Labor relations and their alternatives: realities and problems

Business is affiliated with a lot of risks. How to make a profit, don’t lose customers, minimize costs without breaking the law, while still earning and maintaining a good reputation among colleagues and clients?

In aspect of cost minimization there may be a choice: to hire or not to hire. Employees in Ukraine are the main reason of inspections and fines as well as lawsuits.

This article contains information about advantages and disadvantages of official employment and its alternative.

 

Employment contract

The employment contract is an agreement between an employee and an employer, which sets the employee’s duties to perform certain work, and the employer’s – to pay salary and provide working conditions.

The first indicator of labor relations is the rules of internal labor order.

The second – regularly paid  salary.

The third indicator – ensuring working conditions by the employer.

Another employer’s responsibility in this context is to identify the workplace, which must comply with the established standards.

 

Why is it unprofitable for employers to enter into an employment contract with employees? There is a number of reasons:

1 – Compulsory payments to the budget

Employer must pay a personal income tax, military fee and a single social contribution for each employee.

2 – Protection of employee rights by law and liability for breach of warranty

When concluding an employment contract, the employee receives protection, which is established by the labor legislation. Labor legislation establishes a number of guarantees for an employee: the maximum working hours, the mimimum vacation, grounds of the contract termination etc.

Violation of these guarantees cause fines for employer. And each unsatisfied employee may file a lawsuit in case of violation of his rights.

 

Advantage of concluding an employment contract

The main advantage is your confidence and safety in the case of inspection by public authorities. Avoiding the risk of imposing sanctions for improper registration of an employee is a good motivation, taking into account the size of current fines (UAH 125 190 for each employee admitted to work without official employment contract and another UAH 17 000 as CEO administrative liability).

 

Civil contract as an alternative to an employment contract

A service contract is the main regulation for partly employment relations. Such contracts can regulate rights and obligations of the parties, the order of services provided and payment for them, responsibility in case of violation of the terms and conditions of the contract – in details. 

 

Advantages

The main advantege of civil agreement is its flexibility compared to an employment contract.

You may establish any cost of services, responsibility or grounds for termonation the agreement.

In addition, the employer will not be liable for the employee’s life and health, safety of his work if the relevant provisions are correctly drawn up in the contract.

 

Disadvantages

Again, the first issue is inspections and their consequences. In case the contract contains provisions that can be identified as labor relations, an employer can pay hundreds of thousands, and even millions UAH as fine.

Therefore, when concluding a civil agreement, it is necessary not to mention the  workplace, regularly payments and the rules of the internal order.

 

So, labor or civil?

As a result, to date, no one can force an employer to enter into an employment contract with employees. But everyone can see risks of civil contracts.

Author
You may like
A new law on virtual assets: the picture is formed, but without details. On September 8, 2021, the Verkhovna Rada has finally adopted the long-awaited law "On Virtual Assets", which clarified many ambiguous points. This is especially true for the status of cryptocurrency and the rules of its circulation in the country. Let`s take a closer look at novelties. An ambiguous term Let's start with what the legislator actually means by "virtual assets". There are the following features:  they are an intangible good (cannot be represented on tangible media)  fall under the list of objects of civil rights (that is, they can be owned and be disposed of)  represent an electronic form of a set of data (essentially, they are blocks of information put in order);  the existence and circulation of assets are due to software tools (specific electronic environment). From these features we can draw the following conclusion: virtual assets are not limited to cryptocurrency. Digital currency is part of the concept, but other instruments, such as tokens, NFTs, or even in-game items, fall under the definition. Actually, the actual existence of most digital products, having a certain value, is due to the software environment (ecosystem), either it is blockchain technology, a trading platform, or an online game server. It should be noted that the attempt to define virtual assets was already made in the adopted Law of Ukraine in counteracting money laundering. In this act, they understand it as digital means of payment, which goes against the new definition. As a result, there are now two different explanations for virtual assets, which causes significant confusion not only in regulation but also in interpretation. It is definitely necessary to expect clarifications from competent state bodies. Let's return to the new law. Its application covers legal relations in which the "Ukrainian element" is present:  provider or recipient of services represented in Ukraine;  an agreement according to which the turnover of virtual assets is carried out in accordance with Ukrainian legislation;  the acquirer of assets (or both counterparties) is a resident(s) of Ukraine. The law also introduces an interesting division of all virtual assets into two groups: secured and unsecured. Here again, there is a problem of interpretation. The first category includes products exchanged for (state) currency, the second category includes instruments that can be exchanged only for other digital assets. There is an alternative opinion: that the turnover of secured assets is supported by real goods (money or other property), while unsecured ones are not supported by anything. The latter interpretation is the most credible, as the new law stipulates that virtual assets are NOT means of payment. Moreover, they cannot be exchanged for real goods, be they property, services or money. This significantly narrows the potential for the use of virtual assets not only for commercial but also for civilian purposes. About obligatory licensing The new law states that in some cases, the use of virtual assets will require licensing. The 4 types of activity are mentioned:  storage and management of virtual assets (or its` keys)  servicing of exchange operations with virtual assets (both for other analogues and for real goods);  translation of digital assets;  any intermediary services. A list is quite impressive, but there are some important exclusions:  if your service works with cryptocurrency wallet (it means users can dispose of accumulations into cryptocurrency independently);  If your service works on smart contracts or decentralized protocol, based on which internal transfers are performed. As to intermediary services, everything is more compicated. Actually, any mediation is based on the public share offering. That is why it is subject to licensing. How to get a license? A company that wishes on legal grounds to engage in virtual assets must satisfy legislative requirements. The key role is played by the minimum amount of the statutory capital, which equals 1,19 million hryvnyas (for non-residents it is 5,95 million hryvnyas) in case of storage and administration. For other types of activity (trading, translation and mediation services) the minimum size of the statutory capital amounts to 595 thousand hryvnyas (for non-residents is 2,98 million hryvnyas). The order of the registration of license:  to compose an application and prepare documents.  to pay state fee (68-136 thousand hryvnyas for residents and 340-680 thousand hryvnyas is for non-residents).  to pend review of the request (30 days).  to get a license. The duration of the license is 1 year. No norms about the continuation of legal force of permission are set (we are expecting amendments or explanations from the Ministry of Digital transformation of Ukraine). Notably that non-residents must pay a far greater sum, than domestic companies. The Ukrainian legislator obviously encourages an internal market, getting rid of a strong foreign presence (that, in fact, coincide with modern politics of the state on the whole). Together with an application, the following documents must be prepared: The access code to the copy of the Statute of the company (or the foundation agreement) kept in an electronic file in the database of the Unified State Register of Enterprises and Organizations (USREO);  Funding sources of the statutory capital (where the money are taken from);  confirmation of the actual injection of money;  information about beneficiaries (special attention must be paid to business reputation);  the information about the director and founders;  the check about payment of state fee;  the internal regulations, in accordance with which ones, the privacy policy rules are regulated. In the terms of volume of necessary documentation of licensing is very alike with complete registration of legal entity. It is understood that the state wants the severe adjusting of activity of organizations that will engage in virtual assets. Is it already possible to get a license? The adoption of the law by the parliament is a significant step forward in adjusting and legal market of virtual assets creation in Ukraine. However, the new rules haven`t come into effect yet - their term of introduction depends on making amendments in the Internal Revenue Code. It is yet unknown, when a legislator will decide to enter the renewed system of taxation for such assets. Being "IT-hub" and territory, where cryptocurrency enjoys large popularity, the question of taxes must be decided maximally safely. Despite the presence of obvious gaps in interpretation, a new law on virtual assets gives the official narrative of what takes place and that, how the legal relationships related to cryptocurrency will be regulated. It is to be hoped that in the nearest time the Ministry of digital information will give out the detailed explanations concerning debatable norms.
20/01/2022

We will
call you