How to hire in the Ukraine

If you're considering expanding your business to Ukraine, learning all about the labor landscape is essential to thrive in one of Eastern Europe's evolving economies.

This guide explores Ukraine's employment laws and regulations, providing the knowledge necessary to manage workforce payments and mitigate risks while hiring employees compliantly.

Ukraine: What to know before hiring

The ongoing conflict

Ukraine faces significant challenges due to the ongoing war. This impacts everything from employee safety to business operations. The conflict creates a dynamic environment where employers must remain vigilant about changing conditions, develop contingency plans, and prioritize employee wellbeing. Remote work arrangements have become essential for business continuity in many regions.

Low unemployment with caveats

Ukraine has historically maintained relatively low unemployment rates in peacetime. However, the conflict has created a complex labor market where talent availability varies significantly by region and sector. Urban centers in western Ukraine typically offer better access to qualified professionals, while eastern regions face more significant disruptions to the workforce.

Hierarchical structure with evolution

Ukrainian businesses traditionally followed a hierarchical structure similar to other post-Soviet states. However, the business culture has been evolving rapidly, especially in tech and other modern sectors. Many companies now embrace flatter organizational structures and more collaborative decision-making processes, particularly those with international connections or founded by younger entrepreneurs.

Three options for employing people in Ukraine

1. Via local entity

This involves establishing a legal entity in Ukraine, such as a limited liability company (LLC). The employer will have complete control over the hiring process and employ workers directly under Ukrainian labor laws. This is ideal for companies with a long-term strategy for operating in Ukraine.

2. Via an employer of record (EOR)

An employer of record in Ukraine is a third-party organization that acts as the legal employer for a company's workers in the country, handling various HR and payroll responsibilities. The EOR becomes the legal employer of record for the workers, taking on all employer liabilities and duties under Ukrainian law.

The EOR also manages payroll, including salary calculations, tax withholdings, and social insurance contributions. This allows foreign companies to hire employees in Ukraine without establishing their legal entity.

3. Hiring contractors

Employers can work with independent contractors or freelancers for specific projects or tasks. This option provides flexibility and can be particularly suitable given the current situation in Ukraine.

Employees vs. contractors in Ukraine

Labor laws in Ukraine

Labor Code of Ukraine

The Labor Code of Ukraine is the primary legislation governing employment relationships in the country, setting minimum standards for:

• Working hours: The standard workweek is 40 hours, though critical infrastructure workers may work up to 60 hours during martial law.
• Wages: A legally established minimum wage that employers must adhere to.
• Leave entitlements: Minimum 24 days of annual leave, plus sick and maternity/paternity leave.
• Rest periods: Breaks and rest days are mandated by law.

Employment contracts

Written employment contracts are mandatory in Ukraine and must include:

• Job description: Clearly defined roles and responsibilities.
• Compensation: Salary structure, payment frequency, and additional benefits.
• Working conditions: Hours, location, and any special arrangements.
• Termination procedures: Notice periods and grounds for termination.

Employee protection laws

Ukrainian labor legislation provides comprehensive employee protections, including:

• Prohibition of discrimination based on gender, age, race, political views, and other characteristics.
• Protection against unfair dismissal.
• Right to safe and healthy working conditions.
• Protection for vulnerable categories of workers (pregnant women, people with disabilities).

Wartime adjustments

The ongoing conflict has led to significant changes in labor regulations:

• Modified termination rules: Changes to notice periods and permissible grounds for dismissal during martial law.
• Remote work provisions: Enhanced flexibility for remote working arrangements.
• Special leave options: Additional options for employees affected by the conflict.
• Documentation exceptions: Allowances for missing or delayed documentation in conflict-affected areas.

Compliance risks in Ukraine

Here are the key risks you should be aware of when operating in Ukraine:

Incorrect payroll contributions

Ukraine's social security system involves multiple contributions with varying rates. Payroll errors can occur when manually calculating deductions and contributions. Employers face penalties if the payroll software is not updated with the latest regulations and misconfigured for specific employee types. The frequent changes to legislation during wartime significantly increase the risk of non-compliance.

Unfamiliar employment laws

Ukrainian labor laws are comprehensive and subject to revisions, especially during martial law. Companies without dedicated HR personnel or legal counsel specializing in Ukraine might miss updates and remain non-compliant.

Laws and regulations can be challenging to interpret correctly, particularly for foreign employers. Misunderstanding regulations regarding working hours, overtime, leave entitlements, and termination procedures can lead to legal disputes with employees and authorities.

Employee misclassification

Some employers classify full-time employees as contractors to avoid benefits obligations and save costs. This is illegal in Ukraine and can lead to significant penalties.

The distinction between employee and contractor can be complex in many cases. Ukrainian authorities are increasingly scrutinizing these arrangements, and companies might misclassify employees because they lack an understanding of the legal definitions. The level of control exercised over workers is a critical factor in proper classification.

Permanent establishment risk

If a foreign company has employees or conducts substantial business activities in Ukraine, it could be considered a permanent establishment (PE), which triggers tax obligations in Ukraine.

Determining what constitutes a PE can be complex. Companies with employees working remotely in Ukraine or conducting business meetings might inadvertently create a PE, leading to unexpected tax liabilities and potential disputes with tax authorities.

Unions and labor organizations in Ukraine

• Federation of Trade Unions of Ukraine (FPU): Ukraine's largest trade union confederation, representing millions of workers across various industries. It is the successor to Soviet-era trade unions, which influences its structure and approach. The FPU advocates for worker rights, better wages, and improved working conditions.
• Confederation of Free Trade Unions of Ukraine (KVPU): This is another prominent national trade union center known for its focus on independent trade unionism. It includes various independent unions from the mining, healthcare, and education sectors and takes a more activist approach to labor issues.

How much does it cost to hire an employee in Ukraine

The minimum wage in Ukraine is UAH 8,000.00 per month (approximately UAH 48.00 per hour) as of April 1, 2024. This is the legal minimum that all employers must pay. However, this base cost is not the whole picture when hiring an employee in Ukraine.

Employers must consider additional mandatory contributions and benefits. The ongoing conflict has created significant regional salary variations, with western regions typically commanding higher wages due to the influx of internally displaced professionals and relative stability.

Salaries above the minimum wage are necessary to attract and retain top talent in Ukraine's competitive job market, particularly for skilled IT, finance, and engineering positions. Compensation packages should be tailored to the role, the candidate's qualifications, and industry standards. Non-monetary factors such as job security, remote work options, and relocation assistance have become increasingly important in Ukraine's current employment landscape.

Employer payroll contributions in Ukraine

How do foreign companies pay workers in Ukraine

As a foreign company in Ukraine, you'll typically pay your workers in Ukrainian hryvnia (UAH), the local currency. This is the most common and recommended approach to ensure compliance with local regulations and avoid complications. Here are the most common methods foreign companies use to pay employees in Ukraine:

• Electronic funds transfer (EFT): This is the most widely used method. The company sends the salary directly to the employee's bank account in Ukraine. It's efficient, secure, and provides a clear payment record for compliance purposes.
• International wire transfer: This method can be used if the employee maintains a bank account outside Ukraine. However, it's generally less preferred due to potential fees associated with international transfers and currency exchange rates.
• Payroll outsourcing: Foreign companies without a legal entity in Ukraine may outsource their payroll to a local Ukrainian payroll provider or an employer of record (EOR) service. This ensures compliance with local regulations and tax requirements.
• Digital payment platforms: Some companies, particularly in the IT sector, utilize specialized digital payment platforms that facilitate cross-border payments while handling currency conversion and compliance requirements.
• Cryptocurrency: While not mainstream, some tech companies and startups have begun exploring cryptocurrency payments, particularly during the conflict when traditional banking systems face disruptions. However, this approach requires careful consideration of legal and tax implications.

Given the current situation in Ukraine, companies should maintain flexibility in their payment methods, as banking infrastructure may face occasional disruptions in certain regions. Many employers have contingency plans to ensure their workers receive timely compensation regardless of circumstances.

How do employers pay taxes in Ukraine

Employers in Ukraine are responsible for withholding and remitting various taxes on behalf of their employees. They must deduct 18% of individual income tax (IIT) from employee salaries and submit these payments to the Ukrainian tax authorities according to the prescribed schedule. In addition, employers must withhold a 1.5% military levy from salaries to support national defense efforts, which is submitted alongside the income tax.

Beyond withholdings, employers must also contribute 22% of an employee’s gross salary to the Unified Social Contribution (USC), which funds pensions, unemployment, and other social insurance benefits. Businesses themselves are subject to an 18% corporate income tax (CIT) on their profits and must adhere to filing and payment schedules set by the tax authorities. If applicable, employers must also collect and remit a 20% Value-Added Tax (VAT) on taxable goods and services.

Tax payments in Ukraine are typically made via electronic filing and bank transfers to designated government accounts. Many companies use accounting software or external tax professionals to ensure accurate filings. Given ongoing regulatory changes, mainly due to martial law, employers must stay updated on potential modifications to tax obligations. Consulting a local tax expert is advisable to navigate compliance requirements effectively.

Work permits in Ukraine

When bringing international talent to your Ukrainian operation, you'll need to choose from these permit options:

• Temporary residence for work visa: This is the primary visa type for foreign nationals with a valid job offer in Ukraine. It allows for one to three years and is renewable upon continued employment.
• Skilled workers visa: This category caters to individuals with in-demand skills, particularly in sectors like IT, engineering, or healthcare. Like the temporary residence visa, it typically permits stays of one to three years, with the potential for renewal.
• Seasonal workers visa: This visa is designed for temporary employment, particularly in agricultural or seasonal roles. It's generally valid for shorter durations, often up to six months.
• Long-term (D-type) visa: This visa is issued when a foreigner intends to apply for a temporary residence permit to stay in Ukraine for more than 90 days. It's often the first step in obtaining a work permit.
• IT specialist visa: Ukraine has introduced simplified procedures for IT professionals, reflecting the importance of this sector to the economy. This visa offers streamlined processing and fewer documentary requirements.
• Investment-based work permit: This permit is available for individuals making substantial investments in Ukrainian businesses or starting companies that create local jobs.

Each work permit type has specific requirements and conditions for different employment situations and professional backgrounds. The current conflict has led to some adjustments in processing procedures and requirements, particularly for remote workers and those in critical infrastructure sectors.

Employment contracts in Ukraine

Your employment contracts in Ukraine must include the following information:

Company and employee information

• Full legal names and addresses of both the employer and employee.
• Contact details and identification information.
• Registration numbers and tax identification for the employer.
• Employee's citizenship and residence information.

Start date and term

• The precise date when employment begins.
• Whether the contract is indefinite or fixed-term.
• For fixed-term contracts, the specific end date or conditions for termination.
• Probationary period details, if applicable (typically up to three months).

Job details

• Job title and comprehensive description of responsibilities.
• Reporting structure and department information.
• Performance evaluation criteria.
• Location(s) where work will be performed.

Compensation

• Base salary amount in Ukrainian Hryvnia.
• Payment frequency (typically monthly in Ukraine).
• Bonus structure and performance-based incentives.
• Allowances for transportation, meals, or housing (if applicable).

Working hours and leave

• Standard work schedule (typically 40 hours per week).
• Overtime compensation policies.
• Minimum 24 calendar days of annual paid leave.
• Sick leave entitlements.
• Maternity/paternity leave provisions.

Social security and insurance

• Information regarding the Unified Social Contribution.
• Health insurance coverage.
• Pension contributions.
• Any additional insurance benefits provided by the employer.

Additional terms include:

• Confidentiality clauses regarding company information and intellectual property.
• Non-compete or non-solicitation provisions (where legally permissible).
• Terms for termination of employment, including notice periods.
• Disciplinary procedures and grounds for dismissal.
• The process for resolving any disputes arising from the employment contract.
• Provisions addressing remote work arrangements, if applicable.
• References to internal company policies and procedures.
• A signature block for the employee and an authorized company representative acknowledges acceptance of the terms and conditions.

Working hours in Ukraine

Working hours in Ukraine are regulated by labor law with some flexibility. Here's a breakdown of what it entails:

Standard workweek

The legal standard workweek in Ukraine is 40 hours, typically five 8-hour days. Despite this, specific sectors may have different schedules, and critical infrastructure workers may have extended hours during martial law. Remote work has become increasingly common, particularly in the IT sector and during the ongoing conflict.

Overtime

Overtime work must be compensated more than regular salary hours, typically at least 1.5 times the standard rate for the first two hours and double the rate for subsequent hours. Ukrainian labor law restricts overtime work, generally limiting it to 120 hours per year. Employers must maintain accurate records of overtime hours worked.

Work-life balance initiatives:

• The Ukrainian government has increasingly recognized the importance of work-life balance.
• Many companies, especially in the tech sector, have adopted flexible working hours.
• Remote work options have become more widespread, accelerated by global trends and conflict.
• There's a gradual shift towards valuing efficiency over presence, particularly among younger professionals and international companies operating in Ukraine.

Benefits workers get in Ukraine

Mandatory benefits (by employer contribution)

• Social security (Unified Social Contribution).
• Health insurance.
• Pension contributions.
• Unemployment insurance.
• Disability insurance.

Additional benefits (offered by many employers)

• Bonuses (typically performance-based or seasonal).
• Paid leave.
• Annual leave (minimum 24 calendar days).
• Sick leave.
• Maternity/paternity leave.
• Family-related leave.

Common allowances

• Transportation allowance.
• Meal subsidies.
• Professional development stipends.
• Language courses.
• Remote work stipends.

Company benefits

• Additional private health insurance.
• Life insurance.
• Professional training and education.
• Relocation assistance (particularly important during the conflict).
• Mental health support programs.

Paid and sick leave in Ukraine

In Ukraine, paid and sick leave provisions are structured to provide essential worker protections:

Paid leave

• Ukraine requires employers to provide full-time employees with at least 24 calendar days of annual paid leave.
• Additional leave is granted to specific categories of workers, such as those with disabilities, parents with multiple children, and veterans.
• Employees typically negotiate the timing of their leave with employers, though employers must grant leave upon request in certain circumstances.

Sick leave

• Unlike many countries, Ukraine has a comprehensive paid sick leave system.
• Employees receive sick leave compensation based on their length of service, ranging from 50% to 100% of their salary.
• Sick leave requires medical certification from a licensed healthcare provider.
• The employer typically pays the first five days of sick leave, while the Social Insurance Fund covers subsequent days.
• Employees are protected from dismissal during extended illness, and their jobs must be held for them.

Onboarding workers in Ukraine

Before the first day:

• Prepare a comprehensive employment contract that is compliant with Ukrainian labor laws.
• Register the new employee with tax authorities and the Unified Social Contribution system.
• Set up workforce payments to ensure accurate calculation of taxes and contributions.
• Arrange necessary security clearances or background checks if required.

The first day:

• Conduct an orientation covering company policies and Ukrainian labor laws.
• Introduce the employee to their team and direct supervisor.
• Ensure their workstation is equipped with the necessary tools and access to systems.
• Review safety protocols, which are particularly important in regions affected by the conflict.

The first week:

• Provide training on job responsibilities, company products/services, and industry knowledge.
• Discuss performance goals and evaluation criteria.
• Explain benefits, including leave entitlements and social insurance coverage.
• Address any questions about remote work arrangements or contingency plans.

Beyond the first week:

• Schedule regular check-ins to monitor progress and provide feedback.
• Encourage involvement in team-building activities.
• Offer opportunities for professional development and career advancement.
• Ensure the employee knows the support resources available in the current situation.

Hire in Ukraine and grow your business

Papaya Global's infrastructure enables diverse hiring strategies throughout Ukraine and worldwide. The platform accommodates contractor, payroll, and employer of record models backed by on-ground regulatory expertise. A centralized system manages the hiring and onboarding process, transcending location and employment type barriers.

By managing employment contracts, registrations, international payroll payments, and contributions, Papaya allows businesses to focus on building their team and growing their operations in Ukraine. Papaya's expertise aids employers in establishing a compliant and efficient workforce, ensuring success even during challenging times.

With the right tools and knowledge, hiring employees and expanding your business in Ukraine becomes much more achievable. You can tap into the country's skilled workforce while confidently navigating complex regulations. Consult with one of our country experts and start hiring in Ukraine.

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