Naturally, when you start with your first Ukrainian hire, a question arises about establishing a monthly payroll procedure for an employee or contractor. This is a brief how-to guide through this process.
Can I pay my Ukrainian employees directly?
Absolutely yes, just send a bank wire to Ukraine. You send a direct transfer using SWIFT and IBAN to your employee’s bank account in a Ukrainian bank according to the instructions in their invoice. One of the biggest benefits of direct transfers is optimizing the company expenses associated with meeting your employee’s net salary expectations. Their revenue tax is as low as 5%, plus a unified social tax which is below $50 per month. Thus, you can attract the right talent without extra costs.
What is the standard payment schedule for Ukrainian employees?
Typically, most businesses send paychecks once per month, before the 10th day of the upcoming month. That means that on December 5 you send the salaries for November. Two transfers split into equal parts are also fine, however, considering the SWIFT transfer fees, that’s less cost-efficient. Remember among other things that it will take an international wire transfer from 1 to 5 business days to be deposited to an employee account.
How do I get that invoice? What else is needed?
An employee or contractor should be registered as a sole trader (private entrepreneur). Make sure to sign a contract with them before sending their first paycheck, as Ukrainian banks may ask for its copy. Your employee provides you with invoices following the schedule you approve. It’s a good practice appreciated by employees if a hiring company helps them with managing their entrepreneurship so that they remain focused on their professional activities. DNA325 provides this as a service to our clients, including preparing monthly invoices for salaries, calculating taxes, submitting quarterly and yearly tax reports for contractors.
Will my Ukrainian team work for me as freelancers?
No, there’s no direct connection between entrepreneurship and freelance. Not all sole traders are freelancers, and not all freelancers are sole traders. You can agree on any workload with your team and accompany it with a non-compete agreement to prevent any conflict or misunderstanding.
I heard that Ukraine is on the blacklist of some banking institutions. Is this true?
Ukraine as a state is not included in any blacklists on an official level, however, Ukrainian territories occupied by Russia (Republic of Crimea), as well as self-proclaimed quasi-states LPR (Luhansk People’s Republic or LNR) and DPR (Donetsk People’s Republic or DNR), are subject to international sanctions that regulate activities of privately-held organizations (in the USA, the European Union, and some other countries).
How does this work? For example, one cannot use Google Analytics in Crimea. Or a US-based company can’t send a wire to LPR.
Therefore, some private organizations conduct a more thorough compliance check of your wires to Ukraine. Your bank may require you to provide registration documents of your employee, their contractual agreement with your business, or any other documentation to prove their regional residency like utility bills for electricity, gas, water. These can be transmitted electronically and resolve the situation.
So the lesson here – for all those who doubt the convenience of working with Ukrainian developers – is that this works seamlessly. If you’re looking for more information on managing your offshore development team in Ukraine, reach out to us directly to get a consultation.