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What global businesses need to know about payroll in Ukraine
No conversation about payroll and employment in Ukraine can avoid the impact of the ongoing conflict in the region, which started in February 2022. Putting aside the devastation, especially in the east of the country, the impact on the Ukrainian economy has been severe: the International Labour Organization found that 4.8 million jobs were lost in the country in the first three months of the conflict alone.
However, many Ukrainians are understandably keen to continue with business as best they can, especially in the parts of the country that are less affected by combat. Indeed, it could be said that there are opportunities for international businesses in the country right now, as the global community continues to take steps to support Ukraine. For example, in February 2024, the United Kingdom announced it would extend tariff-free trade on almost all Ukrainian goods until 2029.
The Ukrainian people are hard-working, highly skilled, and specialize in a range of sectors, from coal and wheat production to IT development. So while it might not be the first country you’d think of right now when it comes to international expansion, Ukraine shouldn’t be overlooked. This guide covers the basics from payroll and employment perspectives.
Getting Started
Ukraine has made positive steps in recent years to simplify and add transparency to the business set-up process, given the bureaucracy and (in some cases) corruption that has been a problem in the past. Nevertheless, it’s strongly recommended to seek the advice of a partner with Ukraine-specific business expertise, and to allow plenty of time and resources for the set-up process.
The limited liability company (TOV) is the most widely used method for foreign entities to start a business in Ukraine. This requires registration with the trade register, the drawing up of a company charter, and the submission of information about the beneficiary owners. From there, companies should get their documents notarized, obtain a Taxpayer Identification Number and a VAT number, and open a permanent bank account in-country (which can take 1-2 business days).
There is no legal minimum requirement for share capital, although companies must make sure they have enough money to cover wage, tax, and social security contributions.
Employment Considerations
Labor agreements/contracts (or civil service contracts) are required under Ukrainian law. Residents do not need a work permit in order to work in Ukraine. Non-residents have the same rights to work as residents, but must obtain work permits and residence permits in order to obtain employment. Indefinite term, fixed-term and seasonal work employment contracts are common.
Maximum working time in Ukraine is 40 hours a week, normally spread over five days of eight hours each, although it is possible for employees to work six shifts of seven hours each with mutual agreement. Shorter working weeks apply under certain labor agreements, and to workers under the age of 18.
Employees must not work more than four hours of overtime in two consecutive days, or more than 120 hours of overtime in a year. Overtime should be paid at double the normal rate; overtime worked on a rest day should be compensated with a day off in lieu. Any employee who has a disability, or is the mother to a child between three and 14 years old, must give their consent to work any overtime.
Notice periods are two months if instigated by an employer, or two weeks if instigated by the employee. However, notice periods can be waived entirely if agreed by both parties. Probation periods are generally one month for most employees, and three months for management and specialist workers.
Compensation, Bonuses and Severance
The minimum wage in Ukraine has been subject to regular and substantial increases in recent years. A new rate of 8000 hryvnias (UAH) per month (approx. £170; $210; €195) is due to be introduced on April 1 2024. Increases have not always taken place at the same time each year, so it’s worth keeping an eye out for potential changes on a regular basis.
Paying bonuses to employees in Ukraine is commonplace and there are no restrictions on doing so within the private sector. Entitlement to severance pay is one month’s salary for every two full years of service.
Tax and Social Security
Income tax in Ukraine is levied at a flat rate of 18%, plus a ‘military tax’ of 1.5% which has been applied since 2014. Non-residents working in Ukraine are taxed at the same rate, but only on income from their work in the country.
Corporation tax is also 18%, although it has been increased to 25% for banks from 2024 onwards. VAT runs at 20%, but the exporting of goods out of the Ukraine is exempt. Certain other goods and services are also given reductions in the VAT rate to 7% or 14%. Employers should note that the tax reporting year follows the financial year, and that corporation tax returns for each quarter should be made within 40 calendar days of the end of that quarter (60 days for the last quarter of the year).
Employers make a total social security contribution of 22%, although the contribution level is capped at a maximum of UAH 23,430 a month (approx. £490; $610; €575). The only contribution made by employees is 0.6% into a state fund for unemployment benefit.
Holidays and Leave
The minimum entitlement for paid leave in Ukraine is 24 calendar days once the employee has completed six months of service, with higher rates for employees who are disabled, are under the age of 18, or work in particularly hazardous jobs. Employees are also paid for time off over the 11 days of public holidays each year; holidays that fall at weekends are observed on the following Monday for public holiday purposes.
Maternity leave entitlement is 18 weeks – ten before the birth and eight after it. An extra two weeks are provided in the event of a multiple birth. The mother’s full salary is covered by the Social Security Fund of Ukraine. Paternity leave entitlement is two weeks, unpaid, and can be taken at any time during the mother’s maternity leave. Parents and grandparents can also apply for unpaid parental leave to care for a child under the age of three.
Sick leave for medically certified illness or injury is paid by the employer at full salary for the first five days of absence, after which the Social Security Fund of Ukraine pays between 50% and 100% of the salary to the employee, depending on their length of service. An employee must have at least eight years of service to get the full rate. Ukrainian law also provides for bereavement leave (seven days), wedding leave (ten days), and employer-funded study leave if an employee is taking an exam.
In Summary
Understandably, you might be wary about doing business in Ukraine at present, given the ongoing conflict. However, there are still opportunities for foreign investment, and there could well be long-term rewards on offer by committing to a workforce that will appreciate the support. Nonetheless, local expertise is essential to getting any Ukrainian expansion right, so we strongly advise teaming up with a global payroll partner who can help you avoid any compliance errors or set-up issues.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.