Regarding substitution of employment contracts with hired employees

Press service of the State Tax Service of Ukraine, published 14 September 2021 at 11:56 Chapter: News

Taxpayers often replace employment contracts with hired employees with civil service contracts to minimize employment taxation costs.

Taxpayers reported about 210 thousand people who performed work (provided services) under contracts of a civil law nature in June 2021 according to information available to the STS.

Please note that current legislation clearly distinguishes cases in which it is possible to formalize relationship with civil contracts for provision of services and when only employment.

STS, during audits, will recognize employment relationships in the presence of one of the following features:

- work is performed according to instructions and under the employer’s control; employee is integrated into its organizational structure;

- work is performed according to schedule set by employer;

- work involves provision of tools, materials and mechanisms by the party who ordered the work;

- periodic payment of remuneration to employee;

- provision of weekly days off and annual leave to employee;

- payment by the party who ordered work and travels needed for employee to perform the work.

In view of the above specified, the STS, in order to prevent negative consequences for taxpayers, requests to avoid substitution cases of employment contracts with hired employees with civil contracts the provision of services. We also remind that legislation provides for employers’ financial and administrative liability for the use of work of improperly registered employees.

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