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Bosnia and Herzegovina: Enabling Labor Market Mobility

2006-2010 || U.S. Agency for International Development

Abstract

Deloitte helped both public sector (ministries of finance and labor, tax and inspection administrations) and private sector (trade unions and employers’ associations) institutions in Bosnia and Herzegovina (including the Federation of Bosnia and Herzegovina and the Republika Srpska) in their efforts to remove obstacles to labor market growth and small and medium enterprise development. Deloitte advisors streamlined the process for employers to register their employees for tax and social insurance purposes, pay taxes, and report on payment of compliance. We also supported each entity’s inspection administration to align labor inspection with international standards by emphasizing a preventive approach that seeks to work with, rather than punish, businesses. We also assisted the social partners (government, labor and employers) to improve social dialogue (including collective bargaining) and the underlying, socialist-based labor legislation.

The Challenge

Yugoslav-era legacy systems continued to inhibit the free movement of labor by making it costly for businesses to hire and release employees. The growth of Bosnian’s informal sector is a direct result.  Remnants from the old system, such as manual work books; centralized, one-size-fits-all collective bargaining; and outdated inspection services contributed to the difficulties faced by SMEs to comply with labor regulations and encouraged informal employment arrangements.

How We Helped

We provided technical interventions in three areas. First, we worked with the social insurance funds and tax administrations in each entity to reach consensus on the design of a new system to streamline tax and social contribution payments, assisted in drafting the legislation, and designed and developed the IT platform that centralized many processes in the tax administration and harmonized the databases of the social insurance funds. Second, we assisted in the development of new labor legislation, particularly in the Republika Srpska, and promoted more effective social dialogue. Third, we worked with each entity to streamline the labor inspection processes by combining three inspections (labor relations, occupational health, and occupational safety) into one and focusing the inspection on preventing problems rather than simply punishing violations.

Solution

Deloitte’s work is designed to significantly reduce employers’ costs to comply with labor regulations in both Entities. The primary reform resulted in significant reduction in the amount of man-hours required for businesses to comply with their tax and social insurance contributions by centralizing their interface with the government to the tax administration, rather than four or five different organizations requiring the same reports and data. Businesses will also be subject to more reasonable inspections focusing on identifying ways to help businesses comply with the laws and improve their operations. Finally, improved methods of social dialogue are intended to replace the centralized collective bargaining structure and allow the government, private sector and labor unions to reach consensus on amendments and innovations to labor legislation necessary for EU accession.

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