Registration of relations with employees under the law
In the process of doing business, entrepreneurs quite often ask themselves how to properly formulate relationships with those people who work for them. This is due to the natural desire to optimize their expenses on entrepreneurial activity, including by saving on paying taxes for employees. About how to arrange an employment relationship under the law, says the partner of Antika Law Firm, Sergey Kornienko.
First of all, it should be remembered that such savings can lead to significant financial losses if during the inspection (and it can be initiated, for example, by a dissatisfied employee), the regulatory authorities (Gostruda) will establish the fact of non-registration of employees. The amount of the fine in this case reaches 30 minimum wages for each such employee, which at the moment is 125 190 UAH.
So, in order not to expose yourself and your business to danger, you must very responsibly approach the design of relations with employees and choose the best way to organize the work process, depending on the real needs of the entrepreneur.
In practice, there are several mechanisms for organizing the workflow, which include:
- execution of an employment contract;
- conclusion of a civil law contract;
- conclusion of a business contract with an individual entrepreneur (FLP).
It is worth noting that all these mechanisms do not contradict the requirements of the current legislation, and the possibility of their application depends solely on the purpose and conditions of their use.
In order to correctly determine which of the above mechanisms is acceptable in a given situation, the employer should answer the question “What are the goals of other people’s work?”.
Employment contract
If an entrepreneur or company plans to use the activities of individuals to fulfill their labor functions, then in this case the only legal way to organize the work of the latter is to conclude an employment contract with them.
In accordance with the provisions of Article 21 of the Code of Labor Laws of Ukraine (Labor Code of Ukraine), an employment contract recognizes an agreement between an employee and an employer (company or FLP), under which the employee agrees to perform the work specified in such an agreement in compliance with the internal labor schedule, and the employer pays the employee wages and provides working conditions necessary for the performance of work, as provided by law, a collective agreement and agreement of the parties.
The peculiarity of concluding an employment contract is that the rights and obligations of the parties under such an agreement are governed by the norms of labor law, which provides employees with a certain list of mandatory labor guarantees, and the employer has an obligation to ensure the possibility of implementing these guarantees.
The conclusion of an employment contract, in accordance with the general rule, is carried out by submitting an application to the employer for employment and the latter issuing an order (order), according to which a person is hired.
The conclusion of a separate written labor agreement in the form of a document called the “labor contract” by applicable law is required only in certain cases determined by law. So, for example, the conclusion of a written employment contract is necessary if:
- hiring a minor;
- concluding an employment contract with an individual employer or signing a contract (a special form of an employment contract concluded with certain categories of employees in cases expressly provided for by applicable law).
When concluding an employment contract, it is also necessary to take into account that prior to the date of the employee’s actual employment, the entrepreneur must submit a message to the fiscal service authorities, and if he fails to submit it to the employer, financial sanctions in the amount of one minimum wage (4173 UAH) can be applied.
The advantages that an entrepreneur will receive when concluding an employment contract include the presence of lawfully executed workers, the absence of the risk of holding unregistered employees accountable for the use of labor, and the existence of certain guarantees of material liability for employees.
At the same time, the use of such a mechanism of labor organization also contains a number of disadvantages for the employer, which include:
- increased tax burden on wages (compared to other available mechanisms)
- the need to comply with labor law
- the provision of mandatory labor guarantees to employees (including the payment of wages at a level that cannot be less than the amount guaranteed by law, the payment of surcharges, allowances and other incentive payments, the provision of leave to employees (annual, additional and social)
- sick pay
- provision of social insurance for workers against industrial accidents and occupational diseases, etc.
- the inability to terminate the employment contract at any time, since the labor legislation establishes an exhaustive list of grounds for terminating the employment contract at the initiative of the employer.
Civil and business contracts
In contrast to the conclusion of an employment contract, such cooperation mechanisms as the conclusion of a civil law contract or a business contract look more loyal to entrepreneurs both in terms of tax burden and in terms of the absence of a customer's obligation to comply with labor law requirements.
The main difference between these contracts from an employment contract is the purpose of their conclusion and subject. A civil contract and a business contract are concluded with the aim of acquiring certain results of an individual’s work or providing services from an individual, while the purpose of concluding an employment contract is to organize the work process of employees.
Legal relations arising between the parties to a civil law contract and a business contract are governed by civil law, and the parties are independent persons in the process of performing such transactions (unlike parties to a labor contract where employees are subordinates of the employer). The terms of the civil law and / or economic contract cannot contain the provisions regulated by labor legislation (for example, according to the length of working time, subordination of an individual - service provider to the rules of the internal labor schedule of the customer, etc.).
It should also be noted that the fact and result of the performance by an individual of a civil law or business agreement must be confirmed by an act of work performed (services rendered), which is signed by the parties.
So if the real purpose of cooperation with an individual for an entrepreneur is to obtain a specific result of the work or services of such a person, then the conclusion of a civil law or business contract is justified and does not create any risks for entrepreneurs of negative consequences in the form of penalties from regulatory authorities for violation labor law. If, by concluding a civil law or business agreement with an individual, the employer tries to cover up real labor relations with such an individual, there is a risk that, if this fact is established, serious penalties may be applied to the entrepreneur for the actual admission of the employee to work without registration with him an employment contract (contract).
