Labor relationships and it`s alternatives: realities and problems

Business is an activity that is affiliated with risks, moreover with many. How to make a profit, attract and don`t lose customers, minimize costs, without breaking the law, while still earning and maintaining a good reputation among colleagues and clients. And it is in aspect of cost minimization that the difficult choice is to make or not. I think there is no necessary to complete the previous decision, because it’s clear to everyone – we are talking about hired workers. The question that is the cause of hundreds of inspections and hundreds of litigation. A question that can help you save, and help the state to replenish the budget for a round. In this article we consider the advantages and disadvantages of official employment with the singing of an employment contract and the alternative – the singing of civil contracts.
Employment contract
The employment contract is an agreement between the employee and the owner, which sets the employee’s obligation to perform certain work, and the employer – to pay salaries and provide working conditions.
Legislative determination of an employment contract can immediately establish the signs of labor relations.
The rules of the internal order are the first criterion that allows us to distinguish labor relations and attribute the civil law agreement.
Salary. It`s payment is made regularly, twice a month. Another characteristic feature of the salary is the availability of a salary, or a tariff rate (a certain amount depending on the qualifications of the employee and the work he performs).
Ensuring working conditions is a duty of the employer. The factors that determine the working conditions are:
– sanitary-hygienic (illumination, humidity, harmful substances, temperature, etc.)
– psychophysiological (load level, pace of work, traumatic safety)
– socio-economic (vocational training, medical care)
– schedule of work and rest
Another employer’s responsibility in this context is to identify the worker, which is also one of the main criteria for labor relations.
A collective agreement (if it is singed) is an additional regulator and gives the employee the right for request about changing to the terms of an employment contract if it contradict the collective and worsen the position of the employee.
Why is it unprofitable for employers to enter into an employment contract with employees?
There are a number of reasons for this.
1)      Compulsory payments to the budget
This is probably the main reason. Personal income tax and military expense are equally unprofitable as for an employee, because it`s reduce their remuneration for work for a significant part as for the employer, because in the case of an agreement with the employee on a “net” salary to a certain extent, which employee will pay as taxes. There is still a single social contribution that is obligatory for the employer to pay, in the case of formal employment relationship with an employee. It is the deduction of these payments that forces the employer to pay more than one third of the wage from his pocket to favor of the state for each employee, which is a considerable sum, taking into account the state of the Ukrainian economy and the purchasing power of the population, which affects the profit of the business. In this context, it is worth mentioning the size of the minimum wage established by law, because it is the size of it which affects the amount of taxes and fees that the employer pays.

  1. Protection of employee rights by law and liability for breach of warranty

In the case of official registration of an employee and the signing of an employment contract, the employee receives protection, which is established by the labor legislation. Labor legislation, including the Labor Code, Laws “On Labor” and “On Vacations” establishes a number of guarantees for an employee. First of all, it should be noted about the maximum working hours – 8 hours a day, as well as a shorter working day for a number of employees.
Equally important is the establishment of a Labor Code, an exhaustive list of reasons for the release of an employee, and also establishes the procedure for dismissal. If the employer violates the procedure for dismissal or dismisses the employee for no reason prescribed by law, the employee may resume work through the court and pay salary during forced absenteeism. It is also obligatory to provide paid leave (at least 24 days a year) if the employee has expressed a desire to  use this right.
It should also be noted about the workplace, which must meet the established standards, and in case of its non-compliance, in particular the danger, gives the employee the right to refuse to perform labor duties.
For violation of the guarantees provided by the legislation on wages, the establishment of privileges, rest time, the Labor Code, a system of penalties is established, and the amount of the fine is a multiple of the minimum wage, which is a considerable sum.
All this is supported by the right of the employee to apply to the court in case of violation of his rights.
Advantages of concluding an employment contract
Oddly, some of the aforementioned “minuses” may be in favor of the employer.
For example, the established grounds for dismissal allow the employee to be dismissed in the event of specific actions that are contrary to the interests of the employer.
For example, an employee can not cope with his duties (mismatch with the position held) made a theft, abduction or appearance in the workplace in a state of intoxication. All this is the basis for dismissal, if they are brought to court. If the relations are executed by a civil contract, it may be impossible to break it for similar reasons if this is not provided for in the contract. Therefore, official registration in the future provides many more mechanisms for the employer to influence the employee and allows you to quickly correct the shortcomings in employee behavior at work, change his attitude to fulfill his duties in favor of integrity and professionalism.
It is also worth mentioning of the established Labor Code grounds for the material liability of employees, in the event of causing material damage to the enterprise, which gives the employer the right to recover from the employee the harm done without resorting to the court.
Unconditional yet another advantage is security in the case of inspections by public authorities. Avoiding the risk of imposing sanctions for improper registration of an employee, which is a good incentive, taking into account the size of current fines (111 690 UAH for one admitted to work without an employee’s employment contract in accordance with Article 265 of the Labor Code and another 17 000 UAH as liability for an administrative offense envisaged Article 41 of the CUAО).
Civil contract as an alternative to an employment contract
A performance contract or a service contract is the main means of regulating the relationship between an employee and the employer, although other contracts sometimes occur, for example, a contract for leasing a work place is quite common in hairdressing salons. These contracts can legally form relationships almost in all spheres, indicating the relevant work in the subject of the contract. Rights and obligations of the parties, the order of performance of work and payment for them, responsibility in case of violation of the terms of the contract – in full details of all these provisions in the contract, you can avoid almost all the risks and determine what, how and when should the employee do. Yes, and in general, taking into account the provisions of Art. 6 of the Civil Code on Freedom of Contract, it is possible to foresee the resolution of practically all of the controversial moments that may arise in the course of work and in relations with employees.
The main advantage is the avoidance of payment and SSС. In this aspect, it is worth mentioning also the involvement of the FPE as an employee, because in this case, the taxes paid for the remuneration received by the contract are paid by the FPE. Particularly advantageous is the cooperation with the FPE on a single tax, which allows to optimize the payment of taxes, and instead of the standard 18% pay 5% of income, or 3% and VAT (if the FPE in group 3), or 20% of the minimum wage (per today – 744.6 UAH).
Another advantage is that civil contract is more flexible than labor. Since the main regulator for the employment contract is the Labor Code and the Law “On Remuneration of Labor” and “On leave”, which establish certain limitations, including the liability exemption grounds. Instead, in the contract, again taking into account the freedom of contract, it is possible to foresee virtually any amount of material liability, as well as to provide a variety of grounds for termination of the contract. Thus, the employer can insure in case of improper performance of employee obligations, assumptions or other faults that are critical to the employer or the sector in which services are provided.
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.
Again, the first issue is the issue of inspections and their consequences. In the case if the contract will be prescribed provisions that will establish the nature of relations between the parties as a labor, then the employer can lose the hundreds of thousands, and even millions. For example, in August this year, the State Labor Office in the Rivne region fined an enterprise worth over 2.5 million UAH. UAH for the substitution of civil labor relations with 23 employees. Therefore, when concluding a civil agreement with an employee, it is not necessary to mention the establishment of the workplace, the payment of remuneration regularly, once a month, and in any case, not to mention the rules of the internal order.
Another disadvantage is that in the event of an employee’s harm to an enterprise or employer, the latter will be forced to withdraw it through the court, in particular to prove the fact of the damage and its size.
So, labor or civil?
As a result, to date, no one can force an employer to enter into an employment contract with employees. This position is confirmed by the decision of the Dnipropetrovsk Regional Administrative Court of Ukraine dated August 10, 2018 in the case No. 804/2857/18. The decision expressly states that the enterprise has the right to choose how to form relations, and the State Labor Law can not oblige to conclude an employment contract with an individual, or to declare a civil contract invalid.
Probably, from this situation it will not be possible to find a way out yet, because the increase in the number of inspections, as recently announced by Prime Minister Volodymyr Groysman, will not change the situation substantially. The authorities believe that threats and coercion can solve the problem, the root of which is the inconsistency of taxes with the incomes of the vast majority of citizens. The output can be reduced taxes and the introduction of certain privileges and their payment for the emerging business, since taxes are driving business, especially small, into the “shadow,” in particular, with regard to the official employment of hired personnel.
Taras Yatsyshchuk, Junior Associate in AL “Bachynskyy and partners”]]>

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