1.     TheParliament adopts new fines and tax breaks, toughens hiring rules to combatshadow employment 

On January 1, 2015, a new law[1] (the"Law") became effective, aimed at combating shadow employment throughthe adoption of new fines, tax breaks and hiring procedurerestrictions.          

 2.                        KeyNovelties 

Hiring Procedure Restrictions 

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

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

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

New Hire Reporting Rules Amended 

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

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

On a separate note, individual entrepreneurs that use hiredlabor are no longer required to register employment agreements with the StateEmployment Service. 

Tax Breaks 

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

YOUR KEY CONTACTS 

Oksana Voynarovska,Partner                                                       OleksiiDorogan, Associate

voynarovska@vkp.kiev.ua                                                               dorogan@vkp.kiev.ua

[1] Lawof Ukraine No. 77-VIII “On Amendments to Certain Ukrainian Laws regardingReform of Mandatory State Social Insurance and Legalization of Salaries” ofDecember 28, 2014