How to pay international contractors in Ukraine
Today, global teams are on the rise. And as businesses look around the world to hire talented freelancers, many are zeroing in on Europe—more specifically Ukraine. It's estimated that more than half a million people do online gig work in Ukraine, especially in major cities like Kyiv.
But before you start hiring contractors in Ukraine, you need a basic understanding of the country's employment laws—like how to classify workers, what rights contractors are entitled to, and how to pay international contractors in Ukraine. Keep in mind that some payment methods for Ukrainian contractors have been affected due to the ongoing war with Russia.
This step-by-step guide takes you through the basics of hiring and paying international contractors in Ukraine, so you can maintain compliance with local laws and get started on the right foot.
Step #1: Classify your workers in Ukraine
The first thing you need to know before hiring contractors in Ukraine is how to classify them correctly. Like many other countries around the world, Ukraine distinguishes between employees and independent contractors (or self-employed workers, who can be individuals or legal entities).
Misclassification is taken seriously in Ukraine. Employers withhold taxes and make social security contributions for their employees. They also provide them with required benefits including minimum wage, sick leave, severance pay upon termination, and more. Employers who misclassify their employees could be required to pay:
- Back taxes
- Back social security contributions
- Back wages and benefits owed to their misclassified employees
- Late fees and additional penalties
In Ukraine, employees have protected rights under the labor code, while contractor relationships are governed by civil law. When investigating misclassification claims, tax authorities look at many different aspects of the relationship between the worker and the employer. Below are some of the factors they consider:
Contractors
Employees
High level of worker control. Contractors have more freedom over when, where, and how they complete their work. They shouldn't perform work under the direct supervision of their employer.
More direction from the employer. Employees are more closely supervised and directed by their employers. They may be required to work certain hours, take weekends and vacations, or work from their company offices.
Time-bound engagement.
Indefinite engagement.
Less integrated. Contractors are self-employed and remain separate entities from their employers. Their work should not be specific to one role within the company, and they should not have a title.
Highly integrated. Employees are more integrated with their employers, and they should have a title and role in the company. They may receive things like a company email address, company-provided equipment, and reimbursement for business travel.
No entitlement to benefits. Contractors must provide their own benefits if they want them.
Entitled to benefits. Employees are guaranteed benefits like sick leave, maternity leave, paternity leave, etc.
Not exclusive. Contractors can't be contractually bound to just one company, and having one client make up the bulk of their income is a red flag for misclassification.
Exclusive. Employees can be required to work for just one employer.
Risk of loss. Contractors usually assume more liability for the work they perform.
No risk of loss. Employees are generally sheltered from liability for work-related issues.
Paid for work results. Contractors are paid once the work is completed and they invoice for it.
Paid for work process. Employees are paid regularly on a weekly, bi-weekly, or monthly basis—whether they deliver results or not.
Step #2: Determine the best way to pay your contractors in Ukraine
As remote work has become more common, there’s been a rise in money transfer services and other ways to make international payments.
While you have multiple choices for paying contractors in Ukraine, note that Russia's invasion of the country has unfortunately affected some of these. For example, the US has placed geographic sanctions on any parts of Ukraine that are occupied by Russian forces, so US-based banks and money transfer companies may not be able to send money to contractors based in those areas. This is an evolving situation that may change in the future, and can also depend on where your business is based. Keep that in mind as you explore options for paying contractors in Ukraine.
Here are a few choices:
- Bank wires. With a Ukrainian bank account, you can deposit funds directly into your contractors' accounts. Or, you can use your local bank account to send an international wire transfer via the SWIFT network. Just know that international bank transfers can come with fees for both the sender and the receiver.
- International money orders. This payment method has been around for a long time, so many people are familiar with it (and providers like Western Union have a presence almost everywhere in the world). However, money orders can be slow, and they're subject to exchange rates that can be unpredictable.
- Digital wallets or payment platforms. Recently, online payment platforms have exploded in popularity. Many Ukrainian contractors already use platforms like Wise or Xoom. These platforms may also be subject to bad exchange rates.
- Global payroll services. Contractors aren't typically included in payroll since they aren't subject to the same taxes and withholdings as employees. But when you use a global payroll provider like Rippling, you can simplify the process of paying employees and contractors, around the world, in a single pay run.
Step #3: Use global payroll software to process payments for Ukrainian contractors
As detailed above, you have several options for paying contractors in Ukraine. But the simplest way to pay international contractors alongside distributed remote employees is through global payroll software.
With Rippling, it's easy to pay your employees and contractors in a single pay run. See below for a preview of how our platform works.
Step #4: Ensure your Ukrainian contractors have the right tax information
In Ukraine, independent contractors (also called freelance workers, solo entrepreneurs, or private entrepreneurs), are governed by civil law. This means they perform single tasks for their employer using their own tools and setting their own hours. They also assume all risks involved in working on a project-by-project basis. To legally work with a contractor, you must have a civil law agreement in writing.
Unlike an employee, the contractor's employer is not responsible for withholding any taxes on their wages. Instead, the contractor is responsible for calculating and submitting their own personal income tax based on an 18% income tax rate and a 1.5% military tax rate.
Still, they may need documentation from their employer when filing. One of the benefits of using a system like Rippling is it handles all the paperwork for you. From sending and signing to storing, Rippling makes it easy for Ukrainian contractors to find the documents they need come tax time.
Frequently asked questions about running payroll for contractors in Ukraine
Do you need to withhold taxes when paying contractors in Ukraine?
No. Contractors in Ukraine are responsible for paying their own taxes.
Does the Ukrainian minimum wage apply to independent contractors in Ukraine?
No, the minimum wage doesn't apply to independent contractors in Ukraine.
Do Ukrainian contractors get benefits?
While employees are protected by the labor code and guaranteed certain employee benefits in Ukraine, this doesn’t apply to contractors. They are governed by the civil code and don't have a statutory right to any benefits.
Can you pay contractors in Ukraine in your home currency?
You should try to pay international contractors in their local currency. For Ukrainian contractors, that would be Ukrainian hryvnia or UAH. But some contractors prefer other currencies (like USD). Just be sure to get their written permission before paying them in a different currency.
Can you manually pay contractors in Ukraine?
You can pay contractors manually in Ukraine, but this can be time-consuming and open up your business to several risks:
- Compliance. Manual payments are prone to human error, omissions, and other compliance errors. You can avoid these by automating payments with a global payroll solution like Rippling.
- Security. Manual payments often include paper records, spreadsheets, and other outdated record-keeping methods. These open your contractors (and your business) up to the risk of their personal data being lost, stolen, or misused.
As businesses scale, manual payments become too labor and resource-intensive to be worth the cost savings for most companies. Set yourself up for future growth by investing in a global payroll solution today.
How do you turn a contractor into an employee in Ukraine?
While there are many benefits to hiring contractors (saving on payroll taxes, more flexibility, etc.), sometimes you do need full-time employees. If you need to transition a contractor in Ukraine to full-time status, Rippling has you covered.
Full-time employees in Ukraine are governed by a different set of labor laws that you'll need to know. But with Rippling, you can ensure you follow all local laws to the letter, including drafting a compliant employment contract, offering the right benefits, and paying severance. From onboarding to offboarding, Rippling makes it easy to manage your entire global workforce—compliantly.
Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
