ANALYSIS: Almost 15 percent of the latest list of non-payers of wages received support from HZZ

Author: Josipa Mandarić, Fininfo

The Tax Administration published the latest list of employers who have not paid wages to their employees for three consecutive months on May 27. The list contains a total of 1,237 employers, of which 1,185 are legal entities, while the remaining 53 are natural persons, i.e., craftsmen. Together, they have not paid wages for a total of 2,310 employees they employ. The Tax Administration’s website explains that the data on unpaid wages is based on submitted JOPPD forms in which employers reported unpaid wages for the period from January to March of this year.

The criteria for inclusion on the list are non-payment of wages for 3 consecutive months or 3 months of non-payment within a 6-month period. Additionally, it is noted that the list does not contain data on taxpayers who did not submit the JOPPD form, nor on those who reported unpaid wages but not for 3 consecutive months. Also, the list does not include taxpayers who have not paid wages but have reported wage payments and have incurred public liabilities as if they had paid wages.

In the following, we will focus on the part of the list consisting of legal entities, i.e., 1,185 employers who have not paid wages for 2,193 employees.

The most represented activities on the list of non-payers of wages

The activities that are most common among employers who appeared on the latest list of non-payers of wages are:

1. Food and beverage preparation and serving activities
2. Wholesale trade (except vehicles)
3. Building construction
4. Specialized construction activities
5. Land transport and pipeline transport
6. Retail trade (except vehicles)
7. Architectural activities and engineering; technical testing and analysis
8. Other service activities
9. Management activities; management consulting
10. Real estate activities

Employers belonging to these activities account for almost 62% of the total list of non-payers of wages and have not paid wages for 1,226 employees during the observed period. The following table shows how many non-payers of wages belong to each activity and for how many employees in those activities wages have not been paid.

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Fininfo analysis

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Considering that the list includes legal entities that have consecutively not paid wages for the period from January 1 to March 31 of this year, these are employers who have been having problems with wage payments for at least 2 months before the adoption of the “Decision on measures to limit social gatherings, work in trade, service activities, and the holding of sports and cultural events.” If we compare the activities that are most represented on the list of non-payers of wages with the activities that received the most support for job preservation for March 2020, we can observe overlaps. The following six activities that are on the list of non-payers of wages are also among the top 11 activities that received the largest payments of support for March:

• Food and beverage preparation and serving activities
• Wholesale trade, except for the trade in motor vehicles and motorcycles
• Building construction
• Specialized construction activities
• Land and pipeline transport
• Retail trade, except for the trade in motor vehicles and motorcycles

In addition to the fact that entities belonging to the mentioned activities have not consecutively paid wages for the first 3 months of this year, their income for March has also significantly decreased, and the support for job preservation covers only part of the operating costs. Given all of the above and the expected continuation of negative trends in the remainder of 2020, the combination of these factors could imply a more unfavorable situation in the mentioned activities.

Non-payers of wages and support for job preservation

In addition to the overlaps of the most represented activities on the list of non-payers of wages with the activities that received the largest payments of support for March 2020, interesting overlaps can also be seen in the list of employers from these two lists.

Thus, 147 legal entities from the list of non-payers of wages received support for job preservation for March. Therefore, almost 15% of the latest list of non-payers of wages received support. These employers have not paid wages for a total of 550 employees during the observed period and have received support of 1.77 million kuna for March. Of the 147 entities that are recipients of support, 34 entered the list in 2020, i.e., they were not on the list of non-payers of wages for 2019. The remaining 113 were also on the previously published list of non-payers of wages, which means that 76.9% of the recipients of support for March 2020, who are also non-payers of wages, have had problems with wage payments for a period of at least half a year before the introduction of measures of limited business caused by COVID-19.

The structure of the list of non-payers of wages over the years

The first list of non-payers of wages was published by the Tax Administration on July 15, 2014. At that time, the list contained 5,619 legal entities that had not paid wages for 19,449 employees during the first quarter of 2014. From the first published list in 2014 to the latest list in 2020, there has been an increase in employers who have not paid wages for just one employee during the observed time period. Although there is a noticeable increase in the share of legal entities with unpaid wages for one employee, there is a significant decrease in the number of entities on the list, so the latest list is almost 5 times smaller than the first published one. 

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Share of employers who have not paid wages for 1 employee.

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Furthermore, the share of employers who have not paid wages for at least 5 employees during the observed period has also changed significantly. On the first list from 2014, such employers (with 5 or more employees) accounted for 16.5% of the entire list, while on the last list from 2020, they account for just under 4%.

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Share of employers who have not paid wages for at least 5 employees

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After almost 6 years since the publication of the first list of non-payers of wages, this trend indicates that the publication of the list fulfills its purpose – encouraging employers to timely fulfill their overdue obligations to employees. Thus, transparency in this case serves to enhance the responsibility of employers towards their employees, which is particularly evident among larger employers whose share on the list has significantly decreased, and they represent the most sensitive part of entities in terms of publication on this list (reputational, business, and other risks). Additionally, we can assume that in the case of employers who have not paid wages for one employee, it often concerns the owners themselves who have not paid themselves wages and have therefore found themselves on the list of non-payers.

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