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Remuneration of labour in accordance with the Draft Labour Code

28 February, 2012 Newsletters

Dear Sirs,

We avail ourselves of this opportunity to express to you assurances of our highest consideration and continuing the series of newsletters on the Draft Labour Code № 1108 in version as of December 10, 2009 (hereinafter – “the Draft LC”), bring to your attention this letter, in which we analyze changes the Draft LC introduces in the regulation of remuneration of labour.

Structure of salary. According to current Law of Ukraine “On Labour” (hereinafter ­­– “the Law”) the structure of salary consists of main, additional salary, and other incentive and reimbursement payments. Unlike the Law the Draft LC shall reckon the incentive payments to additional salary. Reimbursement payments are not included in the additional salary in accordance with the Draft LC.

Terms of salary payment. Currently the Law fixes the obligation of the employer to pay salary within seven days after the period for which such payment is carried out. The Draft LC does not foresee such obligation of the employer.

System of remuneration of labour.According to current legislation the question of remuneration of labour of an enterprise shall be regulated by collective agreement. In case collective agreement was not concluded the said issue should be agreed with the trade union organization or with a representative of work collective in case trade union organization was not established at the enterprise. The Draft LC foresees the possibility to regulate this question by employer’s normative acts independently, provided that neither the collective agreement was signed nor the trade union organization was established1.

Sphere of contractual regulation of remuneration of labour.Nowadays the Law determines that the remuneration of labour below standards established by general, sectorial or regional agreements is allowable for no longer than six months period and only to overcome the period of financial difficulties of the enterprise. The Draft LC shall set additional requirement for the enterprise to prove such financial difficulties by respective documents and hold prior consultations with the trade union organization.

Features of remuneration of labour in case of deviation from normal conditions2.

Worth noting changes to be introduced by the Draft LC are the following:

  • an increased remuneration of labour for work at night shall be set: such remuneration shall be at least 30 percent more than tariff rate (rate of pay), official rate of pay (rate of salary) for each hour (currently – 20 percent);
  • an increased remuneration of labour for the division of working day into parts shall be set: such remuneration shall be at least 20 percent more than tariff rate (rate of pay);
  • an increased remuneration of labour for overtime work (triple size) shall be set in case the number of overtime hours during the year exceeds 120, at the same time such payment shall be carried out no later than January 15th of the next year;
  • the possibility of reimbursement of overtime work by providing a day off (compensatory leave) which is the subject of agreement between the employer and employee shall be set, at the same time the right of the employee to increased remuneration for overtime work is preserved;
  • the amount of remuneration of labour in case of non-fulfillment of labour standards, job responsibilities by the employee through employer’s fault – not below the average monthly salary, calculated proportionally to hours worked, while the amount of remuneration in case manufactured products turned out to be spoiled through not employee’s fault – at regular prices (currently – at reduced rate) shall be set;
  • the employer shall be entitled to transfer the employee to other work on temporary basis under employee’s consent; if such temporary transfer causes a decrease in remuneration of labour, employee’s salary shall be maintained for two weeks from the transfer date;
  • a rule for maintenance of salary in case of decrease in employee’s pay due to his relocation shall be cancelled, as the Draft LC does not presume changes of essential conditions in case of relocation in principle.

Severance pay. A novelty of the Draft LC is the differentiation of severance pay for employees to be dismissed due to staff reduction depending on employee’s continuous service at the enterprise: up to 5 years – at the amount of average monthly salary; up to 10 years – at the amount of two-month average monthly salary; more than 10 years – at the amount of three-month average monthly salary. Moreover, the Draft LC in comparison with the Code of Laws on Labour additionally establishes the obligation to pay severance pay at the amount of average monthly salary in the following cases: dismissal of the employee in connection with the absence from work due to temporary disability, violation of hiring rules through no employee’s fault. At the same timethe Draft LC eliminates the obligation of the employer to pay severance pay to the employee to be dismissed due to the refusal to be transferred to work in another area together with the enterprise, and also due to the refusal of continuing to work under changed essential conditions of work.

Other guarantee and reimbursement payments. Current legislation provides field and shift employees with allowance in the amount which is determined by the employer independently, within the limits established for business trips. The Draft LC shall set the minimum amount of reimbursement – 30 percent of tariff rate (official salary rate), which is credited to the employee’s salary in the amount of tariff rate (rate of pay) for the hours worked. The Code of Laws on Labour entitles the employee to receive reimbursement for the service wear of tools belonging to him. The Draft LC extends this right to any property of the employee, which he has used performing job responsibilities, on condition that such performance was approved by the employer beforehand.

Responsibility of the employer for violation of the set terms of salary payment, guarantee and reimbursement payments.The innovation of the Draft LC is the establishment of employer’s obligation to pay to the employee a penalty at the amount of double rate of the National Bank for each day of delay of abovementioned payments.

Features regarding remuneration of labour of subjects of small business. The Draft LC shall set divergent from general terms for the notification of employees of the subject of small business on the change of conditions of remuneration – no later than one month prior to its approval, and periodicity of salary payment – at least once a month.

Limits of deductions from salary. The Draft LC introduces certain changes to the order of deductions from employees’ salary to cover their debts to the enterprise. In case when the employee’s debt have risen in result of counting mistake or settlement is necessary in order to pay off unspent and sunk in time payment in advance, if the sum of required deduction exceeds monthly average salary of the employee, such sum may be deducted by the employer only with employee’s consent or by decision of court. Current Code of Laws on Labour does not foresee employer’s obligation to receive employee’s consent or file the court in order to make the abovementioned deductions.

Some changes are introduced to the provisions of current legislation regarding remuneration of labour during downtime, familiarization of new production, in case of profession combining and in other cases of labour intensification etc.

We will continue to analyze changes to be introduced by the Draft LC in the following newsletters.

The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.


1As the tax legislation foresees that costs of the enterprise include incentive payments set by agreement of the parties, the necessity for coordination questions of incentives with work collective remains.

2Questions regarding features of working time according to the Draft LC will be considered in the following newsletters.

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Kind regards,

© TOV "KM Partners", 2012

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