GENEVA (ILO Online) - In 2003, a new regulation was introduced in Bulgaria, whereby it became compulsory for employers to register all labour contracts. In addition, as many employers and enterprises are unaware about the new regulations, there is a strong need now to inform them on how to conform with the new system. The ILO's Bureau for Employers' Activities (ACT/EMP) supports the Bulgarian Industrial Association (BIA) - the largest Bulgarian employers' organization, to help companies moving from informality to formality. ILO on line spoke with Henrik Moller and Jean-Marie Standaert, both from ACT/EMP, who assist BIA in making this happen.
1. What is the new project all about?
In Bulgaria, the Social Security Law adopted in 2001 provides for Contribution Payment Centers to assist small and medium sized enterprises (SMEs) as well as the self-employed in fulfilling their obligations towards the payment of Social Security contributions. The project encourages and assists branch organizations of BIA to set-up such Payroll Administration Services for member enterprises at the local level. This will enable companies with informal sector practices to move to the formal sector and integrate into the modern economy.
A Contribution Payment Center can facilitate, and ensure that each employer, whatever the size of his/her firm, to operate in conformity with social and fiscal legislation, collective agreements, the various sector and social insurances as well as tax deduction rules. It is a service, which the individual employer has to subscribe to and pay for.
2. The new project is part of a wider fiscal and social reform package in the country...
As there is a strong need to improve the collection of social and fiscal contributions in Bulgaria, the Government has decided to set-up a common office for collecting both fiscal and social contributions from employers and enterprises following a recommendation from the World Bank and the International Monetary Fund. But obviously there is also a need to find simple and manageable ways for private enterprises, large and small, to comply with social contribution payments.
The development of Payroll Administration Services in branch organizations of BIA is a relatively simple mechanism which enables the individual enterprise to pay its social and fiscal contributions. It works well in a number of other European countries, such as Belgium, the Netherlands, France and Italy where such services have existed for decades.
3. How does the project link to the social and economic situation of Bulgaria?
Bulgaria has a lot to gain from enterprises moving from informality into formality, and thus paying their fiscal and social contributions.
This should also been seen in the context of high unemployment rates, which have been double digit over the last decade. While the figure has fallen slightly recently, national statistics do not include a large number of people who would like to work, but are not actively looking for work.
Officially, Bulgarian wages are relatively low by Central and Eastern European standards. In both US dollar and real terms, wage and income levels have fluctuated considerably since 1989. In 2003, the average monthly income was approximately US$160 for those employed. This figure, however, does not translate directly into household income, as it does not take into account the informal economy, which represents an estimated 25-30 per cent of the GDP in the region. In addition, there is a substantial level of home production.
4. Why did you involve the BIA in the project execution?
BIA is the largest employers' organization in Bulgaria, and has a professional secretariat of some 75 employees. It also has a well-developed IT service department; BIA-net (www.bia-bg.com). BIA incorporates 81 regional organizations, municipal associations and chambers, and local bodies corresponding to the administrative divisions of Bulgaria. It also incorporates 73 branch organizations representing all sectors of the Bulgarian economy. BIA estimates that they represent in the level of 15,000 - 18,000 member enterprises. It goes without saying that BIA with its structure and organization is very well placed for developing Payroll Administration Services.
Furthermore, as a key representative of private sector interests, BIA has expressed a clear interest in seeing a move from informality to formality as both formal and informal economy enterprises operate within the same overall business environment.
5. Which effects do you expect from involving BIA?
Basically, we see three major effects: BIA underpins its position vis-à-vis the Government showing a clear commitment to moving enterprises from informality to formality. The employers' organization also demonstrates that enterprises currently operating in informality can utilize the services provided by their branch organizations and thereby become formal - this also entails paying tax, social contributions and similar. At the same time, BIA will facilitate and assist its branch organizations to develop other new services.
For example, BIA also recently launched a project to develop occupational safety and health (OSH) services in their branch organizations. It organized a workshop in Sofia in which selected branch organizations participated. The latter expressed a profound interest to test the viability of establishing OSH services in their branch organizations.
BIA will also have to lobby to the new Government for the changes in the regulations on the Contribution Payment Centers: at present, only employers with a maximum of 10 workers can join such centers. As there is no objective justification for this limit of 10, BIA tries to obtain that all employers can benefit from this new service without any discrimination. The ILO supports BIA in these efforts.
6. Does the ILO intend to launch similar programs in other transition countries?
Yes, there is a strong demand for such programs among employers' organizations in other transition countries. Over the last three years, several employers' organizations in Central Europe, including those from Romania, Croatia, Slovakia and Zepce, Municipal Organization (Bosnia-Herzegovina), have expressed an interest in developing "Payroll Administration Services" specifically designed for SMEs. The employers' organizations in Slovakia and Zepce are currently working on feasibility studies for developing such services. Current experiences in Bulgaria could stimulate further development of such services in other transition countries.
7. What has been achieved so far?
In Bulgaria, we expect that functioning Payroll Administration Services will have been established in selected BIA branch organizations by the end of 2005. Currently, we are supporting BIA to develop computer-based software that can assist their branch organizations to administer and manage the Payroll Administration Service. At the same time, we launched a marketing campaign, with both a general and a more specific component targeted at informal enterprises. By the end of the year, BIA will disseminate its findings and experiences to selected Central and Eastern European Employers' Organizations, and members of the South-Eastern European Employers' Forum (SEEEF), which was set-up in 1999 with support of ILO/ACTEMP. This will be done during a conference to be held in Plovdiv, Bulgaria, in November 2005.