In this article we’ll explain the difference between hiring independent contractors and regular employees. We’ll show you how to choose the right contract, deal with taxes, and pay international contractors. Plus, you’ll learn how using a service like Useme can make hiring and paying freelancers from Ukraine both simple and legal.
Dive into this blog post to make hiring and paying contractors from Ukraine straightforward and transparent for your business.
Employees vs. independent contractors in Ukraine
According to the Labor Law of Ukraine, the distinction between employees and independent contractors is significant. The main difference is that employees must follow local labor laws, while independent contractors are governed by civil law.
Who is an employee in Ukraine?
In Ukraine, companies employ individuals through either an employment agreement or an employment contract. All Ukrainian employees are required to maintain a labor book, a document that records their employment history. If work is carried out in Ukraine, the employment relationship is governed by Ukrainian law unless an international treaty specifies otherwise.
For people hired as employees, there are specific things they should get according to the work laws. These include:
- getting paid at least UAH 6,700 every month (that’s around $173);
- having the right to 24 days off for a holiday every year, plus 5 days off if they’re sick;
- being treated fairly at work (protection from discrimination);
- getting extra pay if they lose their job;
- a limit on how long someone can be in a trial time at a job.
Who is an independent contractor in Ukraine?
Meanwhile, an independent contractor is brought on board to deliver specific results, as outlined in their contract, and enjoys much more freedom in getting those results done.
Ukrainian freelancers are different from employees because they:
- choose when, where, and how they work, with little oversight from the hiring company.
- bear the cost of redoing any work that doesn’t meet standards.
- set their work schedule and location.
- supply their equipment.
- are hired for specific projects and leave when done.
- aren’t integrated into the company’s staff structure.
- get paid per project, not a regular salary.
- can refuse tasks outside their contract.
- have no minimum work or pay guarantee.
- aren’t on the company payroll.
Given these unique characteristics of independent contractors, it’s crucial to choose a contract that aligns with both your needs and their flexibility.
Navigating tax residency in Ukraine
Dealing with tax residency in Ukraine involves understanding specific criteria that determine whether an individual or a legal entity qualifies as a Ukrainian tax resident. For individuals, key factors usually include:
- Permanent residence: If you have a home in Ukraine, you might be considered a tax resident.
- Life interests center: This looks at where your most significant personal and economic ties are, like family, work, or property.
- Stay duration: spending more than a certain number of days in Ukraine within a tax year (often 183 days) could make you a tax resident, even if your main home is elsewhere.
For legal entities, tax residency might be based on the company’s registration place or where it conducts its primary business activities.
Being a tax resident in Ukraine means you’re expected to pay taxes on worldwide income, not just what you earn in Ukraine. Non-residents are taxed only on income earned within Ukraine.
Like many countries, Ukraine has double taxation avoidance agreements with various nations. These agreements help prevent individuals and businesses from being taxed twice on the same income in more than one country, clarifying which country has the right to tax different types of income and under what conditions.
What type of contract should you choose for hiring freelancers from Ukraine?
When you’re looking to bring freelancers from Ukraine onto your team, figuring out the best contract type is key. Let’s break down the options:
Sole trader (FOP – “fizichna osoba-pidpriyemets”)
Often known as a “natural person entrepreneur” or “private entrepreneur,” this is a popular choice for freelancers in Ukraine. It’s a simple setup without creating a separate legal entity.
Sole traders have the flexibility to operate across different businesses and services, and they can employ both local and international staff. Yet, they carry full responsibility for any debts incurred by their business.
When it comes to taxes, they handle their filings and payments, with options for a profit tax system (18% on annual profits) or a revenue tax system (5% on quarterly income).
Registering requires a Ukrainian tax ID and signing up with the Ukrainian Companies Registrar.
Limited company
Independent contractors have the option to create a limited company too. In Ukraine, the most popular ones are: Limited Liability Company (LLC) – the top choice for businesses, and Private Enterprise (also called “Privatne pidpriyemstvo” or PP) is like running your own business but with legal protection.
Joint stock company
This choice is for those looking at a more significant venture, requiring a more extensive capital base and approval from the National Securities and Stock Market Commission, the financial watchdog in Ukraine.
Employment contract
If you’re looking to bring someone on board as a full-time employees in Ukraine, not as a freelancer, they’ll work under an employment contract. In this case, it’s up to you, the employer, to handle an employee’s legal tax, and accounting responsibilities.
Picking the right format aligns with your project’s needs and ensures a smooth legal and financial relationship with your freelancers in Ukraine.
Contracts for services
Besides regular employment agreements or contracts in Ukraine, companies often hire through civil law agreements, especially for tasks that fit the freelance or IT services.
These are formal agreements where a freelancer or private entrepreneur agrees to deliver specific services or work based on the client’s request.
Unlike traditional employment, this setup means the freelancer uses their tools and works at their own risk without being directly controlled by the client.
However, there’s a significant catch: these service contracts don’t offer the same legal protections as employment laws. Managing such contracts from overseas complicates things.
Key issues include managing taxes correctly and steering clear of “sham employment.” This term refers to a setup that looks like freelancing but could legally be considered hidden employment. Such situations could lead to legal troubles.
Given these complexities, many businesses need help with the administrative overhead. A platform like Useme offers a streamlined process that simplifies paying freelancers.
Useme is responsible for managing these legal and administrative tasks, providing a safe, compliant way to engage with freelancers from Ukraine and other countries.
Contributions and insurance
When hiring subcontractors and freelancers from Ukraine, understanding local labor laws and the ins and outs of contributions and insurance is crucial. These elements significantly impact your collaboration’s financial, military tax, and legal aspects.
Understanding social security for Ukrainian freelancers
First, let’s dive into social security contributions. In Ukraine, just like in many places, there are particular rules about contributing to social security and health insurance. However, the approach creates more freedom when dealing with freelancers instead of regular employees.
- Freelancers are responsible for their own social and health contributions. This means they handle their social security payments themselves.
- For you, the employer, there’s less to worry about. You aren’t required to contribute to their social security or health insurance. This makes things simpler, reducing paperwork and formalities on your end.
- However, checking that your freelancer keeps up with their social security obligations is still wise. Ensuring everything is in order helps avoid potential complications down the line.
An additional point to note is that for regular employees, employers must contribute an extra 22% of the employee’s salary to the Unified Social Contribution (USC) fund. This cost is not deducted from the employee’s salary but is an additional expense for the employer.
However, independent contractors must manage employee benefits and pay their own taxes and social security contributions.
Navigating insurance needs for an independent contractor
Now, onto insurance. Insurance is all about protection – both for you and the freelancer.
- Freelancers should secure their own health and professional liability insurance. This is vital as it covers them in case of health issues or professional mistakes.
- Professional liability insurance becomes especially crucial when errors can lead to significant financial or legal problems.
- Conversation about insurance coverage with your freelancer is key to ensuring both parties are adequately protected against unforeseen circumstances.
By being clear on contributions and insurance from the get-go, you can avoid misunderstandings and ensure a smooth, worry-free collaboration.
Remember, a well-informed approach benefits everyone involved, making your project run smoother and keeping all your contractors’ working relationships strong.
Income tax rates in Ukraine
Understanding income tax rates in Ukraine is crucial if you’re planning to hire freelancers from this dynamic country. Being well-informed aids in accurate budgeting and ensures adherence to the Ukrainian tax code and labor laws.
Key points about paying income tax for employees
- The tax period matches the calendar year, starting 1 January and ending 31 December.
- Ukraine uses a standard personal income tax rate of 18% for most working individuals.
- For employees, you, the employer deduct this tax right from their wages. Plus, you’ve got to send in quarterly reports detailing these deductions.
Freelance contractors must take care of their own tax filings and payments. They’ve got until 30 April to file for the previous year, with all taxes due by 31 July.
Different Ukrainian tax regulations for contractors
Now, depending on the tax system a contractor falls under, their rates pay taxes might vary:
General Tax Regime:
- Contractors cough up the usual 18% of their income.
- They also pay a 22% social security tax on their earnings.
Simplified Tax Regime:
- Here, contractors are charged a single ‘Unified Tax’, influenced by their income, business type, and team size.
- This rate can go as high as 20%, depending on the situation.
- Anyone working under this scheme must keep a Book of Income, officially recognized by the tax authorities.
Understanding these tax information and details ensures that you both the employer and your freelancers are on the same page tax-wise, helping avoid surprises when tax season rolls around.
How to pay freelancers from Ukraine?
Paying freelancers from Ukraine can be simple. With the correct tools and knowledge, you can streamline the payment process and make it straightforward for both sides.
Selecting the right payment method
Firstly, deciding on a bank account and a suitable wire transfer method is crucial for paying contractors. Various other wire transfer and money transfer services exist, but selecting one that balances convenience and cost-effectiveness for international payments is vital.
- Bank transfers are a common approach but may involve higher fees and longer processing times, which might not be ideal for paying international contractors.
- Online payment platforms like PayPal, Payoneer, or Wise offer a balance of convenience and lower fees. They are popular among freelancers for their ease of use and quick processing.
- Cryptocurrency payments have gained traction due to their low transaction costs and fast transfer times, though all freelancers may not prefer them.
Handling currency exchange and fees
Dealing with foreign currency exchange and transaction fees can be tricky, but there are ways to make it easier.
Be transparent about who covers transaction fees. It’s standard for the employer to cover these costs, but clarifying this upfront is important for understanding.
Talk about preferred currencies with your freelancer. Some might opt for USD or EUR, while others prefer receiving payments in Ukrainian hryvnia (UAH), depending on what’s best for international payments.
Ensuring compliance and timely payments
Ensuring all your pay contractors’ payments comply with legal requirements and are made on time is crucial for maintaining a good relationship with paid independent contractors or freelancers.
- Use contracts to outline payment terms clearly. This includes payment schedules, amounts, and conditions for extra work.
- Keep records of all payments and invoices. This is important for both tax purposes and resolving any disputes that may arise.
- Regular and timely payments show respect for the freelancer’s work and help build a strong, trusting relationship.
Paying freelancers from Ukraine efficiently and respectfully is about communication, choosing the right payment platform, and being mindful of fees and legalities.
How can you quickly and legally hire a freelancer from Ukraine?
Looking to hire a freelancer from Ukraine without the hassle? Here’s a quick direction to doing it easily and legally.
Choose Useme
Useme offers an alternative that simplifies the entire process, from hiring to payment, all while ensuring legal compliance.
- Skip the paperwork: Useme handles contracts and legalities, so you don’t have to.
- Secure payments: Payments through Useme are safe, with funds released to freelancers only after you approve the work.
- Stay legal: Useme ensures your collaboration fully complies with laws with no risk of illegall labour.
How does Useme work?
Just invite your freelancers to Useme, and we’ll send them a short form to fill out. Then, you pay for the work ordered, and we handle all the paperwork. Finally, you receive the completed work and the invoice, and we pay the freelancer within 24 hours.
It’s a streamlined way to work with freelancers, making the administrative side much smoother and quicker.
Steps to find a freelancer through Useme
If you’re still looking for a freelancer from Ukraine, hiring one via Useme involves a few simple steps:
- Post your job: Clearly describe your project, the skills required, and the deadlines.
or - Choose your freelancer: Review proposals from talented freelancers and select the best fit for your project.
- Agree on terms: outline the project scope, payment terms, and deadlines.
- Secure payment: Deposit the payment into escrow through Useme, which will be released to the freelancer once you approve the completed work.
By following these steps and leveraging Useme as your platform, hiring a freelancer from Ukraine becomes easier but more secure and compliant with legal standards.
