The Dual Crisis Facing Manufacturing

This creates a perfect storm: Your facility must simultaneously invest in OHS infrastructure AND reclassify workers, all while maintaining production.

Crisis #1: OHS System Overhaul

What's Changing

The Draft Labor Code shifts occupational health and safety from REACTIVE (respond to incidents) to PROACTIVE (prevent incidents).

Old System (Reactive)	New System (Proactive)	Your Cost Impact
Incident occurs → Report to authorities	Hazard identified → Preventive action taken	Budget increases
Basic safety training (annual)	Comprehensive training + simulations	+50% training budget
PPE purchased after incidents	Proactive PPE program	+30-50% PPE budget
No hazard audits	Quarterly hazard risk assessments	+UAH 150K annual for assessments
No safety committee	Active safety committee (meets monthly)	Staff time + consultant support
Basic incident documentation	Detailed root cause analysis + corrective action	Administrative staff time

OHS Implementation Cost Breakdown

Component	One-Time Cost	Annual Ongoing	Timeline
Hazard Assessment & Risk Audit	UAH 50,000 - 75,000	UAH 15,000 (quarterly)	Week 1-4
Safety Committee Setup	UAH 15,000 (initial training)	UAH 8,000 (monthly meetings)	Week 2-3
Training Program Development	UAH 25,000 - 40,000	UAH 12,000 (annual refresher)	Week 4-8
PPE & Equipment Upgrade	UAH 30,000 - 50,000	UAH 15,000 (replacement/upgrade)	Week 2-6
Incident Management System	UAH 20,000 (software + training)	UAH 5,000 (annual license)	Week 6-8
Consultant Support (ongoing)	—	UAH 10,000 - 20,000	Months 1-6
TOTAL	UAH 150,000 - 265,000	UAH 50,000 - 70,000/year	16 weeks

Implementation Timeline: 16-Week Roadmap

Crisis #2: Contractor Reclassification

Typical Manufacturing FOP Arrangements at High Risk

Manufacturing facilities commonly use FOP contractors for:

• Maintenance workers (assigned to facility, work on-site, integrated into shift schedule)
• Production line workers (temporary/seasonal staff, often paid monthly, supervised)
• Quality control inspectors (work in facility, follow procedures, integrated into process)
• Logistics/warehouse staff (dedicated to your facility, assigned hours, supervised)
• Safety officers / consultants (on-site presence, integrated reporting)

The Problem: These arrangements typically score 7-9 on the 8-criteria test, making reclassification likely.

8-Criteria Assessment for Typical Manufacturing Worker

Criterion	Standard Manufacturing Setup	Match?
Integrated into company structure	✓ Works as part of production team/maintenance crew	YES
Subordination to management	✓ Shift supervisor gives instructions daily	YES
Non-discretionary work	✓ Must complete assigned production tasks	YES
Company provides tools/equipment	✓ All machinery, tools, PPE provided	YES
Works on company premises	✓ On-site in facility/production area	YES
Company controls schedule	✓ Fixed shift hours required	YES
Exclusive engagement	? Often exclusive, but may work part-time elsewhere	USUALLY YES
Regular income stream	✓ Fixed monthly invoice amount	YES
TOTAL MATCH	7-8 criteria met	CRITICAL RISK

Financial Exposure Example

Scenario: Mid-sized manufacturing facility with 25 FOP workers (production + maintenance)

Component	Per Worker	Total (25 workers)
Average FOP salary	UAH 50,000/month	UAH 1,250,000/month
Months misclassified	24	24
Base exposure (salary)	UAH 1,200,000	UAH 30,000,000
Missing employer tax (22%)	UAH 264,000	UAH 6,600,000
Missing employee tax (18%)	UAH 216,000	UAH 5,400,000
Admin penalty (20%)	UAH 96,000	UAH 2,400,000
TOTAL EXPOSURE PER WORKER	UAH 576,000	UAH 14,400,000

For a 25-person manufacturing facility, total audit exposure could exceed UAH 14.4M.

Contractor Reclassification Options

OPTION A: Convert to Employed

• Cost increase: +22% in employer taxes
• For 25 workers: +UAH 275K/month (+UAH 3.3M annually)
• Pros: Eliminates audit risk, improves team stability
• Cons: Significant cost increase, employment termination procedures required

OPTION B: Use Staffing Agency

• Cost increase: 15-25% agency markup
• For 25 workers: +UAH 187K-312K/month
• Pros: Your liability shifts to agency, flexible team sizing
• Cons: Less control, higher cost, turnover risk

OPTION C: Hybrid (Convert Core, Outsource Variable)

• Convert 15 core production workers to employment
• Use staffing agency for 10 seasonal/variable workers
• Cost increase: ~18% overall
• For 25 workers: +UAH 225K/month
• Pros: Balanced cost + stability, controls for core team
• Cons: Operational complexity, two-tier workforce

Integrating Both Crises: The Master Timeline

Manufacturing cannot address OHS and contractor reclassification sequentially. Both must happen in parallel—but this creates resource constraints.

Month	OHS Tasks (Crisis #1)	Contractor Tasks (Crisis #2)	Resource Demand
Month 1	Hazard assessment; safety committee setup	Contractor audit; exposure calculation	MODERATE
Month 2	Infrastructure purchase/install; training start	Decide: convert vs. agency vs. hybrid	HIGH
Month 3	Training completion; process integration	Execute conversions or agency agreements	VERY HIGH
Month 4	Quarterly hazard assessment; refinement	Complete contractor transitions; payroll update	HIGH
Month 5-6	Ongoing OHS management; compliance documentation	Monitor new arrangements; resolve issues	MODERATE

Complete Budget for Typical Mid-Sized Facility

Implementation Phases

Phase 1: Planning & Decision (Weeks 1-2)

• Conduct OHS needs assessment
• Audit all contractors against 8-criteria test
• Calculate financial exposure for both crises
• Decide: convert, agency, or hybrid approach
• Get board/management approval

Phase 2: OHS Infrastructure (Weeks 3-8)

• Install hazard management systems
• Upgrade PPE and safety equipment
• Begin employee training on new OHS procedures
• Establish monthly safety committee meetings

Phase 3: Contractor Transition (Weeks 6-12)

• Notify affected contractors of changes
• Draft employment contracts or agency agreements
• Execute transitions (employment or agency)
• Update payroll and tax systems
• File employment registrations with State Labor Service

Phase 4: Integration & Monitoring (Weeks 13-16+)

• Verify all transitions complete
• Conduct OHS audit against new requirements
• Monitor new employment/agency arrangements
• Prepare documentation for regulatory inspection
• Refine processes based on lessons learned

Sector-Specific Profiles

Heavy Manufacturing / Steel / Metals

OHS Challenge Level: VERY HIGH (complex equipment, high injury risk)

Contractor Exposure: HIGH (25-50% of workforce may be FOP)

Total Cost Impact: +3-5% of labor costs

Timeline: 5-6 months for full implementation

Automotive / Assembly

OHS Challenge Level: VERY HIGH (robotics + human workers, injury risk)

Contractor Exposure: MEDIUM-HIGH (outsourced maintenance, temp production workers)

Total Cost Impact: +2-3% of labor costs

Timeline: 4-5 months for full implementation

Pharmaceutical / Food Production

OHS Challenge Level: HIGH (contamination, hygiene standards)

Contractor Exposure: MEDIUM (specialized roles, contractors common)

Total Cost Impact: +2-4% of labor costs

Timeline: 4-6 months for full implementation

Job Shops / Contract Manufacturing

OHS Challenge Level: MEDIUM-HIGH (variable operations, temporary staff)

Contractor Exposure: HIGH (most workers are contractors)

Total Cost Impact: +3-5% of labor costs

Timeline: 4-5 months for full implementation

Personal Liability Warning

Key Success Factors

• Early Action: Begin planning in Q1 2026 (before code passage)
• Parallel Execution: OHS and contractor changes must happen simultaneously
• Resource Allocation: Assign dedicated project manager for both initiatives
• Staff Communication: Be transparent with employees about changes
• Documentation: Keep detailed records of assessment, decisions, and implementation
• Legal Support: Engage Ukrainian labor counsel for employment contracts and OHS compliance
• Flexibility: Be prepared to adjust timeline based on code specifics (final version TBD)