1. The Parliament adopts new fines and tax breaks, toughens hiring rules to combat shadow employment

On January 1, 2015, a new law1 (the "Law") became effective, aimed at combating shadow employment through the adoption of new fines, tax breaks and hiring procedure restrictions.

  1. Key Novelties

Hiring Procedure Restrictions

Employers are now specifically required to adopt a written hiring order before a new hire can be admitted to work. Employers that fail to comply will face a penalty in the amount of 30 minimum salaries (€1,800) per breach, officers responsible for the breach–at a rate of 500 to 2 000 times the non-taxable minimum personal income amount (from €400 to €1,600).

Companies that use civil law services agreements with individuals may also be subject to these fines in case employee contractor proves in court the existence of an employment relationship.

When establishing the existence of an employment relationship, courts have now been specifically empowered to award salary for the period of the existence of the employment relationship. This salary may not be less than the average salary for a given economic activity in the region.

New Hire Reporting Rules Amended

Employers are now required to notify the State Fiscal Service of Ukraine about new hires before they can be admitted to work. However, this new requirement does not cancel the existing State Employment Service new hire notification procedure, which continues to apply alongside this new rule.

Employers that fail to comply will face a penalty in the amount of a single minimum salary (€60) per breach, corporate officers responsible for the breach–at a rate of 30 to 100 times the non-taxable minimum personal income amount (from €25 to €85).

On a separate note, individual entrepreneurs that use hired labor are no longer required to register employment agreements with the State Employment Service.

Tax Breaks

Starting from January 1, 2015, the new Law introduces a 60% tax discount for one of the payroll taxes–the Flat-Rate Social Contribution–for employers that meet a set of criteria that are very difficult to meet for non-shadow employers. Starting from January 1, 2016, a 40% tax discount will apply for all employers; however, it remains unclear whether the Government would allow this general discount to take effect.