3 key options for labour relationships with Ukrainian citizens

We were encouraged to write this post because our existing and potential clients turn to us for advice on the rules and possible options for registering permanent or temporary employment relationships with Ukrainian citizens.

While our team offers a variety of individual labour market reports, in this post we will outline the standard key conditions and options for employment of and provision of remote services by Ukrainian citizens in Ukraine.

This article focuses on legal regulation, taxation, and mandatory contribution requirements in Ukraine to assist in understanding the specifics of hiring employees or engaging subcontractors in Ukraine.

A-HR.pro offers outsourcing and outstaffing services as additional services.

Forms of labour relationships with Ukrainian citizens:

1. Employment contract (hiring employees in Ukraine)

For the official employment of a Ukrainian citizen within Ukraine, the employer must register as a legal entity, branch, or representative office in Ukraine. Once registered, a Ukrainian company may conclude employment contracts with Ukrainian citizens and foreign nationals.

An employment contract governs the execution of work according to a specific role, qualification, or position and requires adherence to internal labour regulations. It mandates the employer to provide remuneration and maintain safe and fair working conditions in compliance with labour laws, specifically ensuring:

  • Regular wage payments, at least twice a month;
  • Set working hours/schedule;
  • Paid sick leave, time off and holidays;
  • Protection against unlawful dismissal, among other rights.

Ukrainian labour law also allows for the conclusion of other types of employment contracts:

  • Zero-hour contract – this contract does not specify fixed working hours. Instead, the employer assigns tasks and sets deadlines, while the employee completes the work at their own convenience.
  • Home-based work contract – under this agreement, the employee performs work at their residence or in other designated spaces with a designated work area and the necessary technical means for production, service provision, or task completion. This arrangement takes place outside of the employer’s business premises.
  • Remote work contract – here, the employee performs work outside the employer’s premises or territory, at a location of the employee’s choice, using information and communication technology.

2. Civil law contract

A Ukrainian or foreign company may also conclude a civil law contract with a Ukrainian citizen. Under such a contract, the Ukrainian citizen is treated as a contractor rather than an employee in the traditional sense of labour law.

Labour laws do not apply to this arrangement – the Client is not obligated to manage working conditions, provide a workspace or equipment, or cover sick leaves. The contractor is responsible for organising their work and ensuring its completion within a specified timeframe.

The key distinctions between civil law relations and employment relationships are:

  • a civil law contract cannot be open-ended (for an indefinite period);
  • it can not define the contractor’s working schedule, job duties, or social guarantees.

Under this type of contract, the organisation of work is not specified. Instead, the contract focuses on achieving a specific material result (a defined scope of work or services), where contractor organises the work independently, and assumes the associated risks.

3. Service contract with Ukrainian private entrepreneur

A Ukrainian or foreign company may also conclude a service contract with a Ukrainian individual private entrepreneur (known as and further referred to in this article as FOP) without a need to register a representative office in Ukraine.

In this arrangement, it is essential to clearly outline the terms of cooperation and the nature of services provided to avoid accusations (and corresponding penalties) of concealed employment. Key elements to include are:

  • clearly defined deliverables or scope of work within a specified period;
  • service fees and payment terms;
  • services provided are not tied to specific professions, specialisations, or positions requiring certain qualifications;
  • absence of a designated workplace provided by the Client;
  • absence of internal labour regulations set by the Client, including prescribed working hours and rest periods;
  • no provision of production resources (e.g., equipment, tools, software, or other resources) by the Client;
  • no reimbursement of travel or other expenses related to service delivery by the individual.

Contributions and Social Security Payments

According to the Tax Code of Ukraine, income earned by Ukrainian citizens in Ukraine is subject to Unified Social Contribution, Personal Income Tax and the Military Tax.

The rates for abovementioned taxes depend on the form of the contract selected and selected taxation system (for FOPs).

The employer must comply with legal requirements and act as a tax agent.

FOP is responsible for maintaining income and expense records, as well as submitting tax reports to the Ukrainian tax authorities. The Client is not liable for any failures to comply committed by the FOP.

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The choice of scenario and form of employment or contract should align with the Client’s needs, the specifics of employee/service provider roles, the type of activity, and the geographical locations of the Client and contractor.

The authors of this article assume no responsibility should any penalties or adverse consequences arise for the Client in implementing the materials in this article. Each suggested scenario requires document preparation and implementation per current Ukrainian legislation, that is beyond the scope of this post.

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