Changes to Remuneration Systems and Increased Punishment for Violations of Labor Legislation
Baker&McKenzie, Kyiv, Ukraine,
Wed, Dec, 21, 2016
On 6 December 2016, Ukraine’s Parliament adopted the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine" (the “Law”). The Law introduces a range of legislative amendments concerning, among others: (i) establishment of employee remuneration systems; (ii) payment of social security; (iii) increased liability of employers for preventing state labour inspectors from conducting audits; and (iv) reorganisation of state social security funds. The Law becomes effective on 1 January 2017.
According to the Law, the salary grades for employees of state budget-financed institutions and organisations will be formed based on the minimum salary established by the Cabinet of Ministers of Ukraine and calculated by applying coefficients and tariff rates for grading job positions. Companies may establish their systems of remuneration as envisaged in the collective agreement, or, if a collective agreement has not been concluded, in accordance with the relevant employer's internal regulations.
Moreover, the minimum salary cannot be less than the minimum cost of living (subsistence level) for a working person established as of 1 January of the relevant calendar year.
Increased employer liability for violating labor legislation
From now on, an employer that prevents a state labour inspector from conducting an audit will be fined in the amount of three times the minimum salary applicable at the time such violation is detected.
If the aim of such audit is to verify whether the employer has concluded written employment agreements (contracts) with the employees and whether payroll taxes are paid and income tax is withheld at the time of salary payment to the employees, the employer will be fined in the amount of 100 times the minimum salary applicable at the time such violation is detected.
Moreover, the Law establishes that local authorities may now initiate or arrange for the labor inspection audits of companies.
Other novelties of the Law
The Law introduces the following additional provisions, among others:
- temporarily, until 31 December 2017, the maximum amount of pension paid by the state shall not exceed UAH 10,740 (about USD 412) per month; and
- the minimum salary shall no longer be used as a calculation value to determine the salaries and wages of employees and of other relevant payments.
This LEGAL ALERT is issued to inform Baker McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.