Anyone who illegally employs workers in Germany, pays less than the statutory minimum wage and/or fails to pay social security contributions and income tax properly is in breach of applicable labour law, particularly the Act to Combat Undeclared Work (SchwarzArbG). Such violations can be classified as administrative or criminal offences and, in both cases, have significant consequences, ranging from high fines to imprisonment. In addition, searches and seizures may be carried out, which can impair business operations. Furthermore, the necessary additional payments of social security contributions and income tax, as well as a considerable loss of reputation, must be considered – risks that can seriously jeopardise the continued existence of a company.
As an interdisciplinary law firm in Germany, Schlun & Elseven specialises in complex, cross-disciplinary issues in employment relationships. In cases of violations of the Act to Combat Illegal Employment, we support our clients with in-depth expertise in labour, tax, and commercial criminal law.
When Is Work Considered “Illegal Employment” Under German Law?
“Illegal employment” (Schwarzarbeit) occurs when paid work is performed without proper registration with authorities, or without paying required taxes and social security contributions (see Section 1 (2) SchwarzArbG). This may apply in the following cases:
- Employers do not correctly report employment relationships to social security agencies, do not pay contributions, or violate their record-keeping obligations.
- Employees do not fulfil their tax obligations.
- Recipients of social benefits fail to report their secondary employment to the Social Security agency.
- Self-employed persons operate a trade or craft without officially registering it.
- Employees perform paid work without reporting it to the competent authorities, in particular to evade taxes and social security contributions.
The following do not constitute undeclared work:
- Assistance within the family,
- neighbourly support,
- pure favours between private individuals.
These exceptions, described in more detail in Section 1 (4) SchwarzArbG, apply even if remuneration is paid for the activity, provided that it is minimal and not carried out regularly, commercially, or with the intention of making a profit.
Legal Consequences of Illegal Employment in Germany: Criminal Offence vs. Administrative Offence?
Illegal employment violates applicable labour law and can be prosecuted as an administrative or criminal offence. The classification in each individual case depends on which specific legal provision has been violated and significantly influences the expected penalty.
In practice, the distinction is often made based on whether the act was intentional and the extent to which taxes or social security contributions were evaded. While simple violations can be punished with administrative fines, more serious cases can result in criminal penalties such as fines or even imprisonment.
Business Registration Violations in Germany: Serious Legal Consequences
Anyone who fails to register an existing business properly or operates without being entered in the register of skilled trades is acting in breach of Section 8 (1) SchwarzArbG. Depending on the nature and severity of the violation, a fine of up to 50,000 euros may be imposed.
In addition, failure to register can also have tax and social security consequences. If income is not reported, for example, there is an additional risk of prosecution for tax evasion. Retroactive social security contributions may also be demanded, which can significantly increase the financial burden.
Furthermore, failure to register can have adverse effects on insurance coverage. In many cases, without official registration, there is no entitlement to benefits from statutory accident insurance. In the event of damage, this can lead to considerable disadvantages, especially in the case of accidents at work. It is also generally not possible to apply for subsidies, grants, or loans without a valid business registration. Finally, the competent authority may impose a ban on activities in the event of repeated violations or a lack of the necessary reliability. This can seriously jeopardise your professional existence.
Social Security Contribution Violations: Criminal Penalties
According to Section 266a StGB (German Criminal Code), an employer commits a criminal offence if they fail to pay the social security contributions due for their employees. Providing false or incomplete information to social security institutions – for example, regarding the scope of employment – can also have criminal consequences. In such a case, the employer faces either a fine or imprisonment of up to five years. In particularly serious cases, the penalty can be increased to imprisonment of six months to ten years.
However, such violations may also be treated as administrative offences, especially if they were committed recklessly, which indicates a high degree of negligence. In this case, the fine can be up to $50,000. The accusation of illegal employment should, therefore, never be underestimated—it is advisable to seek legal advice from a lawyer specialising in labor law at an early stage.
How to Respond to Criminal Investigations in Germany: Protecting Your Rights
If you, as an employer, are confronted with allegations of illegal employment and criminal investigations have been initiated against you, the first step is to remain calm. Rash statements made during a police interrogation can quickly be misunderstood or misinterpreted and later be used against you. However, as the accused, you are not obliged to make any statements to the police. On the contrary, you have the right to remain silent, which is often the wiser choice. Only with legal support can you develop a sound assessment of the situation and an effective defense strategy.
Practice Group: German Customs Lawyers
Practice Group:
German Customs Lawyers
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