Many US-based companies may look to Ukraine as a starting point for building a global team. Aside from its well-established steel and fossil fuel industries, in recent years Ukraine has seen many gains in its IT and tech industries, including software development. Since the beginning of the COVID-19 pandemic, the country's startup culture has flourished as well. In 2020, the IT industry in Ukraine grew by 20.4 percent, crossing $5 billion. In the same year, $571 million was invested in Ukrainian tech companies, and startups are now valued at more than $1 billion.
Before hiring a worker in Ukraine, you will want to review general employment guidelines to ascertain which type of worker best suits your company's needs: employees or independent contractors. In this article, we will provide an overview of employment laws in Ukraine, as well as tips for hiring and paying the best independent contractor.
Employees versus contractors🧑💼👩🔧
Before we get into hiring contractors, let's clarify guidelines around hiring employees, particularly when it comes to employment agreements and employment contracts.
Employment agreement 🤝
An employment agreement occurs when an employee works for an employer in exchange for compensation. The employer must abide by the Labor Code and any collective agreements mandated by the employee's trade union, if their company has a trade union. For the employee's part, their performance adheres to internal work rules.
It isn't required that these agreements be in writing, although the Code certainly allows for written agreements. When hiring a minor, for instance, the employer must provide a written agreement. An employee is also entitled to a written agreement if they request it.
If an employer does provide a written agreement, they must include details such as the employment length, termination rights, and liabilities. Generally, unless the nature of the job provides an estimated end date (e.g. it is a short-term project), an employment agreement assumes continuous employment for an indefinite period.
Employment contract 📑
An employment contract may sound like the same thing as an employment agreement, but there are differences. In an employment contract, there may be additional arrangements that diverge from a typical employment agreement. The employer may stipulate an employee's sick leave allowance, for instance; or they may provide supplemental severance pay, depending on their contract.
There may be a probationary period for a new hire, but this probation period cannot exceed one month for certain categories of workers, like factory workers. For other employees, it cannot exceed three months.
Benefits for full time employees ✅
There are statutory benefits that employers in Ukraine they must grant employees. Let's review a few of those benefits.
After six continuous months of employment with the same company, employees are entitled to 24 calendar days of paid annual leave. Employees who have been working for an employer for less than six months may take their leave on a pro-rated basis.
Maternity leave and paternity leave
Pregnant women are entitled to paid maternity leave of 70 calendar days before the due date and 56 calendar days after the birth of a child. If the mother is delivering two or more children, or if there are complications during child labor, she may take 70 days of postpartum leave.
Employees who are expectant fathers are entitled to paid paternity leave for 14 calendar days. If a mother is raising a child by herself, she may designate a close family member as a co-parent to take paternity leave instead of the father.
While not required, an employee may receive unpaid leave under a mutual agreement with their employer. The amount of unpaid leave an employee receives cannot exceed 15 days in a year.
Termination of employment 👋
Employers must give their employees a two-month notice period if they intend to end their employment relationship with an employee, that is, unless the employer and employee mutually agree to a termination without notice. If an employee plans to end their relationship with an employer, generally they must allow a notice period of two weeks.
If an employee ends their employment relationship with an employer because the employer has violated the Labor Code, the employer is required to grant the employee a severance payment equal to three months of the employee's average salary.
A severance payment of an employee's average salary must be allotted to the employee in the case they are dismissed because of redundancy, or lack of competence or qualification.
Minimum wage and the working week ⏰
At present, the minimum wage in Ukraine is 6,500 UAH (224.23 USD) per month. The Ukrainian government plans to increase the minimum wage by 500 UAH by October 2022.
40 hours is considered a full time work week in Ukraine. Unlike some other European countries, the Labor Code generally prohibits employees to work overtime except in some circumstances. For instance if the worker has irregular working hours or a non-fixed working schedule, they may qualify for overtime.
If an employee does qualify for overtime, their working hours may not exceed four hours over two consecutive days with the same employer, and the overtime cannot exceed 120 hours a year. Overtime is paid at double the employee's regular wages.
Tax obligations for employers and employees in Ukraine 🗄
All tax agents are required to withhold income tax and remit it to the Ukrainian tax authorities, whether the tax agent is an employer, a private entrepreneur or contractor. Ukrainian legal entities or branches of foreign legal entities, such as employers of record registered in Ukraine, are also considered tax agents.
Non-residents to Ukraine are subject to paying taxes on their income at the same rate as residents. In addition to an 18% personal income tax, both residents and nonresident workers must pay a 1.5% military tax each time they receive pay.
Independent contractor agreement 👤
Self-employed workers, also called private entrepreneurs, or solo entrepreneurs, are workers who manage their own schedules and work for more than one employer. Private entrepreneurs are not governed by employment law, but rather civil law, and as such, these workers are not protected under employment law.
Civil law agreements
With civil law agreements, contractors will perform a single task or service for an employer using their own tools. Contractors under civil law agreements manage their own schedule as well, and are not subordinate to any employer. They assume all the risk involved in working on a project-by-project basis for an employer, which may include damage to their own tools, unpredictable work loads, or a termination of their contract without notice. A civil law agreement must be in writing.
Hiring an independent contractor in Ukraine is a convenient option for an employer in the US who does not know how much work they can provide an employee, or how long a single project or task may take. Furthermore, hiring a contractor may cut down on a company's payroll costs.
There are risks involved in hiring a contractor, but they can be mitigated by working with a company that can manage HR, local compliance, and payments in Ukraine.
Tax obligations for independent contractors in Ukraine 🗃
Unlike hiring an employee, employers are not responsible for withholding taxes on an independent contractor's wages. Instead, the independent contractor is responsible for submitting 18% income tax and 1.5% military tax each time they receive a payment from an employer. Often these contractors will choose a Simplified Tax Scheme instead of the Standard Tax Scheme because it simplifies their filing procedure.
Finding the right contractors in Ukraine 🔦
Let's direct our attention to finding the perfect global talent that best suits your company's needs. Where can you find the best worker in Ukraine? Your first step should be to find a convenient and user-friendly job posting board. Global job board sites usually have a local version in Ukraine. Work.ua is a highly popular job posting site in Ukraine, followed by Robota.ua, Jobs.ua, Eurabota, and Head Hunter.
Use detailed role descriptions on your job posting, as well as important information about your business. A company is more likely to receive applications from potential former contractors if they have specific information about the job's pay and the duties entailed.
Depending on where you're hiring, you may have to translate your ad into another language, and Ukraine is no exception. The official language in Ukraine is Ukrainian, and it's written in a form of the Cyrillic alphabet. If you don't have anyone on staff to translate for you, you can hire a translation service like Rush Translate, a Ukrainian translation service. You can also find Ukrainian translators who are independent contractors on Upwork.
Virtual interviews are going to be your most convenient option for hiring a Ukrainian contractor. Bear in mind the time zone difference when you're scheduling your interview. Ukraine is in two different time zones: Eastern European Time and Moscow Standard Time. If you're hiring someone in Kyiv, they will be in Eastern European Time. Donetsk, which is further east (i.e. closer to Russia), will be in Moscow Standard Time. Eastern European Time is 10 hours ahead of US Pacific Standard Time, or seven hours ahead of US Eastern Time. Moscow Standard time is 11 hours ahead of PST, or 8 hours ahead of EST.
Paying international contractors 💸
What are the best payment options for paying workers in Ukraine? Here are a few options to consider:
Bank transfers using SWIFT 🏛
The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is a network of financial institutions around the world, and many companies use SWIFT to transfer funds internationally to contractors. SWIFT is a safe, convenient option with little risk that the payment will not reach a foreign worker's bank account.
With SWIFT, however, there are additional bank fees that can diminish a payees' compensation. These fees can also add to a company's payroll fees. The reason for these bank fees is that SWIFT payments are routed through multiple banks before they reach the contractor’s bank, and a fee is charged each time there is a transfer. Unfortunately, even if the same banks are used each time to pay a contractor, the total cost for transferring funds may vary. This can be a hassle for both employers and contractors.
Money transfer companies 💳
Money transfer companies like Remitly, Xoom (owned by PayPal), and Wise (formerly Transferwise) can be convenient for both companies and workers because of their online accessibility and lower markups on exchange rates. There are some downsides to using these services, however. The biggest one is that these companies often require that payees use company-issued debit cards to access their payments, which can sometimes come with withdrawal fees. Furthermore, money transfer companies may charge percent-based fees, or they might add markup fees for exchange rates. While the fees may be better than those of banks, it's still quite inconvenient not only for contractors to have banks withdraw money from their payment, but also for employers to have to budget for those withdrawals.
Traditional money transfer services 🏦
You are probably familiar with companies like MoneyGram and Western Union, traditional money transfer services that have both online services and physical locations. Often these companies will have better markups on currency rates than traditional banks do; however, percent-based fees or markup fees are still often charged for currency exchanges.
Digital currency has become increasingly popular across the globe, and in Ukraine, their Digital Ministry plans to pay their employees for the first time using digital hryvnia. While the prospect of being able to pay in crypto may sound innovative and exciting, not everyone is set up to receive payment this way. And just like other money transfers, wiring payments in crypto would still include exchange rates and potential fees.
Partnering with Pilot 👩✈️
A partner like Pilot can help your company stay compliant in another country. The laws for hiring and paying remote workers abroad can be complex, but with Pilot's role as an employer of record for hiring employees and as a payroll platform for hiring contractors, a US company can avoid expensive penalties or legal fees for overlooking a critical labor law.
Pilot provides global payroll, benefits, and compliance expertise for US-based companies. Our team of HR and legal experts is happy to help you navigate any questions as you build your international team.
Interested in learning more about Pilot? Schedule a demo with one of our experts.
⚖️ Legal Disclaimer: The information contained in this site is provided for informational purposes only, and should not be construed as legal advice on any subject matter.