How to Pay Remote Contractors in Ukraine?
Ukraine is one of the top destinations for IT and tech outsourcing in Europe. Software development is probably its most popular and advanced industry, and its developers consistently rank among the best in the world.
Over 85% of Ukrainians have an excellent command of English. And the wages there are relatively lower than in other European countries. All these factors, along with Ukraine’s convenient time zone, make it a preferred hiring destination for companies looking for remote contractors.
So if you are thinking of expanding your team in Ukraine, this post will give you the overview you need. But before we dive in, let us understand the difference between hiring an employee and an independent contractor in Ukraine.
Difference between an employee and an independent contractor
Who is an employee?
An employee is a person who works for an employer on a regular basis for a fixed compensation called salary. They work under an employment contract (oral or written, express or implied) that specifies the terms and conditions of the employment.
The employee may be part-time, full-time, or temporary. They are hired for a specific job that comes with tasks, duties, responsibilities, and authorities. The employing company has full control over the work of the employee.
Who is an independent contractor?
An independent contractor is a neutral person who provides services as per the terms agreed between them and the client/employer. They are paid on a freelance basis.
A contractor is free to decide the manner and method of completing the task assigned to them. And they are fully responsible for the outcome of the project.
Key differences between hiring an employee and independent contractor in Ukraine
A company can hire employees in Ukraine once it sets up its own Ukrainian legal entity. As it starts hiring employees, these are the responsibilities that go with it:
In Ukraine, it isn't mandatory for employment contracts to be in writing according to the Labor Code. However, an employee can request a written agreement. Also, when hiring a minor, the employer must provide a written agreement.
A written agreement must include details such as the employment length, termination rights, and liabilities. Unless the nature of the job provides an estimated end date, a contract assumes employment for an indefinite period.
Minimum wages and working hours
The minimum wage in Ukraine is currently UAH 6500/month. The government plans to increase it further around October 2022.
The standard workweek is 40 hours spread over five days. An employer can establish a six-day working week with seven hours of work each day.
Ukraine's Labor Code permits overtime in exceptional cases, but it must be compensated at double rates. Also, overtime cannot exceed four hours for two days in a row or 120 hours per year.
Employees in Ukraine generally get paid twice a month:
- From 15th - 20th of every month
- From 31st - 7th of the following month
The period between two payments cannot be over sixteen days. If the pay date falls on a public holiday or weekend, the payment has to be done a day before.
What are the statutory benefits that an employer must grant their Ukrainian employees?
Ukrainian employees are entitled to a minimum of 24 days of paid annual leave after completing at least six months of continuous employment in a company.
Pregnant women are entitled to 70 calendar days of paid maternity leave before the due date and 56 calendar days after the birth of a child. If a woman is delivering two or more children, or in case of any complications during delivery, she is entitled to take 70 days of postpartum leave. Expectant fathers also get paid paternity leave for 14 calendar days.
An employer may grant their employee unpaid leave if it is mutually agreed. However, the unpaid leave for an employee cannot exceed 15 days in a year.
Termination of employment
Employers must give their employees a two-month notice period if they intend to end the employment. If an employee plans to end the employment relationship, the employer gets a two-weeks notice.
If an employer dismisses an employee because of redundancy, or lack of competence or qualification, they must provide a severance payment based on the employee's average salary. And, if an employee resigns because the employer has violated the Labor Code, the employer must give the employee a severance payment equal to three months of their average salary.
Tax obligations for employers in Ukraine
Employers are required to withhold income tax and remit it to the Ukrainian tax authorities. Moreover, since their company has a Ukrainian legal entity, they must pay corporate income tax at 18% on its business income from activities in Ukraine and any non-business income from Ukrainian sources.
So, having a legal entity in Ukraine and hiring employees makes sense if you are building a remote team and want to control the hiring and payroll process. Otherwise, it is complex and costly and partnering with an EOR or hiring independent contractors may prove to be better options.
A company can hire Ukrainian contractors without establishing a business entity in Ukraine. Here are the responsibilities that go with hiring independent contractors:
Civil law agreement and payment
A civil law agreement between the employer and contractor must be in writing. Under it, the contractor will perform a specific task or service for the client/employer using their own infrastructure. The employer cannot set the contractor’s work hours, days, and location. And, the employer must pay the contractor on a project or freelance basis.
Tax obligations when hiring independent contractors in Ukraine
Employers are not responsible for withholding taxes on their independent contractor's pay. Instead, the independent contractor is required to paying their taxes independently.
How to pay independent contractors in Ukraine?
Ukrainian law hasn't established any standard payment terms, and both parties involved in the contract are free to agree on what suits them. However, they must comply with the fundamental principles of Ukrainian contract law, which are good faith, reasonableness, and equality.
What are the payment methods you can use to pay remote contractors?
Generally, employers check the UAH rate and compare different remittance services to pay contractors. The following options are typically used:
Checks and money order
Checks and money orders are inexpensive and flexible options when it comes to paying your Ukrainian contractors. However, they can take a very long time to reach your contractors or, in some cases, may even get lost on the way.
Wise is undoubtedly the least expensive method to send money to Ukraine. The remittance cost is $0.51, and it charges a flat fee rate of $6.13 and 2.31% of the amount being sent. It also provides a strong exchange rate.
The service is easy-to-use and low-risk, making it ideal for a large one-time payment. Moreover, the funds reach the recipient's account within two days of making the payment.
Wise provides high security and accepts both debit and credit cards. The tool, Wise batch payment, will help you pay multiple wages in one go, although, your contractors will not be able to track transaction status.
Keep in mind that the fees can start mounting if you send regular payments to many contractors.
Ria is an easy-to-use payment method where the pay reaches the contractor within three days. The service is safe and provides one month of free debit card transfers.
If you use a bank account to send a payment to Ukraine, you are charged a $5 fee, whereas if you use a credit card, the fee is about $35.
Please note that Ria does an extensive security check which sometimes takes up to a month.
Remitly is a safe and cost-effective way to pay in Ukraine. If you use its regular transfer service, your contractors will receive the pay within 3 to 5 days. On the other hand, if you use its express transfer service, they will receive the funds instantly.
Fees for transfers below $1000 are $3.99, and you are charged a remittance fee of 3% on card payments. There are promotional packages for new customers that you can avail as well.
Western Union is another popular method to send payments in Ukraine. It offers a price estimator tool, which helps calculate remittance fees beforehand.
With Western Union, your contractors will receive their payment within a few minutes or a couple of days at the most. Also, they can avail the cash pickup service through Western Union’s in-country agents.
Xoom is a user-friendly service, popular for fast money transfers at low remittance costs. It provides free transfers over $1000 while using banks as the sending medium. The transfers can be tracked through the company's app and the payment is usually credited within 1 to 2 days.
Paysend money transfer platform allows you to send funds directly to any Visa or Mastercard in Ukraine against a charge of €1.5. The transfer happens within a few minutes.
Your contractors will receive their pay in the local currency as per the mid-market exchange rate, without any hidden fees or additional charges. Paysend is fast, easy, and secure, and you can send payments from a laptop, tablet, or mobile app.
Azimo offers one-hour money transfers to over 80 countries. It provides the first two transfers free of cost.
With Azimo, the remittance cost is dependent on the amount being sent, but it claims to charge 90% less remittance fees than other services. The company also has encryption technology and anti-fraud policy, which more than one million customers trust.
Are you looking to hire independent contractors for your company? Read this article to get all the information to streamline your search.
We at Starkflow, offer a cost-effective service to quickly and legally hire employees in Ukraine. You don't have to take the risk of hiring contractors or going through the expense of setting up a Ukrainian entity. We will help you in the hiring process and set up payroll, complying with every Ukrainian employment law.
As the employer of record, we ensure that every detail is attended to during the hiring or onboarding process and while setting up payroll. We keep employees happy with their work agreement and have rapid, transparent onboarding. We offer them excellent benefits and a reliable employment contract compliant with local regulations. We ensure that the agreed monthly salary is paid on time and our employees are always taken care of.
If you're looking for more information, feel free to contact us.