The Ukrainian payroll system is governed by the country’s labor law, which sets minimum employment requirements and wage levels for all employees. As of January 2023, the minimum monthly salary in Ukraine is set at 6,700 Ukrainian hryvnias (UAH), which is equivalent to about 170 Euros.
One aspect of the Ukrainian payroll system is the regulation of overtime work. Overtime work refers to work performed by an employee in addition to their regular working hours. For overtime work to be permissible, both the employee and the employer must agree to it in writing. There are limits to the amount of overtime hours an employee can work in a calendar year. The maximum allowable overtime hours should not exceed 120 hours per year or 4 hours during two consecutive days for each employee.
Employees who work overtime are entitled to receive additional compensation for the extra hours worked. The rate of overtime pay is typically higher than the regular hourly rate and should be agreed upon between the employer and employee. According to the Labor Code, the minimum rate for overtime pay should be at least 200% of the regular hourly wage. However, not all categories of workers can be engaged in overtime work. Pregnant women, women with children up to 3 years of age, and persons under 18 can only be engaged in overtime work with their consent.
Employers are required to keep records of any overtime work performed at the organization. This ensures transparency and compliance with labor laws.
In addition to overtime work, the Ukrainian payroll system also includes regulations regarding public holidays. If an employee is required to work on public holidays, they should receive additional compensation, typically at a rate of 200% of their regular pay. Alternatively, they may be compensated with additional days off from work.
WHAT TO KEEP IN MIND WITH PAYROLL TAXES AND WITH OTHER COMPENSATIONS?
Payroll taxes are another important aspect of the Ukrainian payroll system. Personal income tax (PIT) is levied on individuals who have earned income in Ukraine during the taxation period. Employers are responsible for calculating and withholding PIT from their employees’ income and remitting it to the state budget.
All types of compensation paid by the employer to the employee, including salary supplements, vacation pay, commissions, and bonuses, are subject to payroll tax. The PIT rates vary based on whether the employee has submitted a salary tax declaration to the employer and whether they are eligible for additional tax benefits. There are also different tax rates based on the total annual income of the individual.
It’s important to note that most benefits provided by the employer to employees are taxable. This means that these benefits are included in the employee’s taxable salary. There are some exceptions, such as with private medical insurance, and housing and corporate car usage in some cases. Even benefits in kind, such as employer-provided sport activities, private car usage, or discounts on the employer’s products or services, are considered a part of the taxable salary.
EXAMPLE SALARY TAX CALCULATION FOR A RESIDENT OF UKRAINE
The Ukrainian payroll system uses a fixed-rate taxation system for personal income tax rates. For example, let’s consider the salary tax calculation for a resident of Ukraine. If the employee’s net salary is 805 UAH, they would be subject to a military tax contribution of 1.5% and a personal income tax of 18%. This would result in a gross salary of 1,000 UAH. The employer would also be responsible for paying a unified social tax of 22%, resulting in a gross expense of 1,220 UAH.
Employee Net Salary: 805
Employee´s Military Tax contribution 1.5 %
Employee´s personal income tax 18 %
Employee Gross Salary 1000
Employer´s Unified Social Tax 22 %
Employer Gross Expense 1220
It’s important to note that the above calculations are a simplified version of the Ukrainian salary tax system, and there may be exceptions that apply in certain cases. It’s recommended for employers and employees to consult with tax professionals or specialists to ensure compliance with the Ukrainian payroll system and to understand the specific tax implications for their situation.
In conclusion, the Ukrainian payroll system is regulated by labor laws that set minimum employment requirements and wage levels. Overtime work is permissible if agreed upon by both the employee and employer in writing, with limits on the number of overtime hours allowed per year. Employees who work overtime are entitled to additional compensation at a minimum rate of 200% of their regular hourly wage. Employers are required to keep records of overtime work.
The Ukrainian payroll system also includes regulations regarding public holidays, with additional compensation or days off provided to employees who work on such holidays.
Payroll is a delicate, often complex process. It is highly important for your employees that you get this right, but every country has different rules. We have decades of experience handling payroll in Ukraine for businesses large and small. In case of any questions, feel free to consult with Leinonen consultants.