By: Oleksandr Melnyk, Daryna Lysyk
Firm: Vasil Kisil & Partners
This article provides a brief overview of the substantive changes to Ukrainian employment law in 2017. They include an increase in the minimum wage, penalties for employment law violations, new visa rules for foreign workers, changes to state labour audits and pension reform.
Increase to Minimum Wage
From 1 January 2017, pursuant to the State Budget Act for 2017 the Ukrainian minimum salary was raised to UAH 3,200 (approximately EUR 91.50) per month and UAH 19.34 (approximately EUR 0.55) per hour. A further increase came into force on 1 January 2018, under the State Budget Act for 2018. This raised the minimum salary to UAH 3,723 (approximately EUR 106.50) per month and UAH 22.41 (approximately EUR 0.64) per hour.
From 1 January 2017, there are two additional financial sanctions prescribed for the companies in connection with audits conducted by the State Labour Service of Ukraine (‘SLS’):
- Obstructing inspectors of the SLS from conducting an audit is punishable by the fine of three minimum salaries imposed on the employing company. This is currently UAH 11,169 or approximately EUR 319.
- Obstructing inspectors of the SLS from conducting an audit which was specifically targeting ‘shadow’ (that is, undeclared) employment issues will be punished by a fine of 100 minimum salaries (which is currently UAH 372,300 or approximately EUR 10,649).
New Visa Rules
These changes concern type D visas, which are required for foreigners who plan a long-term stay in Ukraine, exceeding 90 days (including for employment purposes). Under the new rules, type D visas are multiple entry and are issued for 90, instead of 45 days, as previously. Foreigners must enter Ukraine on this type D 90-day stay visa in order to formalise a temporary residence permit.
This significant simplification will apply to those who have effective multiple-entry visas under the Schengen Agreement, Australia, Great Britain, the USA, Japan, Ireland, New Zealand and Canada. These individuals will not undergo a visa interview and their applications will not be checked by the Ukraine Security Service. This should significantly speed up the visa process. Finally, type C (short-term) visas can now be obtained in electronic form for tourism or business purposes and will last up to 30 days.
New Rules for Labour Audits
The new rules regulate labour audits conducted by the State Labour Service of Ukraine, as well as by the executive authorities of municipal governments. The main innovation is the introduction of employers’ right to ask for an analysis of their compliance with labour legislation and for notices of recommendations to be issued to them (without sanctions).
All labour audits will take the form of on-site and off-site labour inspections. Labour auditors will have a wide range of rights, including the right to enter employers’ premises at any time, have confidential conversations with employees, record inspections concerning the detection of undocumented labour relations using audio, photo and video equipment, etc.
The new rules also regulate the length of inspections (two working days for micro and small enterprises and ten working days for other types of employers), extend grounds for initiating labour audits and simplify audit documentation for the inspectors.
New Work Permits Rules
One of the biggest employment law changes in 2017 was the introduction of a special minimum wage for expats. For those who work in NGOs, charity organisations or educational establishments the minimum wage is set at UAH 18,615 (approximately EUR 532), five times higher than the minimum wage for locals. Other expat workers shall be paid at least UAH 37,230 per month (approximately EUR 1,065), ten times higher than the minimum wage for locals.
There are several categories of ‘priority’ expats, who will benefit from 3-year work permits, that are not subject to the minimum wage requirements. These categories include:
- highly paid professionals (whose salary exceeds UAH 186,150 (approximately EUR 5,325);
- shareholders or UBOs of employing companies;
- graduates of the top 100 world universities;
- creative workers;
- IT specialists.
The number of documents required for a work permit has decreased dramatically. In particular, vacancy reports, medical certificates, non-conviction certificates, and apostilled copies of university diplomas no longer need to be filed with the Ukraine State Employment Service.
Finally, state fees for issuing work permits were increased, and an identical fee was introduced to extend validity (previously work permits were extended free of charge). The fee depends on the permit’s duration: for a term of up to 6 months it will cost 2 living wages (currently UAH 3,524 or approximately EUR 100); a term from 6 months to 1 year costs 4 living wages (UAH 7,048 or approximately EUR 200) and a term from 1 year to 3 years costs 6 living wages (UAH 10,572 or approximately EUR 300).
The main changes touch upon the pensionable insurance record (i.e. the period covered by social security payments paid in respect of the employee). The reform increases the required pensionable insurance record from 15 to 25 years starting from 1 January 2018. It will be further increased annually by a further year, reaching 35 years on 1 January 2028. At the same time, the pension age remains unchanged at 60, provided the required pensionable insurance record is met.
For those who lack the required pensionable insurance record, there will be transitional rules allowing these workers to claim the state pension with 15 years of the pensionable insurance record at age 63 in 2018 or 65 in 2019. The transitional level of the pensionable insurance record will also be increased annually by a further year until 2028.
The reform dispenses with almost all of the so-called special rules for ‘preferential pensions’ that were paid to certain categories of workers, such as prosecutors, police, civil servants or members of Parliament. They will now be paid according to the general rules. The only ‘preferential’ category left is the military.
The reform also raises the cap on the unified social security contribution (‘USSC’) to 15 minimum salaries (UAH 55,845 or approximately EUR 1,597). The USSC is paid by the employer for each employee at a rate of 22% of the employee’s salary (capped at UAH 55,845 or approximately EUR 1,597). The maximum amount of USSC that employers will now pay is raised to UAH 12 286 (approximately EUR 351). The reform also removes pension payments from the calculation of personal income tax.