What is the right way to register officially obligatory payroll taxes when you pay wages using an employer as a tax agent?

The hiring of employees, their legal employment, and the most important thing – the right solution of financial issues with employees, such as paying wages to them and paying appropriate taxes are the important points of doing business.

We will consider obligatory payroll taxes and fees that every employer should know and remember.

Why does the employer pay taxes and fees to the state budget instead of the employee?

The fact is that the Employer has a direct instruction to charge, withhold and pay taxes and fees in the process of calculating wages. He is the so-called "tax agent" of a natural person.

That is, an employee, as a natural person, is the taxpayer, whereas the employer performs the function of his/her tax agent and pays the taxes and fees established by law to the state budget for the employee, before actually paying him/her a salary.

What taxes and fees are paid in the state budget when paying wages?

Prior to the payment of wages: Personal income tax (PIT) in the amount of 18% of the actual accrued amount of payment.

For example, if an employee has been accrued min. wages in the amount of 4137,00 UAH., then the amount of tax that will need to be transferred to the state budget is 751 UAH. 14 kopecks

Military levy. Today its size is 1.5% of the amount of actually accrued wages.

So, if we again take as an example the minimum wages, then the amount of the military levy will be 62 UAH. 60 kopecks

Now (as of November 2019) there is a bill to abolish this tax starting in 2020.

Unified Contribution for Compulsory State Social Insurance (UST).

Important! The tax is paid by the employer for each individual employed person. However, it is not deducted from the employee’s wages but is paid, at an additional cost, by the Employer, at his own expense.

That is, in this case, the Employer acts as the insurer - the actual payer, and the employee - as the insured person.

The minimum UST amount is 22% of the min. wages.

The maximum amount of wages, from which this tax is accrued is 15 minimum wages - as of 2019, this is 62 595.00 UAH. So, let’s imagine that the employee’s wages are one hundred thousand hryvnias, then the basis for calculating UST will be the amount of UAH 62 595.00.

What to do in a situation when an employee works part-time with another employer for half the rate?

In this case, the question arises:

What is the basis for accruing UST?

Answer: the basis for calculating this tax will be the minimum wage (4173 UAH. As of 2019), and the tax rate will remain the same - 22%.

What is the employer's responsibility to pay payroll taxes?

Before the payment of wages to the employee, the employer must deduct and transfer to the appropriate budget personal income tax in the amount of 18% and the Military levy in the amount of 1.5% of the accrued wages.

In addition, the Employer pays, but not by deducting funds from the employee’s salary, but at his own expense - UST in the amount of 22% of the accrued wages.

Compliance with the requirements for the payment of taxes and fees related to the payment of wages directly affects the legitimacy of your activity.

Responsibility for the accrual and payment of these payments to the state the budget is borne by the employer. In case of non-compliance, fines may be imposed on the employer, the amount of which is determined by law. For example, a fine of UAH 125190.00. for one unreported employee.

If you want to learn more about the possible liability for incorrect registration of labor relations or tax evasion or to have private legal advice on taxes - give us a call!