Work constitutes one of the main spheres of human life. Hence, the perception of work or a job in particular should affect the subjective well-being of an individual. The absence of any written labour contract, also known as 'informal employment', leads to an uncertain future, an unstable and low income situation resulting in low job satisfaction. In this paper, we disclose the impact of informal employment on subjective well-being in European countries by explaining the differences between countries through employment protection legislation. Informal employment in countries with liberal employment protection legislation has a less negative effect on the subjective well-being of employees than in countries with strict legislation. The results, based on European Social Survey (2010) data, demonstrate a negative relationship between informal employment and subjective well-being. Countries with strict labour legislation face lower levels of subjective well-being due to a higher share of informal workers and a greater difference in happiness scores between the insiders (permanent workers) and outsiders (informal workers).