Ukraine is a favorable country for foreign investment due to its vast consumer market, cost-competitive and highly educated workforce, booming IT sector, plentiful natural resources, and investor-friendly government. The country ranks 59th globally in terms of GDP and 64th in the 2020 Ease of Doing Business Index.
Companies willing to broaden their business in Ukraine should be well-versed with local rules and regulations stipulated by the Ukraine government. It helps in effectively managing payroll in Ukraine and entices the top talent in the country.
Moreover, a company needs an in-depth understanding of salary systems, tax systems, payroll options, payroll cycle, entitlement and termination terms, social security contributions, etc.
You should fully understand payroll tax in Ukraine and labor requirements to establish error-free and compliant payroll. The following guide discusses all the aspects you must know about payroll in Ukraine.
How Is Payroll Calculated in Ukraine?
Payroll policies and procedures in Ukraine emphasize releasing payment and monitoring employees’ working hours. To have an accurate payroll calculation, you should regularly administer record-keeping. You should also withdraw social security contributions and other appropriate deductions by following the payroll rules and regulations in Ukraine.
Here’s the formula to calculate payroll:
Net Salary = Gross Salary – Gross Deductions
Gross Salary = Basic Salary + Arrears + HRA + All types of Allowances + Bonus + Reimbursements
Gross Deductions = Public Provident Fund + Income Tax + Professional Tax + Insurance + Leave adjustments + Loan reimbursements (if any)
Important Elements of Salary Structure in Ukraine
The elements discussed below constitute the salary structure in Ukraine:
Cost to Company (CTC)
The CTC represents an annual amount a company is obliged to pay when hiring an employee. It considers the employees’ gross and net remuneration, payroll deductions in Ukraine, additional benefits, etc.
It covers all aspects that help an employer formulate an employee compensation package quickly. It includes are social security contributions, health insurance, and total income before calculating payroll deductions in Ukraine, etc.
It signifies the amount transferred to an employee’s bank accounts after subtracting all deductions from the gross salary.
It indicates the amount employees get after the employer computes all additions and payroll deductions in Ukraine from the annual package. The basic salary amount relies on the employer’s job title and business activities.
The payroll in Ukraine entitles employees with several allowances (like meals, car, relocation allowance, etc.) notwithstanding the industry and the company. It specifies all the professional expenditures that employers must pay to their employees. Providing allowances helps employees to maintain a better work-life balance and also helps the employer enhance its competitive advantage in the market.
How to Set Up a Payroll in Ukraine
The Ukraine payroll process flow chart discussed below helps businesses intending to set up payroll in Ukraine:
- Step 1: Register a business in Ukraine with the Companies Registrar. This step also legalizes your business name’s validity.
- Step 2: Get an IRS EIN (Employer Identification Number).
- Step 3: Register the company name, national tax number, and labor and tax registration.
- Step 4: Obtain a state or local business ID (if required).
- Step 5: List each employee’s information, including their full name, employment joining or termination date, job title, work location, tax filing number, mailing address, and date of birth.
- Moreover, the list should include bank details and routing numbers, salary or hourly rate details, compensation details, education documents, personal income tax forms, and work certificates from their former employers. These details help you accurately calculate all employee pay amounts by adhering to payroll policies and procedures in Ukraine.
- Step 6: Classify your employees among part-time, full-time, and independent contractors. Subsequently, determine the exemption status of each employee. )
- Step 7: Calculate the applicable income tax from employees’ wages and file.
- Step 8: Register with the Social Security Administration (SSA) to get a Social Security number (SSN). Fill out the application for Social Security Card and submit it to your nearest office of the Social Security Administration along with form I-94 and your passport.
- Step 9: Register for VAT through the State Tax Service of Ukraine.
- Step 10: Open a Ukraine bank account with a registered local bank to disburse payments related to payroll. In this step, you need the court and registration information (like proof of statistical number, health insurance registry, etc.) before validating the business bank account.
- Step 11: Calculate each employee’s payroll amount and approve your company’s payroll cycle and method. The payroll method you can use include traditional bookkeeping, hiring an accountant, payroll software, or outsourcing to a reliable payroll provider.
- Step 12: Compensate all employees via a local entity (permit you to recruit and pay employees compliantly) or use service from an Employer of Record (EOR) platform in Ukraine. You can use are direct deposit, cash, paper checks, mobile wallet, or prepaid cards.
A Step-by-step Process of Payroll Processing in Ukraine
The processing of payroll in Ukraine involves three stages.
i. Pre-payroll stage
This phase focuses on conforming to Ukraine’s legal requirements and defining mandatory business requirements. It helps you to process payments and payroll. The following section discusses mandatory components that every company requires before establishing payroll.
Authorized Registrars enter the data of your legal entity into the State Registry of Ukraine. Consequently, the State Registry provides you with a unique business number. You must specify this number on all official payroll communication, including reporting and compensation auditing, and auditing for payroll tax in Ukraine.
Whether you own single or multiple business locations within or outside the country, each must stipulate an explicit set of payroll policies conforming to each jurisdiction.
The attendance policy is essential to meet compliance and regulatory requirements as per payroll policies and procedures in Ukraine. A flexible and transparent attendance policy is vital irrespective of the method you select to record attendance. It can handle growing disruptions in standard working hours and attract and retain top talent. Moreover, it helps you to calculate standard and special attendance, overtime, permissions, and more. So, the policy simplifies payroll calculation and compliance.
The leave policy boosts employees’ performance and facilitates promotion. It also helps you calculate payroll and comply with various leaves (like paternal, maternal, sick, childcare leave, and more).
Conforming to Ukraine’s statutory labor laws and regulations help you meet legal requirements and enhance your brand reputation. It stipulates the prevailing and new statutory compensation laws and regulations that benefit the employees with leave entitlements and salary. Moreover, it keeps you compliant with and handling unpredicted anomalies.
It focuses on various factors influencing salary calculation, i.e., deductions, allowances, and leave types. Defining the necessary salary components help you to design a custom package that meets each employee’s personal and professional needs.
You can make certain components of the pay schedule (like increments and bonuses) more flexible to attract and retain top talent. The fixed payment schedule avoids payment delays. It focuses on determining a specific date for payment release. Moreover, this component informs employees on when they will get their monthly payments.
You should assemble professional and personal data about all your employees. These details include employees’ names, nationalities, job designations, departments, etc. The payroll software must record this data. In case any dispute regarding payroll arises, these details can be presented as evidence and assure that the employee gets regular payments.
ii. Payroll calculation stage
In this stage of the payroll compliance checklist in Ukraine, you must enter the collated data from the above stage into the payroll process. It is necessary to check working hours and calculate taxes and deductions. Moreover, you should calculate employees’ net salaries and finally print paychecks to ensure zero errors in the Ukraine payroll process.
You should calculate and maintain payroll records either manually or automatically. Consequently, it leads to timely payment processing while fulfilling the payroll policies and procedures in Ukraine.
iii. Post-payroll stage
This phase involves accurately executing your compliance. After establishing your payroll processes, the below-discussed components help you to confirm them.
The payroll manager should rigorously follow statutory compliances when processing payroll. Deductions like insurance premiums, charitable contributions, and more should be deducted from the employee’s payroll. Employers must transfer these deductions to the concerned authorities.
Payroll accounting is essential to control a company’s expenses. This component involves tracking payments and payroll-related expenditures that help you to fulfill compliance and reporting requirements. Bigger organizations can outsource payroll accounting to an auditing service firm. Small-to-medium organizations can either perform payroll accounting in-house or hire an external auditor.
Payroll reporting and compliance
You must prepare all statutory reporting and compliance forms to transfer to local regulatory authorities. The payroll and compliance processes occur at the salary payment of origin. The payroll process automatically calculates all deductions, withholdings, social security, and statutory taxes when salaries are processed and before payment transfer occurs to employees. Consequently, you can finalize your payroll process by submitting complaint forms and reporting to corresponding tax and regulatory entities.
Based on the salary, the employees and employers should contribute to social security in Ukraine to conform to the Ukraine payroll requirements.
The employer should make 22% of the Unified Social Contributions (annual contribution reaches 237,600 UAH).
The employee should make 0.60% of the Social Security Contributions.
In Ukraine, the payroll cycle is bi-weekly, i.e., between the 15th and 20th of each month and between the 31st and 7th of the following month.
Ukraine Payroll Options for Companies
The Ukraine payroll guide covers various options from which employers can select the one suitable for their requirements and budget. These options can smoothly process the HR payroll in Ukraine and are discussed below.
- Internal payroll: Large corporations with long-term agreements signed with Ukraine can operate internal payroll. This option of the Ukraine payroll guide states that the company should spend sufficient time and hire an experienced workforce knowledgeable at setting up payroll.
- Remote payroll: This option of the Ukraine payroll guide implies that you can use services from a remote payroll. The remote payroll pays the employees. It is an affordable option for payroll in Ukraine but the company should know the relevant labor laws in the country.
- A Ukraine payroll processing company: You should thoroughly research the market and find a reliable payroll processing company with enough experience at establishing payroll and payroll rules and regulations in Ukraine.
- Ukraine payroll outsourcing: This option of the Ukraine payroll guide represents an easy, flexible, and reasonable approach to managing HR payroll in Ukraine. It guarantees that the payroll processes follow the Ukraine payroll requirements and also oversees all the elements of the Ukraine payroll process. It tackles challenges that may arise during payroll processing and thus keep you focused on the company’s growth. Companies can use services from a worldwide PEO service provider like Multiplier that ensures compliance with Ukraine payroll requirements.
Entitlement and Termination Terms
Entitlement Terms in Ukraine
Employees get the following benefits according to payroll rules and regulations in Ukraine.
Paid time off
The employees who have completed a minimum of 6 months of continuous employment are entitled to paid annual leave of 24 days.
The duration of paid annual leave may be more for minors and employees working on difficult and risky jobs.
- The employees in Ukraine are entitled to paid sick leave of 4 months.
- The employer pays for the first 5 days of sick leave. Subsequently, the Social Insurance Fund pays.
- The compensation from the Social Insurance Fund depends on the employment duration and is mentioned below.
Social Insurance Fund Compensation
< 6 months
Based on the minimum wage
50% of the employee’s average wage
60% of the employee’s average wage
70% of the employee’s average wage
100% of the employee’s average wage
- The pregnant employees are entitled to 126 days of paid maternity leave.
- Out of 126 days, the pregnant employee must take at least 70 days’ leave before the estimated delivery date and 56 days after the child’s birth.
- The Social Insurance Fund pays maternity leave 100.00% of the employee’s average wage.
- There are no provisions for paid paternity leave in Ukraine.
- The fathers can take unpaid paternity leave of 2 weeks for a child’s birth.
- The fathers can also obtain leave from the mother’s maternity leave if she has resumed work.
- After completing maternity leave, fathers, mothers, and grandparents can take unpaid parental leave. It is applicable for a child younger than three.
- The employees in Ukraine get 11 public holidays per year.
- The severance pay is one month’s salary for every two years of employment.
Based on the terms of the employment contract or the collective agreement, employees in Ukraine may be entitled to additional leave types. The approval for the same occurs between the employee and employer. The details of the leaves are here.
- Bereavement leave: Employees can get up to7 days of bereavement leave upon the death of a close family member.
- Marriage leave: Employees are entitled to 10 days of marriage leave.
- Study leave: The employer compensates the paid study leave for the employees. Its duration depends on the duration of the exam period.
Termination terms in Ukraine
- The termination procedure in Ukraine varies based on the type of contract, the reason for termination, and the Employment Agreement and the Collective Agreement.
- The pre-pension employees, pregnant women, and women with children under three years of age are protected against dismissal.
- The notice period for a permanent or temporary employee depends on the individual beginning the termination. It is mentioned below:
Termination initiated by
By mutual agreement
Ukraine Payroll Processing Company
Foreign investors should fully understand employment and compensation requirements, local tax, and reporting if they want to govern timely, precise, and compliant payroll in Ukraine. Also, they should know the compliance with Ukraine Labor and local employment laws before setting up payroll in Ukraine. To obtain the optimum benefits of payroll rules and regulations in Ukraine, you can use services from an international PEO company like Multiplier.
How Multiplier Can Help with Global Payroll
Ukraine’s payroll management covers everything from payroll calculation to entitlement and termination terms. The businesses may occasionally only self-reliantly oversee part of the payroll rules and regulations in Ukraine since it is time-consuming. You can utilize the service from a worldwide PEO platform like Multiplier to remove these concerns and implement the Ukraine payroll process.
Multiplier is prominent for providing EOR solutions to worldwide firms in 150+ nations. Our talented team manages payroll calculation, Ukraine payroll process, contributions, employee onboarding, entitlement and termination terms, and other associated tasks. Besides, our SaaS-based PEO services determine that payroll processing runs competently in the country.