How to run international payroll for employees in Ukraine [2024]

If you’re running payroll for remote employees in Ukraine for the first time, you need to get it right. Get it wrong, and you could rack up thousands of dollars in penalties—or even risk legal action from the State Tax Service of Ukraine. 

Here’s a step-by-step guide to running payroll in Ukraine, with everything you need to get it right every time. 

Step #1: Decide whether or not to create your own entity in Ukraine or use an Employer of Record (EOR)

To hire and pay employees in Ukraine, first you need to establish a business entity in that country. You can do this by creating your own local entity, by opening a Ukrainian branch of your existing company, or by using an Employer of Record (EOR).  

EORs allow you to hire and pay employees through their own entities. They’re responsible for calculating and withholding the appropriate taxes (more on that below), and for paying your taxes to the State Tax Service of Ukraine.

When, why, and how do companies use an EOR? 

When companies expand their operations to Ukraine—and around the world—they typically use EORs like Deel, Papaya Global, and Rippling to run payroll, issue benefits, and navigate international compliance issues. 

This is because businesses and payroll can take months to set up. It’s a significant administrative load, and smaller companies typically don’t have the time or resources to spare.

See Rippling

When, why, and how do companies create their own entity?

If you create your own entity, that replaces the EOR as the legal entity hiring employees and running payroll. Companies typically create their own entities once the costs of an EOR outweigh the costs of creating their own entities.

Normally, you would need to start by registering your company in Ukraine. The most common business structure in Ukraine is the limited liability company (LLC). 

Before the Russian invasion of Ukraine, registering with the state was a quick and simple process. You’d have to register online or offline with the Ministry of Justice, free of charge, and the registration would take place within 24 hours. 

However, Ukraine is currently under martial law. In terms of state registers, this means that there are only a very limited number of registrars who are allowed to conduct registration actions. 

Furthermore, they are only allowed to set up and update information on charitable funds and public formations; change addresses of legal entities; register state and municipal authorities, enterprises and organizations as well as banks; and replace a company director if the previous director has passed away. 

The bottom line: Until martial law has been lifted in Ukraine, you can’t register your business there. Under martial law, there are severe restrictions on cross-border transactions, cash withdrawals and payments. This could have a significant effect on your ability to pay Ukrainian employees. 

Step #2: Pick a global payroll software solution

First, it’s vital to understand the two kinds of international payroll solutions: global payroll processors and global payroll aggregators. You can learn about both in our guide.

• Global payroll processors actually process your payroll, transmit funds, and calculate and file taxes in every country through their own software. Put simply, global payroll processors allow you to pay your international employees just as easily as your local employees: together in a single pay run.
• Global payroll aggregators aggregate local payroll providers in every country and manually transmit your payroll files to them.

See Rippling

Step #3: Determine your workers’ employment status

Before onboarding new employees, and certainly before you run payroll, it’s crucial to understand who you’re paying in the eyes of Ukrainian law: Are your workers employees or contractors? 

It’s essential to classify them correctly to avoid big fines. If they’re employees, there are certain payroll deductions you’re responsible for, while independent contractors are responsible for their own payroll deductions. Like in other countries, independent contractors typically provide services to multiple clients, at different amounts, within a certain time period; control where, when and how they do the work; are responsible for the expenses necessary to perform the work, such as buying tools and equipment; do not represent the company in any way; and they bear the burden and risk of performing the work.

Classify your workers now using Rippling’s Worker Classification Analyzer.

Step #4: Capture your new hires’ Ukrainian payroll information

Once you’ve decided whether to use an EOR or your own entity, picked a payroll solution, and ensured that your employees are correctly classified, you would normally be able to automatically collect (and then pay) your team in Ukraine. You’d also need to request tax credits forms to ensure you calculate each full-time employee’s payroll deductions just right. 

Here’s the information you’d need to collect:

• Name (matching the account where you’ll deposit their pay).
• Date of birth and date of hire.
• Contact information, including their mailing address in Ukraine.
• Taxpayer identification number.
• Bank account information.
• Amount to be paid in UAH (including any bonuses).
• The employee’s employment record book, which can be in hard copy or electronic form. 

While Ukraine is under martial law, though, you might not be able to pay them from outside of the country due to restrictions on foreign transactions.

Step #5: Pay in Ukrainian hryvnia (UAH) 

You have to pay Ukraine-based employees in Ukrainian hryvnia (UAH), and pay them twice a month. 

Of course, there are challenges for companies based outside Ukraine that need to pay Ukraine-based employees in UAH: The exchange rate between your local currency and UAH can vary (see exchange rates here). If the rate is unfavorable, you’ll end up paying more in your local currency, such as USD, to cover your employees’ wages. You may also need to account for fluctuations in the exchange rate when calculating your financial statements, which can create accounting complexities. However, under martial law, there are restrictions on foreign transactions in Ukraine. 

Step #6: Run payroll

You have an entity (either your own or via an EOR), you’ve set up your global payroll system, and you’ve ensured your employees are correctly classified under Ukrainian law. Time to run payroll!

Here’s a preview of how Rippling’s global payroll system works:

What is the average salary for employees in Ukraine?

According to data from the State Statistics Service of Ukraine, the average annual salary for employees in Ukraine is around UAH 276,000, though wages varied by industry and occupation. 

What are the minimum wages in Ukraine?

As of January 2024, the minimum wage in Ukraine is UAH 42.60 per hour for a full-time employee. Under martial law, if you cannot pay your employees on time because of military actions, you may suspend payment until your company’s core business activity resumes.  

How much does it cost to run payroll in Ukraine?

Most payroll software is priced on a per-employee basis, or per pay run. Payroll service pricing varies according to:

• Payroll frequency.
• The number of employees on your payroll.
• How often you add and remove payees.
• Any additional services you need, such as year-end processing or mailing out pay stubs.

Can I manually run payroll for workers in Ukraine?

Some small business owners choose to run payroll themselves, using a payroll calculator and making a direct deposit to employee accounts, in an attempt to cut costs. But running payroll can be a time-consuming process, especially as your business grows. If you go this route, there are potential risks to keep in mind:

• Compliance: Running payroll manually in Ukraine, without using native global payroll software, puts you at risk of manual errors and omissions. Rippling handles your compliance work for you—enforcing Ukrainian minimum wages and overtime rules, which can save you from heavy fines.
  
• Security: Processing payroll manually can pose security risks, especially if you are using spreadsheets or paper records. This increases the risk of sensitive employee information being lost, stolen, or misused.

What are the late tax filing penalties in Ukraine?

If you’re late in paying your taxes, the penalty can be up to 10% of the outstanding amount for delays of up to 30 calendar days. After that, the penalty is increased to 20%. In addition, late payment interest is calculated based on up to 120% of the prime rate of the National Bank of Ukraine. 

However, under martial law you may be exempt from penalties as long as you will submit your returns and pay your taxes within 3 months after martial law has been lifted.