Investigations Into Illegal Employment or Pseudo Self-Employment in Germany

What to do in case of alleged illegal work/pseudo self-employment or embezzlement of social security contributions?

Many employers, especially in the construction industry, are repeatedly accused of

  • employing workers who have not been registered for social security,
  • employing workers for whom they supposedly do not pay income tax,
  • engaging in undeclared work or
  • hiring subcontractors who are pseudo self-employed, so that these subcontractors would also have to be considered employees.

As a rule, each of these accusations entails criminal proceedings - albeit often wrongfully.

What leads to these accusations?

In our experience, investigations into illegal employment essentially occur when

  1. an inspection is/was carried out by the customs authorities,
  2. a tax audit is conducted by the tax authorities,
  3. there is a special VAT audit or
  4. the authorities receive anonymous reports from ex-partners or former employees

Customs inspections are well known and often lead to follow-up procedures. What is less known is that the tax offices often exchange information with each other. Particularly if there is a suspicion of false invoices, this is often the reason for further checks and procedures.

Surprisingly often, the reason for investigations is an anonymous report that, however, can often be attributed to former romantic partners or a former employee based on the findings and the writing style. In contrast, reports from past business partners are rare.

What are the penalties for illegal employment and embezzlement in Germany?

According to Section 266a of the German Criminal Code (StGB), it is a criminal offense to withhold or embezzle remuneration as an employer. This offense is almost always accompanied by the accusation of tax evasion (Section 370 of the German Tax Code).

While under criminal law a prison sentence of several years can be the consequence, in practice the additional claims from the tax authorities and the pension insurance are often the financial knock-out factor.

An example:

A building contractor has specialized in drywall construction. Since he is very busy during the summer months, he hires subcontractors to carry out some of the work. He cannot process all orders with his own employees but does not want to refuse any jobs.

Two years later it turns out that - although he always checked all subcontractors and obtained clearance certificates etc. - some subcontractors did not register all employees and other subcontractors did not even exist, but rather all documents were forged.

However, since the contractor booked invoices from the subcontractors and thus reduced his profit as a business expense, the public prosecutor's office - sometimes initially the customs office itself - conducts criminal proceedings on suspicion of embezzlement of employee shares and tax evasion.

At the same time, the tax authorities change the tax assessment notices on the basis of the alleged findings of the public prosecutor's office and demand a five-figure back payment of taxes. Finally, the pension insurance agency also gets involved and demands additional social security contributions for the last few years because the entrepreneur had allegedly employed undeclared workers.

Since the period of limitations for illegal employment is up to 30 years, the penalties for late payment and interest often amount to millions, even with only a few employees.

Entrepreneurs who oppose this must expect that both the tax office and the pension insurance agency will initially claim all back payments and will also enforce them by blocking bank accounts and foreclosure.

How should entrepreneurs act during investigations into illegal employment?

In such a case, it is important to remember never to talk to the authorities yourself. Everything you say can be used against the person accused and the company involved. In our experience, rash and ill-advised statements often give rise to suspicion.

It is therefore advisable to contact a specialist lawyer for commercial criminal law and tax evasion immediately. Such cases involve a specific interplay of tax law, criminal law and social security law, because three types of proceedings must be conducted in parallel:

  1. The criminal proceedings
  2. The proceedings against the tax authorities
  3. The proceedings against the pension insurance agency

All procedures are self-contained and are not mutually dependent. Nevertheless, it would be naive to believe that the officials do not exchange information. Therefore a comprehensive consultation/defense must take into account that what works well in criminal proceedings does not always make sense in financial proceedings - and vice versa.

These wide-ranging and complex aspects must be discussed with the client in order to ensure that the counsel is tailored to his or her case and circumstances. Because the main objectives are always clear: the company must be able to continue to survive economically and the penalty - if it cannot be avoided completely - must be such that the entrepreneur's existence is not destroyed.

Contact WINHELLER early on

One could be of the opinion that the authorities investigate objectively and in the end the truth will emerge - provided one is innocent. Likewise, one could be of the opinion that it is best to keep quiet if there is something to the accusations.

Our experience shows that these assumptions are not only naive, but can lead to crass and devastating results. This becomes apparent whenever those affected turn to a defense attorney very late, as soon as they realize that the proceedings are getting out of hand or that they cannot succeed in defending themselves. However, the defense in such cases becomes much more difficult, and unconsidered actions of the person concerned can hardly be corrected. Often the authorities have become so entrenched at this stage or have formed such a strong opinion that it is extremely difficult to do anything about it.

A good defense always starts as early as possible so that the investigation can be influenced. Furthermore, one can also influence the procedures of the tax authorities and the pension insurance. In our experience, a legal defense is very useful because it enables the person concerned to fully exercise their rights and to develop a defense strategy that protects their interests as well as possible.

Our services regarding investigations on illegal work and embezzlement

If you are involved in criminal (customs or public prosecution), financial (tax office) or social security (German pension insurance) proceedings or if a customs inspection or even a house search has already taken place, we can accompany and defend you comprehensively during all these proceedings.

We can

  • be present during house searches and check their legality
  • take charge of the criminal defense,
  • correspond with the authorities and submit applications
  • conduct internal investigations if necessary,
  • prepare and file applications for suspension of execution and appeals,
  • represent you - if it cannot be avoided - in court as well,
  • advise you on how to avoid similar problems in the future,
  • advise you preventively, if you do not want to get into trouble in the first place.

Transparent cost control

We coordinate all our activities with you and not only provide you with advice on the options available to you, but also discuss with you beforehand what costs are involved so that you can keep control of your expenses.

We are aware that situations threatening the existence of a company represent a great psychological burden. We are therefore prepared to do everything in our power to ensure that the proceedings are terminated as quickly as possible - if this makes tactical sense - so that you can concentrate on your core business again.

Your attorney in investigations on illegal employment and embezzlement

Are you already under investigation for illegal employment, pseudo self-employment or embezzlement of social security contributions? Or would you like to protect yourself against such investigations? Attorney Bartosz Dzionsko and Attorney Alice Romisch will be happy to work out the optimal defense strategy with you. The easiest way to reach us is by e-mail (info@winheller.com) or by phone (+49 (0)69 76 75 77 80).

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Awards

Juve AwardLegal 500 Germany 2019
azur100: Top Employer for Lawyers 2018