Unreported Employment and Paying Workers “Under the table”: Legal Considerations for Religious Entities

Religious entities formally recognised by the State (also known as Legally Recognised Ecclesiastical Entities, or LREE) are bona-fide legal entities. That standing should be taken duly into account, especially in interactions with third parties.

Thus, even in the routine management of the Entity’s everyday needs, one must identify and apply the proper legal rules in order to avoid any negative consequences to the Entity.

In point of fact, LREEs routinely rely on the work, or at least the support, of outsourced labour for routine operations as well as to manage activities that might be characterised as discrete business operations.

Thus, the LREE have bona-fide employees to whom Italian labour laws (which are not always the easiest to decipher) apply.

In this article we hope to clarify one of the thorniest issues that crops up with respect to religious entities: paying employees “under the table”.

Indeed, the very nature of these entities leads to a “mom and pop” style of staff management in any number of cases.

So, even though the religious entity is acting with all the good faith in the world, there are situations in which personnel have not been legally hired to work with a given congregation.

There can even be enforceable oral agreements that deprive the religious entity (not to mention the worker) of written guarantees in case of any dispute or litigation.

Obviously, work that is not properly organised from a legal standpoint can trigger negative consequences, especially in terms of fines, for any religious entity that has onboarded personnel without legally hiring them.

Let’s define, once and for all, what unreported or illegal employment is, also known as working or paying someone “under the table”.

Working “Under the Table”

This is a type of employment where the employer did not – prior to the worker’s start date – properly notify the benefits associations, ministry of labour, and insurance agency (INAIL, ITL, INPS) that as of a certain date an employment relationship would begin.

Thus, to begin to be compliant, there must be a notice of hiring for each employee.

Nowadays, with the advent of online options, compliance involves submitting the Mandatory Disclosure (MD) online through a designated portable by an accredited party (which might be the employer, but more often is a solicitor or qualified accounted, acting in the employer’s stead).

The mandatory disclosure includes, along with the employer and employee’s details, information on the work relationship, to wit: start date, job duties, pay grade (which includes level of responsibility as well). That compliance creates a shield against potential fines from INPS, INAIL, or the Ministry for properly disclosed employment relationships.

From the foregoing it is clear that only a legally recognised entity can legally hire an employee, meaning an LREE, in the case of a religious organisation. Any other kind of hiring is per-se illegal.

Failure to Submit the Mandatory Disclosure

Having an employee on staff who has not been the subject of a MD leads to serious consequences for the employer, with hefty fines for each undisclosed worker.

First of all, for each worker for whom the MD to INPS was omitted or even simply delayed will trigger a fine ranging from Euro 100 to 500 for each undisclosed work relationship.

Likewise subject to a fine is the failure to deliver a copy of the MD (or the data contained therein) to the employee. The fine for that infraction ranges from Euro 250 to 1500 for each worker.

One should note that these fines apply to all types of workers, including domestic workers (which religious entities often use).

The “Jumbo Fine”

Up until November 2010, the employer was subject to what was known as a “jumbo fine” for any illegal workers.

In fact, where the worker was not enrolled with INPS, the Regional Labour Inspectorate (“ITL”) could levy a jumbo fine, ranging from a minimum of Euro 1,500 to a maximum of Euro 36,000 (depending on the period of time in which the worker was being paid “under the table”).

That additional fine thus applied to all workers up until November of 2010, at which point it no longer applied to domestic workers (although all other fines listed supra continued to apply).

For any other workers (like the scenario analysed in Example 2, infra), the jumbo fine would still apply.

INPS and Domestic Work

Likewise with respect to domestic workers, one must bear in mind that if the disclosure is made late, albeit within one year from the start of the work relationships, the INPS fines will be levied only for the quarters paid late (as we know, domestic-worker withholdings are remitted quarterly) in accordance with Law no. 388/2000, which establishes a more lenient penalty system that the one previously in place.

To wit, the civil-law fine for any withholding evasion is 30% of the omitted withholding (for each year or portion thereof). This fine phases out at a certain point, after which only the interest shall be levied.

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Illegal employment can therefore be a serious problem for the religious entity regardless of the type of worker involved.

We will conclude with two examples presenting two hypothetical (but not uncommon) scenarios from daily practice.

In the first example, the religious entity’s employee can be classified as a regular domestic worker;

In the second, the worker, although employed by a religious entity, is classified as an employee of a specific industry employer (e.g. hotel or restaurant services at the LREE’s location).

Example 1: Domestic Worker

Let’s take a look at someone who has been on staff with a religious entity for some time, who was welcomed in informally by the religious institution but never formally hired in the manner described supra.

The following fines may apply to this scenario:

    – A fine ranging from Euro 100 to 500 for the omitted MD;

    – A fine ranging from Euro 250 to 1500 for failing to deliver a copy of the MD to the worker;

    – Furthermore, one will be required to pay INPS (with a variable amount depending on how long the worker has been working) the omitted withholdings, grossed-up by 30% for each year (or portion thereof).

Therefore, even in the simple scenario of domestic work, the fines for the employer may be hefty where – even whilst acting in good faith – the employer failed to comply with all legal formalities.

Example 2: Employee working for an employer classified as a business operator (e.g. hotelier or restaurateur)

Now let us look at a case where a religious entity has rather sizable headquarters, and runs a hotel or restaurant onsite. In such cases, the worker can no longer be classified as a domestic worker, but will be deemed an employee of a bona-fide business.

Thus, as we have seen, should the work not be reported as required by law, the jumbo fine discussed supra may apply.

This would become especially burdensome for the religious entity in that, should we fail to submit that disclosure, the fine could range from Euro 1,500 to 36,000 (the latter where more than sixty days have elapsed without the employment being reported).

Other Potential Consequences

It is therefore always advisable to properly report one’s own employees, domestic or otherwise.

Furthermore, as burdensome as the consequences noted above are for a religious entity, these only touch on fines levied by INPS, INAIL, or by the ITL.

There is, in point of fact, another potential consequence, which is the worker acting in bad faith. Such party exploits an employer “discovered” to have been paying under the table by taking advantage of the situation to file suit on the religious entity to seek more money than actually owed (perhaps through the use of self-serving testimony).

Therefore, predicated in part on the employer having failed to report employment, employment litigation might be instituted as against the religious entity to demand payment of a Christmas or Summer bonus, unpaid overtime, unused leave time, and other potential claims that might aggravate the impact on the religious entity’s financial position.

If your religious entity needs clarification on this or any other issue, please do not hesitate to ring us on +39 06 3671 2232 or to email us at info@dikaios.international.