Illegal employment costs the state tens of billions of crowns
PRESS RELEASE ON AUDIT NO 24/14 – 4 August 2025
Illegal employment, where employers do not pay taxes, social security contributions, and public health insurance, and employees receive unregistered wages, has a significant negative impact on state budget revenues in addition to its impact on the employees themselves. The Supreme Audit Office (SAO) examined whether the responsible state administration authorities cooperated and exchanged information between 2019 and 2023 in order to assess additional personal income tax, social security contributions, and public health insurance contributions from illegally paid remuneration. The audit showed that the institutions did not exchange the necessary information within the set deadlines, that employers who were fined for illegally employing foreigners were not charged the statutory insurance payments, that the Ministry of Finance (MoF) did not request refunds of public health insurance premiums paid for illegally employed job seekers, and that the tax inspections conducted by the Financial Administration of the Czech Republic on the basis of suggestions from the supervisory authorities had a low fiscal effect.
Given that the last official estimate of the extent of illegal work was carried out by the then Research Institute for Labour and Social Affairs in 2014, the SAO made its own estimate of the loss of revenue from taxes and statutory insurance. This rough estimate showed that between 2019 and 2022, the state could lose an average of CZK 92 billion due to illegal employment (this is the average when considering the minimum and average wages).
In 2023, the European Commission published a study estimating the impact of the shadow economy and undeclared work in European countries in 2017 and 2019. For the Czech Republic, the estimated loss of income from employment in 2019 was almost CZK 89 billion (1.5% of GDP).
The SAO audit revealed that neither the Czech Social Security Administration (CSSA) nor the State Labour Inspection Office (SLIO) assessed additional statutory insurance payments to employers who were fined for illegally employing foreigners without valid residence permits in the Czech Republic. The SAO found that, due to the insufficient implementation of the European Sanctions Directive, no law specified which state administration body was competent to collect these insurance payments from employers.
Between 2019 and 2023, the SLIO imposed a total of 2,450 fines totalling CZK 740 million in connection with illegal employment. In total, labour inspection authorities and customs authorities carried out 35,561 inspections focusing on illegal employment. During these inspections, labour inspectors identified 16,109 illegally employed persons, of whom almost 80% were non-EU foreigners.
The audit also showed that the MoF did not request refunds for public health insurance premiums it had paid (as part of payments for state-insured persons) for job seekers working illegally. Nor did it have data on the number of insured persons for whom the state pays insurance premiums and who were also found to be working illegally. The SAO had already criticised this during its audit in 2018. Since then, the MoF has not analysed the significance of the impact of the non-reimbursement of unjustifiably paid health insurance on the state budget.
With regard to tax inspections, the SAO found that between 2021 and 2023, inspections conducted by the Financial Administration of the Czech Republic on the basis of reports from the SLIO and the General Directorate of Customs had a low fiscal effect – CZK 1 million. During those years, the Financial Administration conducted a total of 21 tax inspections in the area of illegal employment.
Communication Department
Supreme Audit Office