When an IT company joins Diia City, this brings a lot of changes in its relationship with the staff. So simply telling them “as of August we are joining Diia City” could result in negativity within the team or even lead to some specialists quitting altogether. These things usually happen when people don’t understand the coming changes well enough or don’t quite trust their employers.
Meanwhile, Ukrainian lawyers have gained practical experience communicating with the staff of IT companies that are planning to join, or have already joined, Diia City. Basically, it involves explaining to employees what they can expect after their company undergoes the transition. Maksym Nosarev, IT lawyer and СЕО of Tretten Lawyers, clarifies the details.
Published on ain.ua
Three formats of relations between companies and their specialists in Diia City
The majority of Ukrainian IT specialists are currently working as sole proprietorships (SPs). They understand this mechanism well, they are used to the company’s help with reporting and paying taxes and know all the pitfalls involved. So naturally, when offered to change their status of independent entrepreneurs to that of a gig contractor, they find the prospect of diving into an unfamiliar, and rather uncertain, situation intimidating.
Because of this, many companies have encountered resistance among their staff, with workers either wanting to quit or to remain SPs. Strictly speaking, the latter is perfectly legal. However, as demonstrated below, this may not be the best choice for the staff.
We have a clear understanding of what Diia City is, what joining it entails, who would benefit from it, and, most importantly, why even bother with all this. We stand ready to share our advice and answer any questions your team may have, in the format of a Q&A session online or a seminar. Find out more here.
So, with Diia City, specialists can be:
- Full employees. This status gives the specialist the full social security package offered by Ukraine’s Labor Code.
On one hand, this option is not very beneficial for the company. With this format of cooperation, companies must observe all provisions of labor legislation, which has long been outdated and doesn’t address the needs of business. It will be necessary to keep proper personnel records, do wage indexation as provided by law, make sure that employees go on vacation as required, etc. Introducing non-standard working hours, especially nighttime work – which is common among Ukrainian business – will require additional administrative resources as well.
On the other hand, the opportunity to hire employees gives the company a better chance of attracting capricious but highly sought-after specialists. In addition to the social security package provided by the Labor Code, this is also the most beneficial option in terms of future pensions. This could also be a factor.
- Sole proprietorships. Compared to a gig contractor, this status provides less social security. Also, SPs in IT exist in a “gray” legal area.
The company usually helps SPs, who are essentially its permanent outsource workers, with accounting. When the specialist quits, he has to do that on his own, at his own expense. So if something goes wrong during the process of closing the SP – e.g. the accountant failed to pay some taxes or to submit a tax return in time – it’s going to be the specialist’s problem, not the company’s.
- Gig contractors. They have a wider range of social guarantees compared to SPs: early termination of the contract is prohibited; paid non-compete period; the company takes care of their accounting, vacations, sick leave, etc.
For the company, this is an opportunity to put in the contract, with absolute honesty and without hiding behind ambiguities, synonyms, and hidden wordings, everything that was agreed on with the specialist. The latter will also be able to stay in the office on legal grounds, without fearing inspections by the State Labor Service or other regulatory authorities.
Find out more about Diia City before and during the war on our blog here.
What changes for the company in relations with the staff
- All intellectual property created in the course of the company’s activities belongs to the company by default. There is no need to sign additional agreements regarding this.
- The non-compete clause for the company’s staff is now regulated by law. We used to sign NCAs, but Ukrainian law generally considered them discriminatory toward employees (restricted choice of workplace), and it was never quite clear how courts would react to them.
What changes for the employee in relations with the company
- Improved social security.
If the company chooses the gig contracts scenario, its workers get better social protection compared to SPs. People often agree to less favorable conditions to get work. Now the law provides clear requirements for gig contracts, e.g. prohibited early termination of a contract by the company, or its obligation to provide financial compensation if such termination is necessary.
If the company decides to officially work with full employees, they receive full protection under the Labor Code, which in Ukraine is sometimes excessively social from the perspective of business.
- The non-compete issue is clearly regulated by law. Now this clause can’t look like “never do this with anyone.” The gig contract must state to which companies and territories specifically the prohibition applies.
Also, if the gig contractor agrees to these terms in his contract, the company must compensate him accordingly. It’s up to the parties to determine the sum of this compensation. Even if the company manages to convince the specialist to agree to unfavorable terms (very low compensation or no compensation at all), the contract will be invalid.
I see this situation with the non-compete clause as a positive for both sides. The company receives a clear framework supported by law, while the gig contractor gets paid.
What exactly to discuss with the team and when
Company leadership and HR managers should take the information above into account and convey it to the team while preparing to join Diia City. Don’t make it a surprise and put it off until the last second, or you risk losing valuable workers.
If your company already has templates for new contracts or gig contracts, you should show them to your team. Invite your staff to study them and suggest adjustments as needed. If you need a consultation or a contract template, don’t hesitate to contact us here.
Treat concerns of your staff during the transition to Diia City with understanding – and your business will be running smoothly.