The Labour Code
LABOUR RELATIONS AND THE LABOUR CODE
Employer/employee relations
Employment conditions in Ukraine are generally governed by the Labour Code, a remnant from the Soviet Union period. The Labour Code still contains many socialist concepts, including a strong sense of the employee's right to work, and many other protections for employees.
Potential employers should acquaint themselves with the general provisions of the law. Complying with local labour laws tends to be one of the bigger challenges facing investors.
It is possible to enter individual labour contracts with employees, but the terms of those agreements can not be less than the conditions guaranteed under the Labour Code. Contracting out of the provisions of the Labour Code is not possible.
Regardless, the obove mentioned Code itself is not that strongly enforced. If problems arise, they tend to be handled directly with the courts, rather than through a relevant administrative agency. If employers are aware of and respect the rights of employees laid down by law, labour should not cause any significant issues for employers in Ukraine.
Unions
Unions are often appearing on the labour market and there is a specific law for Trade Unions. They are easy to establish and the law grants certain benefits to them. The Labour Code acknowledges collective agreements, and employers must accept collective agreements if demanded by employees, it will include all employees, even those who are not members of any trade union.
The trade union will also control the employer's compliance with the contract. Approval of the trade union is required before overtime may be worked, and in some circumstances when an employee is being layed off.
WORKING CONDITIONS
Salaries and wages
Minimum wage levels are prescribed in the annual budget law and are prescribed to UAH 460 from 1 October 2007.
Wages and other payments to Ukrainian employees should be paid in the local currency. Salaries should be credited at least twice each month. Payments to foreign employees may be paid in foreign currency credited on a monthly basis.
Working hours
Working hours is restricted to 40 hours per week, with a five-day working week. The employer can introduce a six-day working week, but then employees may not work more than seven hours a day.
Overtime is restricted according to the law. Employers "may only introduce overtime in cases of emergency.", overtime is restricted to not exceed four hours in any two-day period or 120 hours in a year. The law also requires that overtime should be paid at double rates.
The Labour Code also contains provisions that entitle certain employees to work shorter weeks. A 36 hours working week for employees performing work under harmful work conditions is in use, night shift is one hour shorter, as is also the day before a national holiday. Other situations when the working hours must be decreased (with the result of a short workday or workweek on proportional pay) are to pregnant women, to a woman having a child under 14, a disabled child, or who is caring for a sick family member based on a medical recommendation.
Paid holidays
There are ten official holidays in Ukraine. An employee's minimum annual holiday is counted to 24 calendar days. For employees under the age of 18, this increases to 31 calendar days. When counting the length of a vacation for purposes of complying with the Labour Code, weekends during the vacation period are counted as vacation days but public holidays are excluded.
The law also requires additional leave to be allowed to women who have two or more children under the age of 15, a disabled or adopted child, and to single parents. Workers who are engaged in part-time studies may also be allowed additional vacation leave.
Paid maternity leave is required for up to 70 calendar days before and up to 56 calendar days after childbirth, funded by the Social Security Fund. The amount is based on the level of income used for social security contribution purposes.
Equal opportunities
The Constitution of Ukraine and the Labour Code both preclude discrimination based on race, colour of skin, political, religious and other beliefs, sex, ethnic and social origin, property status, place of residence, linguistic or other characteristics.
In addition, Ukrainian law requires companies employing eight or more personnel to employ a minimum number of invalids - 4% of their total employees but no less than one working place. If an employer does not do this, they are required to make a payment to the Fund for the Social Protection of Invalids equivalent to the enterprise's annual average salary (50% for companies with eight to 15 employees) for each working place that is not properly occupied by an invalid.
Termination of employment
Employment contracts may be indefinite or for fixed periods. Employees on indefinite contracts may terminate the employment relationship at any time with at least two weeks notice. For fixed term contracts, an employee may terminate employment only because of sickness or if disability prevents performance of work under the agreement or the employer infringes provisions of the contract or the Labour Code.
The Labour Code permits employers to terminate employment relationships for such reasons as reorganisation, failure to perform duties, loss of trust in employees involved in financial matters, theft, etc. It is important, however, to ensure that all termination formalities are complied with. Among these, the statutory period for termination notice is two months.
In practice, employment is commonly terminated by mutual agreement.
Normal retirement age is 55 years for women and 60 years for men.
SOCIAL SECURITY SYSTEM
Coverage
The social security system in Ukraine covers pensioners, workers and their dependants for work-related accidents, illness, retirement, death and disability benefits, sickness and maternity benefits, medical care, severance benefit, and for child and family allowances.
Contributions
Mandatory contributions to Ukrainian social security and pension funds only apply if salary is paid through the payroll of a Ukrainian entity or the Ukraine representative office of a foreign entity. Voluntary contributions to the State Pension Fund, the Employment Insurance Fund and the Social Security Fund are also possible.
The taxable base for contributions (both employee and employer) is capped. For 2007, the cap is set at 15 times the living wage set for able-bodied persons (increased from ten times in 2006).
Contributions (both employee and employer) are not due on income that is not subject to personal income tax.
Employees' contributions
For employees of Ukrainian entities (including those employed by a representative office), social security contributions are withheld by the employer at source from salary payments, and remitted directly to the appropriate authorities.
Foreign nationals remaining on a foreign payroll are not liable to pay social contributions in Ukraine.
Employers' contributions
Ukrainian employers are liable to pay social security contributions in respect of their Ukrainian and foreign national employees. From 1 January 2007, the following rates apply based on gross remuneration:
- 33.2% to the State Pension Fund.
- 1.5% to the Social Security Fund.
- 1.3% to the Employment Insurance Fund.
- 0.66% - 13.6% to the Fund for Social Insurance regarding Accidents at Work.
The rate for the Fund for Social Insurance should be determined by the Fund's authorities specifically for each entity, and depends on the level of accident risk of the entity's industry sector. In most cases, the rates will be in the region of 1 to 2%. The extreme rates are only likely to apply to high-risk activities (e.g., mining, working with highly inflammable materials).
Penalties for non-compliance
There are potentially heavy penalties for non-compliance with social security obligations, particularly for contributions to the Pension Fund. For payments to the Pension Fund:
- If the Pension Fund identifies that salaries subject to contributions have been underreported/not paid at all, the penalty for the first offence is 100% of the taxable base for contributions (i.e., the employee's income, rather than the amount of contribution). For subsequent underreporting identified within one year of the first offence, the penalty is 300% of the underreported income.
- Late reporting attracts a 10% per month penalty for the first offence, and 20% per month for subsequent offences within one year of the first offence.
- Late payment is subject to a 10% penalty if payment is made up to 30 days late, 20% if payment is made between 31 and 90 days late, and 50% if more than 90 days late.
Interest on late payments is charged at the rate of 0.1% per day, based on the amount of underpaid contributions.
Penalties are separately imposed by the Social Security Fund, Employment Insurance Fund and the Fund for Social Insurance regarding Accidents at Work. As the penalties are based on contributions (rather than salary levels), the potential penalty exposures are much lower than for the Pension Fund. However, penalties of up to 300% of underpaid contributions are possible for repeated offences.
FOREIGN PERSONNEL
Fiscal registration number
All taxpayers, including foreign nationals, must register with the State Registry for Individuals. Every individual is assigned a personal tax ID number, which is necessary for various transactions such as renting apartments, opening bank accounts, and paying personal income tax. Receiving the ID number is one of the conditions for obtaining the right to claim a tax credit (deduction) in respect of certain expenses incurred by a taxpayer during the reporting year.
Residence permit
Foreign nationals arriving legally in Ukraine may temporarily stay in the country on the basis of their passport and relevant entry visa (if required).
If a foreign national stays in Ukraine for more than three months (for foreign nationals from countries with visa-free entry, or six months for other foreign nationals), the foreign national's passport must be registered with the local agency for internal affairs (police/OVIR). A written application of the foreign national and their local employer must be submitted not later than three working days before the three or six month period expires. The extended registration will be evidenced by a registration stamp affixed to the foreign national's passport.
Work permit
Ukrainian employers must obtain work permits for foreign nationals who are either directly employed by local companies or seconded to work in Ukraine by foreign companies.
Work permits are not required for the personnel of representative offices of foreign companies who are employed abroad, for foreign nationals registered as private entrepreneurs under Ukrainian legislation or for foreign nationals having permanent residence status in Ukraine.
A work permit may be issued for up to one year with subsequent renewal. The overall time of employment in Ukraine is not limited.
The labour authorities must consider an application for a work permit within 30 days after its submission.
Non-compliance with the work permit requirements is subject to penalties, as well as potential deportation of the foreign national from Ukraine at the cost of the employer.
