New approaches of the Ministry of Social Policy to legalize labor

Inspection visits to the State Labor Service and the huge fines applied at the end of last year became routine in the news feed. And it’s not surprising – if it were only fine for salaries in envelopes and shadow employment.


But often the main reason for fine is qualification of civil legal relations as labor, so-called fact of substitution of an employment contract with a contract of a civil-law nature.

In such a case, the court can only put a point, evaluating the arguments of the parties in favor of one or another type of relations between the parties, taking into account its own discretion and, possibly, the Recommendation of the International Labor Organization on labor relations No. 198.

By concluding civil-law contracts, modern entrepreneurs balance on the verge, signing them with the fear of qualifications as labor and the need to prove in court their point of view.

Litigation is sometimes very diverse, and therefore – no certainty. But the 6-months experience of applying and appealing fines seems to open the eyes to the current state of affairs.

The Ministry of Social Policy offers to clarify the concept of employment and reduce fines for the substitution of labor relations civil. The draft law proposed for discussion, based on the name, is aimed at protecting workers and legalizing labor.

 

Labor relations

The Ministry proposes to define the notion and signs of labor relations of the Labor Code.

Signs are proposed to be affixed in the enclosed article 21-2, having determined that the work or service is deemed to be performed within the framework of labor relations, regardless of the name/type of the contract between the parties in the presence of at least 3 of the following features:

  • periodicity of rewards – two or more times;
  • personal character; specific qualification/occupation/position; control of the person in whose interests the work is performed;
  • this reward is the only source of income (or 75% of income for 6 months);
  • workplace and internal regulations;
  • the job is similar to that performed by the staff member;
  • provision of working conditions, means of production by the person in whose interests the work is performed;
  • the setting of working time and rest time.

If there are at least three signs of a “worker” that could refer to Labour service to establish the existence of labor relations. Of course, such a person could have called for a check on the company before, but in the event of approval of this project, the “employer” will not only expect a fine – he will also be obliged to conclude an employment contract.

The proposed signs are, of course, not perfect, allow for some blurriness, are not sufficiently clear. But these are signs that, in case of adoption of the project, will be fixed at the legislative level, will be the basis for the decision and legal positions.

 

Fines

It is proposed to differentiate the responsibility for admission to work in violation of the legislative order, the substitution of labor relations with civil agreements and the registration of an employee for part-time, subject to full day work.

A fine of 30 minimum wages is planned to be left for admission to work in violation of the order of the conclusion of an employment contract, wages “in envelopes”, and the substitution of an employment contract with a civil agreement – if a social contribution is paid in the amount less than the minimum.

The substitution of a labor contract with a civil agreement – if a social contribution is paid in the amount not less than the minimum – will impose a fine of 15 minimum wages. Such a fine is planned to be set for a part-time appointment when full-time work is performed.

Fifteen minimum wages – not a small amount (in 2019 – 62 595 UAH), but still less than thirty.

As we see, there was an understanding that the conclusion of a civil-law agreement with the payment of all taxes and fees is not the same as the salary “in envelopes”.

 

A fixed-term employment contract

Positive is the tendency to expand the cases in which it is possible to conclude a fixed-term employment contract. Article 23 of the Labor Code proposes to make amendments, consolidating the possibility of concluding a fixed-term contract, in particular, in cases of temporary (1 year) expansion of production, the need for temporary work, the term of completion of which is unknown, or on the initiative of the employee.

The current legislation does not provide for the possibility of concluding a fixed-term contract for reasons, for example, of temporary expansion of production. This leads to substitution of labor relations with civil ones. The purpose of these changes is obviously to avoid or at least reduce the number of such cases.

 

Work with high risk

State Labor Service has repeatedly expressed the impossibility of engaging individuals under civil contracts to carry out work of high danger. And this is understandable – after all, such work requires obtaining a permit, and the permit is issued to the business entity, taking into account the number of employees or individual entrepreneurs with the appropriate education and skills.

But the facts of engaging individuals to such works under a civil contract, especially in construction, are found quite often.

Ministry of Social Policy also proposes to determine the Civil Code (Art. 837, 901) the ability to involve only contractors – businesses for working with difficult or hazardous conditions, work with high-risk or operations that require professional selection.

 

Other changes

The draft law also suggests defining the concept of an employee and employer, replacing an outdated “owner or authorized body” with an “employer” in the Labor Code, as well as requiring employers to inform the employee about the recruitment notice sent to tax service. Such information should be provided within a week.

The emergence of this project shows the uncertainty in the regulation of labor relations, the erosion of existing criteria and signs of labor relations, which can provoke the abuse of inspectors during inspections. And given the size of the fines – such abuse is significant pressure on business.

 

 

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