Inspections of the “Švarc” system are an increasingly relevant topic. Yet the Labor Inspectorate is not paying attention to just to what the company has written in the contract with self-employed individuals. What matters most is how the collaboration actually works in practice. What auditors monitor, where do they get information, and which sectors they consider to be high-risk , and why they may not help even a sole proprietorship s.r.o.? Peter Varga of the Highgate Group also discussed this with Juraj Hajš, director of the Trenčín Labor Inspectorate, at Highgate Talks #49.
When inspecting for illegal work and illegal employment, the labor inspectorate is not required to give advance notice if announcing the inspection could defeat its purpose.
Upon arrival at the workplace, the inspector presents identification and may verify the identity of the persons present, the reason for their presence, and the activities they are performing at the workplace. Inspectors may also make video, audio, or audio-visual recordings under the conditions provided by law.
It is also important for companies to note that their official registered office may not be the decisive factor. The inspection authority is primarily interested in the location where the work is actually performed.
Furthermore, inspections do not have to be initiated solely on the basis of a complaint from an employee. Information may come from other inspections, reports from third parties, or cooperation with other authorities. Under certain circumstances, the inspectorate may also investigate an anonymous report.
At Highgate Group, the Švarc system is an issue we have long been addressing from both an employment law and a tax and social security perspective. It is precisely the interdisciplinary nature of this issue that is important; an assessment under labor law may be only the beginning of further tax and social security issues.
Listen to the full Highgate Talks #49 podcast, in which Peter Varga and Juraj Hajšo discuss the “švarc” system in more detail:
One of the most common misconceptions is the idea that if a self-employed person bills multiple clients, the “Švarc” system is automatically ruled out.
It isn’t.
During the discussion, Juraj Hajšo gave a simple example of a chef working as a self-employed contractor. If he goes to the workplace, personally performs the assigned work, receives instructions on what to do and how to do it, and cannot be replaced, his activity may exhibit characteristics of dependent employment. This conclusion is not necessarily altered by the fact that, in his free time, he provides entirely different services to other clients.
Conversely, even the presence of certain characteristics typical of dependent work does not necessarily mean that the employment is illegal. The podcast also featured the example of a specialized electrician, in which the inspectorate concluded, after a more detailed investigation, that it was not a case of the “Švarc system.”
It is therefore essential to assess each specific relationship on a case-by-case basis.
The Inspectorate primarily compares the characteristics of employment with those of genuine business activity. In practice, relevant factors may include, for example, who issues instructions, whether the person acts on their own behalf or on behalf of others, whether they can arrange for a substitute, and to what extent they actually organize their activities as an independent entrepreneur.
A well-drafted contract alone will therefore not solve the problem if the reality of how the relationship works tells a different story.
The “Švarc” system isn’t limited to manufacturing plants or the construction industry.
The podcast highlighted four areas in which the inspectorate encounters potentially problematic relationships:
A fairly clear example of this is a situation where permanent employees and self-employed individuals work side by side on the same production line, performing the same tasks under comparable conditions.
In the construction industry, the situation can be more complicated, because a self-employed tradesperson can naturally work on multiple projects and actually run a business.
IT and marketing professions represent a special category. Working remotely or a contractor’s high level of expertise do not in and of themselves preclude dependent employment. According to Juraj Hajš, the labor inspectorate cannot apply the law differently to a production line worker and a high-earning programmer. The specific factual circumstances of the relationship should be the deciding factor.
In professional fields in particular, the line between a legitimate B2B relationship and dependent employment can be significantly less clear.
A common response to the discussion about the “Švarc system” is the idea that, instead of operating as a sole proprietor, a contractor would provide services through his or her own single-member s.r.o.
However, even that may not automatically solve the root of the problem.
During an inspection, the reason for a specific individual’s presence at the workplace and the manner in which that individual actually performs the work are examined. Therefore, the mere formal involvement of a business entity between the client and the individual may not, in and of itself, be a sufficient argument.
A similar approach should be taken to hybrid models in which a single person is both an employee and a contractor for the company.
Such an arrangement is not necessarily incorrect. If a person, as an employee, performs one activity and, through a business relationship, provides another, genuinely independent service, this distinction may be justified.
The problem arises especially when an employment relationship is divided only in name. For example, a person performs a certain activity for two hours a day as an employee and then spends the next six hours doing exactly the same work as a self-employed individual.
What matters, therefore, is once again the actual substance of the collaboration, not merely the name of the contract or the form in which the invoice is issued.
We will also address the issue of the “Švarc system” at our conference, “Why and How to Stay in Slovakia?”, which will take place on November 25, 2026. We will discuss how to do business effectively in Slovakia, how to set up ownership and tax structures, and what changes can be expected as legislation continues to evolve.
According to information provided in the podcast, as of January 1, 2026, the minimum fine for illegal employment has been raised to 4,000 euros, and if two or more people are employed illegally at the same time, the minimum fine is 8,000 euros.
However, the fine imposed by the inspectorate itself may not be the greatest financial risk.
Once a fine has been legally imposed, the inspectorate is required to notify other relevant agencies. This may result in a series of further audits and inquiries regarding taxes, social security, or health insurance.
In addition, other tax issues come into play. If a company provides contractors with cars, lodging, or other benefits, questions may arise regarding their tax deductibility or VAT deductibility.
For entrepreneurs, therefore, the “Švarc system” is not merely an isolated labor law issue. An improperly structured contractor model can have implications for labor law, taxes, and social security contributions.
At Highgate Group, therefore, when establishing partnerships with sole proprietors and other contractors, we look at the entire business model, not just the contract itself. The goal is to structure these relationships so that they reflect economic reality while also being legally and fiscally sound.
You can watch the entire discussion between Peter Varga and Juraj Hajš about Labor Inspectorate inspections, the characteristics of dependent employment, single-member limited liability companies, IT and marketing professions, and foreign workers in Highgate Talks #49.
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You can find more information about the Švarc system on our website in this section: “Employment” of Self-Employed Individuals (Švarc System)
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