On 1 January 2013, a new version of the Law "On Employment,” dated 5 July 2012 (the "Law"), came into effective, introducing a number of significant changes to the Ukrainian employment legislation. Among them, a new mandatory employment quota and more detailed recruiting and temporary staff services regulations.  In particular, the customers who are recipients of temporary staff can now use temporary staff services only under certain conditions.

Mandatory Employment Quota
The Law introduces a new mandatory quota for employment of certain categories of persons who shall have additional job placement guarantees (the "Protected Persons").  This new quota is in addition to the existing mandatory quota for employment of disabled persons.  Companies are required to self-monitor and to report their compliance with this new quota on an annual basis.  The quota must be observed by all companies that employ more than 20 employees.  Such employers are required to have at least 5% of their employees from among the Protected Persons.

The Protected Persons include the following:

• one of the parents or a legal guardian who supports children under six years old; is a single parent or legal guardian, who in the absence of a spouse, is bringing up a child under 14 years old, or a disabled child, or supports a person (regardless of the age) disabled from childhood, or a Category I disabled person (regardless of the reason for the disability);
• orphans and children without parental care; teenagers over 15 years (with parental consent for their employment);
• youth employed at their first workplace during six months following graduation from high school, college, university or following discharge from military service;
• seniors who have 10 years or less before reaching the pension eligibility age; and
• persons released from prison or from a compulsory treatment institution.

Failure to comply with the quota may be viewed as a violation of Ukrainian labor laws and is punishable by a fine in an amount ranging from 30 to 100 times the non-taxable minimum personal income amount (approximately USD 63 to USD 210).  A fine in the amount of two minimum salaries (approximately USD 287) may be imposed on a non-compliant employer for groundless refusal to hire a Protected Employee. 

Temporary Staffing
The Law is the first Ukrainian statute to expressly recognize and regulate temporary staffing services.  Companies seeking to provide temporary staffing services are required to obtain a special permit and observe certain other mandatory requirements. 

Under the Law, a temporary staff services agency may only send temporary staff to a customer subject to a number of conditions, including, inter alia: (i) the existence of a collective agreement that specifically allows temporary staff services; (ii) consent of the primary trade union organization; (iii) the agency must pay the Unified Social Contribution at a rate corresponding to the rate for which the customer qualifies; and (iv) the customer should not have reduced the headcount within 12 months preceding such engagement; and some other conditions.

Social Payments Compensation
Under the Law, qualifying employers can receive a partial (50%) or full refund of the employer-paid Unified Social Contribution for (the "Contribution").  The Contribution rate differs from employer to employer, and ranges from 36.76% to 49.7% of the income paid to the employees.  The maximum base monthly salary subject to the Contribution is currently capped at UAH 19,499 (approximately USD 2,437).

Employers will have the right to a partial refund of their expenses for payment of the Contribution if all of the following conditions have been met: (i) within the previous 12 calendar months the employer created new workplaces; (ii) the employer did not reduce the number of employees within the 12 months preceding the creation of the new workplaces; (iii) from the moment the new work place were created, the employer has been paying wages in the amount of more than three minimum salaries to the employees (approximately USD 430); and (iv) the employer continues to pay wages in the amount of more than three minimum salaries to the employees for the following 12 months and does not plan to reduce the number of employees or the total payroll amount.

Employers will have their expenses for the Contribution of each employee refunded in full on a monthly basis under the following conditions: (i) the relevant employee(s) qualify as a Protected Person; (ii) the employer has employed the employee for no less than two years; and (iii) the employee was an unemployed person who was directed to the employer by a state employment center.  If such employee is terminated prior to the expiration of two years, the employer will be required to return the amount of the Contribution that had been compensated or to hire another Protected Person upon the direction of an employment center for the remainder of the two-year period.

However, please note that specific regulations for the procedure for compensation of the Contribution have not yet been adopted by the Cabinet of Ministers of Ukraine and therefore, certain additional requirements may arise.

Additional notes

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.

For More Information

Lina Nemchenko, Partner
+380 44 590 0101
lina.nemchenko@bakermckenzie.com

Mariana Marchuk, Counsel
+380 44 590 0101
mariana.marchuk@bakermckenzie.com