EBA calls for discussion on initiatives related to overcoming shadow employment in the labor market

21/ 02/ 2019

In early February, the Ministry of Social Policy published for public comment a draft law “On amendments to certain legislative acts of Ukraine regarding the strengthening of the protection of employees’ rights and the counteraction to the application of undeclared labor”.

The European Business Association supports the steps the Ministry has taken towards unshadowing the labor market. Indeed, it is hard for legal business to compete with those who try to circumvent the law. And the business community has been repeatedly pointing out this problem.

Svitlana Mykhailovska Deputy Director of the European Business Association
The model of labor relations and taxation really need to be reconciled with modern realities. Undoubtedly, the Ministry of Social Policy has declared an important goal - overcoming shadow employment. Nevertheless, key steps towards achieving this goal should be more systematic. We value readiness for dialogue and a desire to hear business’s ideas. However, in our opinion, it is important to modernize the foundation - the Labor Code. And then it can be the basis on which to fund the labor reform.

At the same time, it is necessary to calculate the effects of the implementation of all initiatives before they are adopted, and to take into account the specifics of individual fields and current business conditions in the country. 

For example, the EBA IT Committee emphasizes that, in accordance with the draft law, almost all civil-law relations can be interpreted as labor. Since the decision on the qualification of civil-law relations as labor will depend on the decision of the controlling bodies, there are fears that such regulations may be used by labor inspectors to abuse their official positions.

Ievgeniia Luganovska IT Committee Manager
At the same time, if the bill is adopted in its present form, the cost of professional services can increase substantially. This is especially true of creative and high-tech areas, which require the availability of specific knowledge and competencies. Instead of engaging independent contractors in design work, companies will be required to seek and try to have relevant professionals on their permanent staff, which will result in significantly higher business costs. The competitiveness of Ukrainian companies in world markets can be at risk. In addition, economic effects within the country are also under question. And, for example, last year the IT industry gave Ukraine 4% of GDP.

The business community calls for a strategic approach to solving the situation with shadow labor. First of all, the Soviet Labor Code of Ukraine should be replaced by the modern Labor Code. The updated text is now in the Verkhovna Rada and is awaiting consideration during its second reading (bill №1658). In addition, it is necessary to reduce the tax burden on the wage fund and, at the same time, follow a well-considered approach to the specifics of IT.  Otherwise, unfortunately, there is a likelihood that high-quality IT specialists can migrate to countries with more comfortable working conditions in the industry.

In the near future, the European Business Association will provide comments and observations for the bill.  The business community is ready for a constructive dialogue for the sake of creating a comfortable and systematic labor legislation in the country.

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