Published 2 May 2018. Some rules have changed since; ask us for the current position.
Why average pay and indexation figures can differ
The sequence for calculating the consumer price index (CPI) for indexation purposes is set by the Procedure for Indexing the Monetary Income of the Population (Порядок проведення індексації грошових доходів населення), approved by Cabinet of Ministers of Ukraine (CMU) Resolution No. 1078 of 17 July 2003 and usually called simply the Indexation Procedure. It contains several worked examples of how the CPI should be calculated. So if both sides base their calculations on the Indexation Procedure, they should arrive at the same result.
CMU Resolution No. 100 of 8 February 1995 sets out how average wages are calculated; it is usually referred to as Procedure No. 100. Anyone who follows this procedure when calculating average pay should also get the same figure.
The question here is what happens when an accountant and a labour inspector run the calculations and end up with different totals. According to the State Labour Service (Держпраці), that simply cannot happen if both follow the established rules.
Even so, confusion persists, because Procedure No. 100 does not say how many decimal places the average pay adjustment coefficient should have. Procedure No. 1078 does indicate the number of decimal places for calculating CPI growth, but only in its worked examples.
Fines when an inspector finds pay violations
The State Labour Service also points out that if an inspector visiting a business finds a breach of the Indexation Procedure, they may conclude that the legal entity or sole proprietor (ФОП) employing staff has broken the law and must pay a fine. This is set out in paragraph 4 of Article 265(2) of the Labour Code of Ukraine (КЗпП) as the penalty for failing to provide the minimum state guarantees on pay. The fine is 10 minimum monthly wages as in force when the violation is found, charged for each employee affected.
Paragraph 29 of Procedure No. 100 concerns state oversight of compliance with labour law. The procedure for this oversight was approved by CMU Resolution No. 295 of 26 April 2017. Under it, an official may be held liable if they:
- use the work of employees who have not been formally hired;
- pay wages late or not in full;
- fail to observe the minimum guarantees on pay.
If an inspector issues an order after an inspection and the legal entity or sole proprietor does not comply, Article 188-6 of the Code of Administrative Offences (КУпАП) provides for a fine of 50 to 100 tax-free minimum incomes (НМДГ), or UAH 850–1,700. An employer who believes the inspector's requirements are wrong can appeal within 10 days of receiving them, as provided by paragraph 30 of Procedure No. 295. The appeal goes to the head of the State Labour Service.
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