What to do if a sole proprietor works for another entrepreneur?

In 2021, sole proprietors who have a main place of work and whose employer pays the unified social contribution for them are exempt from paying the unified social contribution for themselves. In this article, we will take a closer look at the cases when a sole proprietor may not pay the unified social contribution for himself/herself and whether it is necessary to pay the unified social contribution if the entrepreneur works as a part-time employee.

Can the FOP not pay for itself?

If a sole proprietor works for another entrepreneur and this work is his or her main job, he or she may not pay the unified social contribution for himself or herself, provided that the employer pays the unified social contribution for the employee.

If the employer has paid the unified social contribution:

• not less than the amount of the unified social tax on the minimum wage (from January to November - UAH 1,320, for December - UAH 1,430), then the sole proprietor is completely exempt from paying the unified social tax for himself;
• is less than the amount of the minimum wage unified social contribution, then the sole proprietor may voluntarily pay the unified social contribution for himself, but is not obliged to do so. In other words, if a sole proprietor is hired in the middle of the month and the employer pays the UST for the actual time worked, but less than the minimum insurance premium, the sole proprietor may not pay the UST for himself this month.

Please note. If the employer pays less than the minimum amount of the unified social contribution, the sole proprietor does not have to pay the difference. The possibility of additional payment is not provided for by law.

If a sole proprietor was on vacation at his main place of work for the entire month, for example, at his own expense, and the employer did not pay the unified social contribution for him in that month, then the entrepreneur must pay the unified social contribution for himself in that month.

In order to understand whether a sole proprietorship's place of work is its main place of business, it must meet the following criteria:

• work on the basis of a duly concluded employment contract;
• have an entry in the employment record book (this item loses its relevance from 10.06.2021).

Is a sole proprietor exempt from paying the unified social contribution for himself if he works part-time?

If a sole proprietor works for another entrepreneur and is employed by him/her on a part-time basis, he/she is not exempt from paying the unified social contribution for himself/herself. In order to save on ERUs, you need to enter into an employment contract with your employer.

How to change the status of "part-time employee" to "full-time employee"?

The Ministry of Social Policy recommends that an employee be transferred from the category of part-time employee to the category of full-time employee in the following way:

1. A part-time employee must write a letter of resignation, for example, at his/her own request, and then write an application for employment at the main place of work.
2. Prepare a dismissal order and a hiring order and familiarize the employee with them for signature.
3. Send a Notice of Hiring a New Employee to the tax office.
4. Make the final payment to the part-time employee on the day of dismissal.
5. On the first working day, make an entry in the employee's employment record book about hiring.

It is prohibited to transfer an employee from the category of part-time employee to the category of full-time employee by means of a transfer order, as this option is not provided for by the Labor Code.

An individual entrepreneur does not need to notify the tax authorities that he or she has a new main job. The tax authorities monitor such changes on their own.

Does an employer run a risk by hiring an individual entrepreneur?

If an employer hires a part-time employee, he or she does not risk anything. The employee independently indicates in the application how he or she will work: part-time or as a main job. The employer is not obliged to verify the authenticity of the information provided in the application. Therefore, if the employer pays less than the minimum amount of the unified social contribution from the part-time employee's salary, he or she will not receive any claims from the State Labor Service.

If an employer hires a self-employed employee at their main place of work, they may not know that their new employee is an entrepreneur. Sole proprietors are not required to notify their employers of their entrepreneurial status. If the State Labor Service finds out that an employee has the status of a sole proprietor, they cannot punish the employer or the employee in any way, as the Labor Code does not prohibit combining such activities.

Can a self-employed employee provide services as an entrepreneur to his or her employer?

Yes, it can. But tax inspectors are very picky about such services. The tax authorities refer to the provisions of the Tax Code and believe that income from such activities should be taxed according to labor rules rather than business rules.