On 6th May 2011 the Spanish Official Gazette published Royal Decree 5/2011 on measures “to regularise and combat undeclared employment, and to promote renovation works for habitual residences in order to regularise and combat undeclared employment”. The Royal Decree offers an amnesty period from 7 May to 31 July 2011 during which employers can register workers with the Social Security authorities. The social security contributions payable for these employees may also be postponed.

Employers who decide to register their irregular employees under this process will not face administrative penalties, unless (i) their employment contracts are terminated within six months following their workers’ registration, (ii) a social security inspection had begun before the employers opted to regularise their workers’ circumstances or (iii) complaints or claims had already been submitted to the Labour Inspectorate or to the labour courts.

Effectively this means that employers must enter into a permanent or temporary contract lasting at least six months with their newly-registered employees.

The Royal Decree also provides several measures that aim to combat undeclared employment after the amnesty period. These measures tighten the current regulations, increasing the penalties for infringements relating to undeclared employment, and amending the Public Sector Contracts Law to prohibit public sector contracting with companies that seriously breach these obligations.

This measure has had a very mixed reception in the public opinion because although the aims of regularising employment contracts and reducing tax evasion are laudable, it has been said at the same time that that is rewarding the “lawbreaker” employers, even if it is  with the aim of reducing the high unemployment rate in Spain. We will have to wait for new official figures in this regard to see if at least the measure has been effective for this purpose.