A new mechanism will be applied in Azerbaijan to counter cases of hidden wages. According to Deputy Minister of Labour and Social Protection of the Population Zaur Aliyev, one of its main advantages is that wages will not only be formalized at the amount specified in the employment contract or the relevant information system, but their actual payment can also be tracked on the basis of electronic data.
Quote: “Wages and other payments to employees are to be made through the electronic payment system determined by the Central Bank of Azerbaijan, on the basis of data obtained from the Centralized Electronic Information System of the Ministry of Labour and Social Protection of the Population (MLSPP).”
What will be the advantages of the new mechanism? What process awaits employers?
Economist Asif Ibrahimov, speaking to Globalinfo.az, said the innovation will have several important economic consequences:
“First of all, it will become easier to detect cases where part of a wage is not shown in official documents and the additional funds are paid to the employee in cash. At present, some enterprises state the minimum wage or an amount below actual income in the employment contract, while the rest is paid informally. This practice has a negative impact on state budget tax revenues, the social insurance system and employees’ future pension provision. As a result of the application of the new mechanism, a more systematic control will be possible between wage data, social insurance payments and actual bank transfers. Formalization of an employee’s real income will also have a positive effect on the formation of his pension capital, his future social protection and the payments he receives during illness and leave.”
Asif Ibrahimov
The economist said employers face certain organizational and technical changes:
“Enterprises must adapt their payroll accounting, accounting and human resources systems to the new mechanism, ensure the accuracy of information in employment contracts, and formalize bonuses and allowances transparently. Particularly at enterprises with a large number of employees, there may be a need to restructure internal accounting and payment processes. Here the capabilities of small and medium-sized businesses must also be taken into account. Because not every enterprise has the same financial and technical resources to switch to modern electronic accounting systems. The application of the new mechanism must be carried out in stages, entrepreneurs must be given an adaptation period and the necessary technical support must be provided.”
A. Ibrahimov noted that for this reform to produce a successful result, alongside the formalization of wages, the tax and social insurance burden on the payroll fund must also be assessed from an economic standpoint:
“The entrepreneur’s interest in formalizing wages must be strengthened, and the economic advantages of legal employment must be increased. Otherwise, high operating and tax costs may not fully eliminate the tendency toward informal payments. This mechanism will benefit the state budget through additional tax and social insurance revenues, employees through more reliable social protection, and entrepreneurs through the automation of payroll accounting. In the long term, an important data base will also be formed for determining the real indicators of the labour market, analyzing labour productivity and planning economic policy more accurately. The most important point is to balance the interests of the state, employers and employees during the application of the new mechanism. Transparency must increase, administrative procedures must be simplified, the costs of entrepreneurial activity must not rise unjustifiably and employees’ labour rights must be reliably protected.”
Laman Imran
Globalinfo.az
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