Accounting of salaries of employees at the Sole proprietorship and LLC

The labour resources ensure the operation of the enterprise, and the labour relations are regulated by the Labour Code of Ukraine and must be properly documented and paid for. 

Remuneration is a process that has many peculiarities and affects the interests of both parties:

• directly an employee who needs to be “not offended” and properly paid a legitimate fee. 
• an enterprise that is responsible for the correctness of the process before the state, and in the case of errors, is liable under the law.

Today we will elaborate on how to organize payroll accounting at your company in a way to avoid fines and other penalties of regulatory authorities.

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Payroll organization at LLC or for employees of a sole proprietor

The Labour Code defines the period of mandatory payment of wages: 2 times per month, at intervals of no more than 16 days, and not later than 7 days after the end of the month. 

Failure to comply with this provision will result in a fine of three minimum wages. As of 2020, it is UAH 4,723 x 3 = UAH 14,169. These rules apply to both LLCs and sole proprietors, if they have employees.

As for the state guarantees, there is another mandatory condition - indexation of wages against inflation. The minimum wage is recalculated according to a cost of living index, but only upwards. 

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Every month an accountant shall monitor the requirement not only for the minimum remuneration, but also for withholding and charging taxes. Salary taxes are accrued and withheld on both the general and simplified taxation systems. 

Taxes shall be paid on the day of wage.

Types of payroll taxes

Personal Income Tax.

This type of tax is withheld from wages, i.e. it reduces the amount of wage subject for payment.

Size: 18% of the rate. 

The tax report shall be submitted on a quarterly basis. Penalty for non-submission or improper deduction of tax amounts to UAH 1,020 for each case of understatement. 

This type of tax has a tax benefit. The benefit is established by law, depending on the minimum wage and may be used in the following cases:

• If the salary for 2020 is less than UAH 2,940 (according to the Tax Code of Ukraine, the amount of living wage multiplied by 1.4). 

The tax benefit is UAH 1,051 as of June 2020 (50% of the minimum subsistence level). That is, if salary, let’s say, is UAH 2,400 (in case of part-time work), to calculate personal income tax, it will be necessary to withdraw UAH 1,051, and withhold the tax from the difference.

• For privileged categories of citizens. For example: parents of 2 or more children, single mothers, combatants, students and other categories established by Article 169 of the Tax Code of Ukraine. Each category has its own size of tax benefits.

Military Fee.

This tax is also withheld from wages and leads to a reduction in wages. 

Rate: 1.5% of the total amount to be paid. 

Single Social Contribution.

This tax is paid by a business entity and does not affect the employee’s salary. 

The basic tax rate is 22%, but there are exceptions. For example, for an employee with an established disability, it amounts to 8.41%.

The single social contribution shall be paid regardless of whether the salary was paid or not. The single social contribution shall be paid until the 20th date of the following month. 

In case of nonpayment, a fine will be charged depending on the number of days of delay. 10% of the amount of underpayment in case of nonpayment within 30 calendar days, up to 90 days - 20% of the amount of underpayment and 50% if the period exceeds 90 days.

Hiring employees with disabilities

Enterprises with 8 or more employees must hire a disabled employee. If the number of employees is more than 25 people, there must be 2 or more jobs for the disabled persons. 

Failure to comply with this rule will lead to the following fines: 

• If there are up to 15 employees and no employee with disabilities at the enterprise, the fine will be half the annual average salary at the enterprise; 
• If there are more than 15 people, the fine will amount to the average annual salary for each “idle” place of the disabled person.

Taxation of the disabled person’s salary at the enterprise is actually the same as the salaries of other employees, except for the single social contribution rate mentioned above.

We considered general examples, terms and tax rates. Each of the taxes has its own exceptions and additions: rates, terms of payment and fines for violations may be changed. 

Payroll process is painstaking and sensitive work. It is necessary to constantly monitor the changes in legislation in terms of established rates, terms and benefits. 

If you do not want to do such calculations on your own, entrust it to an experienced accountant. We will take over the whole process.

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