works that require such permits and a list of machines, mechanisms and equipment that require a similar permit.
Such regulation creates a number of problems. First, not all works on this list really require such rigid regulation as a permit. Second, the procedure for obtaining such a permit involves the highest level of corruption.
The first problem can be resolved by reducing the lists requiring such permits and by introducing the possibility of performing high-risk works or using the relevant machines, mechanisms and equipment on a declarative basis (by submitting a declaration to the State Labor Service).
Changes to the above Procedure, developed with the help of BRDO experts, provide for reducing the list of high-risk works requiring a permit up to 8 types. Previously, entrepreneurs were required to obtain a permit for oil, hydrocarbon gas and condensate refining, but now they can start their business activity simply by submitting a declaration to the State Labor Service. At the same time, the full control of the State Labor Service over the compliance of entrepreneurs with the rules of labor protection legislation remains unchanged.
In addition to the list of works, the list of high-risk machines, mechanisms and equipment, the operation of which requires such permits, is reduced to 4 types. For example, entrepreneurs will be allowed to use hoisting cranes and devices, elevators, escalators, passenger conveyors, passenger cable railways, cable cars, aerial lifts and cradles on a declarative basis.
In such a way, self-declaration of dangerous works will allow to reduce the time for obtaining the appropriate permits for businesses. In addition, the next step should be to make such a declaration available online, following the example of a similar declaration in fire safety. This will help the State Labor Service to establish an electronic register of declarations, permits and enterprises carrying out high-risk works. At the same time, entrepreneurs will be able to correct declarations already submitted or even withdraw it in the course of works.
The Better Regulation Delivery Office has been supporting the transformation of the domestic system of state supervision (control) into a risk-oriented approach for several years. That is, to take into account the risk of certain hazards and not to try to control ‘everything’. Inspection plans should be formed solely on the basis of an assessment of the risk degree for each entity under competence of any given body. Thus, this will protect small businesses with little risks from excessive pressure and frequent inspections while focusing the inspections on businesses with more risks.
However, it was not yet possible to implement such an approach in this area, since the risk criteria in labor had not been approved. Therefore, planned (in fact, preventive) inspections were not conducted, and the State Labor Service considered the number of entrepreneurs ‘caught’ in violations and the amount of fines imposed as a key indicator of own efficiency.
From now on, under the new criteria, the agency will be able to integrate all the issues and requirements for entrepreneurs into a single logical scheme allowing to determine the risk degree of entities by all indicators at once (both in labor law and labor protection and employment). Such a step will make the process of inspections conducted by the State Labor Service transparent and predictable, and the inspections will cover all areas under the agency’s control while visits of inspectors to the enterprises will become less frequent.
BRDO is an independent regulatory policy advising institution in Ukraine, funded by the European Union under the FORBIZ project and within the framework of EU4Business Initiative.