The level of informal employment in Kyrgyzstan, according to official data, exceeds 70% of the total working-age employed population. Unfortunately, this is quite a high figure.

Informal employment refers to labor relations based on an oral agreement without the signing of a written employment contract—that is, an informal segment of the labor market where workers are virtually deprived of social and legal protection.

By agreeing to work without the official formalization of labor relations, a hired worker is practically stripped of social and legal protection, becoming vulnerable in the event of conflicts or if the employer violates previously agreed terms.

In such cases, labor relations are characterized by a high degree of instability, resulting in uncertainty about the future, prospects for professional development, and the provision of social guarantees.

Key Indicators of Informal Employment:

• The absence of a written formalization of labor relations with the worker;
• The use of grey schemes and cash payments for wages;
• Evasion of taxes and insurance contributions;
• The substitution of labor relations with civil law contracts.

Often, to evade social payments, an employer—taking advantage of a worker’s lack of legal literacy—deliberately concludes a civil law contract under the guise of an employment contract, forcing the organization’s workers to operate as individual entrepreneurs.

How Do Such Informal Relations Arise?

When hiring workers, in most cases no employment contracts are signed. Alternatively, a civil law contract is arranged—such as a service contract or a contract for work—or the person works without any documentation at all.

In cases where labor relations do exist, the conclusion of an employment contract is mandatory. Only then will the worker be legally protected.

The concept of labor relations is defined in Article 13 of the Labor Code of the Kyrgyz Republic. It consists of the following key elements:

• First, labor relations are the relationship between the employer, who provides the work, and the worker, who actually performs the specified tasks.
• The worker is subject to internal regulations established by the relevant rules, instructions, and other local acts.
• Finally, the employer creates appropriate conditions for work and rest for the worker.

If all these elements are present, then labor relations exist. Accordingly, both employer and worker have a set of rights and obligations, and their relationship is formalized through an employment contract. Income tax is deducted from the worker’s salary, and insurance contributions— including those for the worker’s individual pension account—are paid into the Social Fund.

That is how it should be. In reality, however, it is no secret that some employers, in order to cut costs and evade taxes and other obligatory payments, refuse to formalize labor relations when hiring a worker—that is, they offer illegal employment.

Why Do Many Workers Engage in Informal Employment?

There are several key reasons: a low level of legal culture among the population; the inability to secure a job under a contract (due to intense competition, low wages, or an employer’s reluctance to pay taxes); flexible work schedules and the lure of supplementary income; influences from acquaintances or friends; a reluctance to work under direct supervision or within a collective; being employed without a sufficient level of education or qualifications; high levels of unemployment. Moreover, many employees themselves prefer to work without official documentation so that no deductions are made from their salaries.

Young people are particularly prone to informal employment due to a lack of education, the difficulty of securing a job without work experience, and the challenge of balancing studies with other activities.

Thus, an informal segment of the labor market is created where workers are virtually deprived of social and legal protection.

Negative Consequences of an Employer’s Evasion of Formal Employment. The list of negative consequences arising from an employer’s failure to formalize an employment contract is extensive, including:

• Failure to provide vacations and non-payment of sick pay (annual leave, temporary disability benefits);
• Lack of extra pay for night shifts, overtime work, and work on public holidays;
• No severance compensation in the event of layoffs due to staff reductions;
• No guarantee of job retention during periods of temporary disability, maternity leave, or parental leave;
• Denial of obtaining a bank loan or visa;
• The threat of being held accountable for undeclared income;
• Refusal to investigate workplace accidents or compensate for health damage incurred while performing job duties;

The real possibility of dismissal at any time at the employer’s initiative, coupled with the lack of grounds for appealing to the courts for labor rights protection.

From the employer’s perspective, using informal employment might initially seem beneficial, as it reduces costs and increases profits. However, if the enterprise faces sanctions or legal liabilities as prescribed by law, the effect can be negative.

According to research by the International Labour Organization, 1 dollar invested in ensuring workplace safety saves 7 dollars in mitigating the consequences. Employing informal labor also means failing to meet obligations regarding occupational health and safety requirements, which in turn leads to enormous risks of industrial accidents, workplace injuries, and occupational diseases. This can result in multimillion-dollar expenses to address the consequences, as well as liabilities, including criminal charges.

Unfortunately, many employers do not understand or underestimate these risks.

Today, the legalization of labor relations is especially significant, as it is not only a guarantee of the legal and socio-economic protection of Kyrgyz citizens but also a significant source of revenue for the republican budget and the budget of the Social Fund of the Kyrgyz Republic.

Consequently, every working citizen must understand that if they engage in labor, a written employment contract must be concluded. It is equally important to receive a timely monthly official salary along with a payslip detailing its components. The deduction and remittance of insurance contributions to the Social Fund of the Kyrgyz Republic will ensure a guaranteed and decent pension in the future.

Being protected is the right of every citizen!