Ukraine more than doubles minimum wage in bid to cut off-the-books employment

The move, which came into effect on 1 January, is expected to have an impact on the income of between 2.5 and three million employees.

Ukraine has more than doubled its minimum wage and increased fines related to payroll infractions in a bid to cut tax evasion and boost employee welfare by reducing shadow wage payments and preventing off-the-books employment.

As of 1 January, the monthly minimum wage, which has traditionally been regarded as more of an indicator of social standards than a social policy tool to improve the situation of low-wage workers, has risen from UAH 1,200 ($44) to UAH 3,200 ($116). The move is expected to have an impact on the income of between 2.5 and three million employees, many of whom work in sectors subject to a lot of shadow activity such as construction, restaurants and hospitality and real estate.

Because the hike will also affect other instruments such as the Single Social Tax, the unified tax for groups one and two and the amount of property tax due, the government has also announced its intention to remove the link between them and the minimum wage.

It has likewise increased the financial penalties that employers will be subject to if they fail to comply with the new minimum wage and other compensation legislation and do not hold proper documentation on their workers. These include fines of:
– UAH 320,000 ($12,841) for blocking state labour inspections aimed at finding shadow wage payments to staff who are off-the-books
– UAH 96,000 ($3,485) for every employee who does not have an employment contract; works full-time under a part-time employment contract; receives a shadow wage; is not paid within a month or is not paid their salary and other mandatory payments in full
– UAH 320,000 ($12,841) for each worker who is not paid employment benefits or compensation to which they are entitled, relating for instance to night-time or overtime work
– UAH 3,200 ($128) for breaching other labour law requirements such as failing to notify state authorities that they have taken on a new employee.