General Classification of Employment Relationships

One of the most intransparent and complicated (and therefore also most frequently violated) areas of Ukrainian legislation governs Labour relations. It helps to categorize all persons residing in Ukraine into two groups of employment relationships:

• Labour employment agreements governed by the Labour Code of Ukraine

• sub-contractual agreements governed by the Civil Code of Ukraine

The first category is further divided into three different types of Labour agreements: Labour agreements of indefinite duration; Labour agreements of specific duration and Labour agreements effective for the duration of a specific project.

One type of agreement of “specific duration” is called a “Labour contract,” which permits an employer to prematurely terminate such contract only for reasons provided by Ukrainian Labour legislation. Therefore, special emphasis will be made to Labour contracts as a separate type of Labour agreement.

Labour Contracts and Benefits

Various employers, including wholly-owned foreign subsidiaries, joint ventures and even representative offices, employ so-called “labour contracts” as their favorite form of labour agreements. Main reason is that only a “labour contract” may contain provisions in addition to those contained in the Labour Code, including employment period, rights, obligations and responsibilities of the parties.

Sub-Contractual Agreements

 In contrast to Labour agreements, sub-contractual agreements typically contemplate hiring a worker to complete a specific task, work or service at his or her own risk (i.e., free lance workers). As elsewhere in the world, the sub-contractor maintains relative independence in performing the designated task and typically receives payment upon completion of services. Notably, the sub-contractor does not receive the benefits of social security, and is independently responsible for paying his or her own personal income tax. To legally act as a sub-contractor for foreign business entities, Ukrainian sub-contractors must register as so-called “subjects of entrepreneurial activity” for tax purposes. Most citizens ignore this requirement, which entails additional time, efforts and expenses, with impunity.

Probationary Period

At the initial stages of employment, an employee is hired on the basis of a Labour agreement, and may be placed on probation for a period not exceeding either 3 months or 1 month, depending on the classification of such worker under Ukrainian law.

Salary and Compensation

Ukrainian employees are entitled to social security benefits as described below and must be paid at least the minimum monthly salary during the course of a normal work week of no more than 40 hours. As a rule, salaries must be paid at least twice a month in Ukrainian Hryvnia. Official salaries of employees are determined in accordance with the employment contract, but by law such salaries cannot be lower than the minimum monthly salary set by the Ukrainian government. Time put in by the employee, even if he or she is hired on a temporary basis, is subject to overtime payment rates. In addition, the Ukrainian Labour Code also requires additional compensation for holidays and nighttime work. Likewise, an employee is entitled to receive overtime payments in the amount of double such employee’s hourly rate for each hour worked overtime. Depending on the actual duration of the employment term, the employee also is entitled to vacation and sick leave, and a regular schedule of salary payments twice a month. Unfortunately, an employer cannot compensate employees for overtime by giving time off from work.