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Client Alert: New Criteria for Audits of Compliance with Labor Laws
Baker McKenzie, Kyiv, Ukraine,
Fri, September 6, 2019
On 30 August 2019 Regulation No. 823 of the Cabinet of Ministers of Ukraine, dated 21 August 2019, became effective and brought into force the new "Procedure for Exercising State Control Over Compliance With Labor Legislation" ("Procedure"). The Procedure expands the list of grounds for inspection visits by the labor inspectors of the State Labor Service, its territorial bodies and municipalities ("Inspection Authorities").
Importantly, the Procedure envisages the following new grounds for the inspection visits:
- a request by a Verkhovna Rada deputy
- an enquiry of the prime minister of Ukraine
- a statement by the ombudsman
As before, inspection visits may also be conducted on the following grounds, among others:
- information of the State Statistics Service, the State Tax Service, the Pension Fund and their territorial bodies about:
- individuals who provide services under civil law agreements to a single customer for more than a year
- entities with at least 30% of staff engaged as contractors
- an employee's application about violation of their labor rights or improper records of employment relations
- information from third parties (trade unions, mass media, etc.)
Given the pervasive practice of engaging staff as contractors that has developed in some industries, particularly related to creative activities or IT, we recommend that employers either self-assess their staffing practices or have an external audit to gauge the risks for their business if the inspection authorities find labor laws violations and impose respective fines. In particular, it should be taken into account that a fine for improper documentation of employment relations (e.g., misclassification of employees as contractors) is UAH 125,190 (approximately USD 4,950 at the current NBU rate) per employee.
This LEGAL ALERT is issued to inform Baker McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.
LINK to the Alert: DOWNLOAD ALERT