Ukraine Draft Labor Code 2026
Contractor Reclassification & Compliance Guide
APEX AV LLC
Ukrainian Labor Law Compliance Services
Stefan Lilienkamp | Managing Partner
Universitetskaya str. 33, office 52, Cherkasy, Ukraine
📱 +380 50 46 01 037 | 📧 stefan@claruskiev.com
🌐 claruskiev.com | ukrpayroll.com
Executive Summary
Ukraine's new Draft Labor Code (expected enactment Q2-Q3 2026) represents the most significant employment law change in over a decade. The most critical impact: a new presumption of employment for contractors meeting 8+ criteria.
For companies using contractors, this creates urgent compliance obligations:
- Audit probability: 40-60% within 6 months of code enactment
- Exposure per misclassified contractor: UAH 800,000 - 4,700,000
- Timeline: 6 months to prepare before enforcement begins
- Action required: Convert, restructure, or terminate FOP arrangements
The 8 Criteria Test
The Draft Labor Code establishes 8 key criteria. If a contractor meets 5 or more, employment is presumed:
| # | Criterion | What It Means | Your Exposure? |
|---|---|---|---|
| 1 | Integrated into company structure | Assigned workspace, integrated into teams, regular schedule | HIGH |
| 2 | Subordination to management | Receives instructions, supervision, performance reviews | HIGH |
| 3 | Non-discretionary work | Cannot refuse work, cannot delegate to others | CRITICAL |
| 4 | Company provides tools/equipment | Computer, software, office setup furnished by company | HIGH |
| 5 | Works on company premises | Office-based work (vs. remote independent work) | MEDIUM |
| 6 | Company controls schedule | Fixed hours or core hours required | HIGH |
| 7 | Exclusive engagement | Cannot work for competitors during contract period | MEDIUM |
| 8 | Regular income stream | Fixed monthly payment vs. project-based irregular pay | CRITICAL |
The Four Biggest Risks
Risk #1: IT & Tech Companies (40-60% Audit Probability)
Typical IT company exposure:
- 5 developers @ UAH 80,000/month = UAH 4,800,000 total exposure
- Penalties: Back taxes, social contributions, fines = 50-70% of salary exposure
- Impact: UAH 2,400,000 - 3,400,000 in penalties per year audited
Risk #2: Manufacturing & Production (OHS System Redesign Required)
OHS Implementation Costs:
- One-time setup: UAH 150,000 - 265,000
- Annual maintenance: UAH 50,000 - 70,000/year
- Timeline: 90-180 days for full implementation
Risk #3: Outsourcing & Staffing (Mixed Exposure)
Companies using outsourced teams, staffing agencies, or project-based contractors face moderate-to-high exposure depending on arrangement terms. If outsourced team members are integrated into your operations with fixed schedules, exposure increases significantly.
Risk #4: Misclassified "Consultants" (Criminal Liability)
Financial Impact & Penalty Structure
Calculation Example: Single Misclassified Developer
Scenario: One developer incorrectly classified as FOP, earning UAH 80,000/month for 24 months
| Component | Amount | Calculation |
|---|---|---|
| Base salary (24 months) | UAH 1,920,000 | 80,000 × 24 |
| Employer tax (22%) | UAH 422,400 | 1,920,000 × 22% |
| Employee tax (18%) | UAH 345,600 | 1,920,000 × 18% |
| Admin penalty (20%) | UAH 128,000 | Back taxes × 20% |
| TOTAL EXPOSURE | UAH 896,000 |
For 5 developers: UAH 4,480,000
For 10 developers: UAH 8,960,000
Risk Categorization Framework
| Risk Level | Criteria Met | Likely Outcome | Recommended Action |
|---|---|---|---|
| LOW | 0-2 criteria | Low audit probability, defensible position | Document independence, maintain low contact |
| MEDIUM | 3-4 criteria | Moderate risk, case-by-case audit | Begin transition planning |
| HIGH | 5-7 criteria | High audit probability, presumption against you | Immediate action required: convert or terminate |
| VERY HIGH | 8+ criteria | Certain audit, certain reclassification | URGENT - Convert to employment within 90 days |
3-Step Action Plan
STEP 1: Audit Your Contractor Base (Week 1-2)
Action: For each contractor, score them against the 8 criteria. Use this framework:
- ✓ = Criterion met
- ? = Unclear/borderline
- ✗ = Criterion not met
Deliverable: Spreadsheet with score for each contractor. Any scoring 5+ = HIGH RISK.
STEP 2: Risk Assessment Meeting (Week 2-3)
Action: Meet with finance, HR, and legal. Categorize contractors:
- GROUP A: Core team (score 7-9) → CONVERT to employment
- GROUP B: Mixed (score 4-6) → RESTRUCTURE arrangements
- GROUP C: Genuinely independent (score 0-3) → DOCUMENT independence
Deliverable: Decision matrix with action for each person/team.
STEP 3: Implementation Timeline (Week 3+ ongoing)
Action: Execute conversions/terminations based on timeline:
- Month 1: Begin Group A conversions (employment contracts signed)
- Month 2: Complete Group A; begin Group B restructuring
- Month 3: Finalize Group B arrangements; document Group C independence
- Ongoing: Update payroll, tax registrations, insurance
Deliverable: Conversion complete before code enforcement (Month 6+).
FOP Reclassification Calculator
Calculate Your Exposure
Instructions: Fill in your contractor details below to estimate financial exposure.
| Variable | Your Number | Example |
|---|---|---|
| Number of misclassified contractors | ___ | 5 |
| Average monthly payment per contractor (UAH) | ___ | 80,000 |
| Months of misclassification | ___ | 24 |
| Total monthly liability (UAH) | ___ | 400,000 |
| Total exposure period (UAH) | ___ | 9,600,000 |
| Estimated penalties (40% of base) | ___ | 3,840,000 |
Use these estimates to justify immediate action to leadership.
Sector-Specific Guidance
IT & Software Companies
- Risk level: VERY HIGH (8-9 criteria typical)
- Action: Convert all office-based developers to employment immediately
- Exception: Genuinely remote contractors with exclusive client work may qualify as independent
- Timeline: 60-90 days for conversion
Manufacturing & Production
- Risk level: HIGH (6-8 criteria) + OHS system overhaul required
- Action: Reclassify factory workers + implement OHS system
- Cost: UAH 150K-265K setup + UAH 50K-70K annual
- Timeline: 120-180 days for full implementation
Consulting & Professional Services
- Risk level: MEDIUM-HIGH (5-7 criteria typical)
- Action: Restructure contracts to emphasize independence (remote, project-based, client discretion)
- Timeline: 90-120 days for restructuring
Healthcare & Medical Services
- Risk level: HIGH (6-8 criteria for staff doctors, nurses)
- Action: Consider employment vs. permanent contractor status
- Complexity: Licensing requirements affect classification options
- Timeline: 60-90 days
Retail & Hospitality
- Risk level: MEDIUM (4-6 criteria for shift workers)
- Action: Restructure scheduling, emphasize on-call flexibility
- Challenge: Shift-based work inherently scores high on criteria
- Timeline: 60-90 days
Critical Next Steps & Disclaimer
Immediate Actions (This Week)
- Request meeting with your finance/HR/legal team
- Audit each contractor against the 8 criteria
- Calculate your exposure using the calculator above
- Schedule consultation with Apex AV LLC for personalized assessment
Why Choose Apex AV LLC?
- Ukrainian Expertise: Deep knowledge of Labor Code, tax compliance, enforcement practices
- Multilingual Support: German, Ukrainian, English communication
- Practical Implementation: We handle conversions, restructuring, compliance setup
- Risk Mitigation: Reduce audit exposure and penalties through proper classification
- Sector-Specific Experience: We work with IT, manufacturing, healthcare, consulting firms
📱 +380 50 46 01 037 | 📧 stefan@claruskiev.com
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