In our work, we often encounter myths that have to be debunked at almost every meeting, explaining why this can not be done and what the consequences may be. In this publication, I will try to set out the most common legal myths in the IT industry that we meet.

I tried not to overload the publication with articles and provisions, so no quotations for half of the page, only facts from the practice and a few figures. So, let’s go.

Myth No. 1

The denial of regulatory bodies will eliminate all risks

Indeed, why should we let inspectors to come into the office if they come with an obvious goal of finding something. You can just deny them access to the premises and avoid any problems. The strategy of non-admission on the premises, that are to be inspected, even taking into account its cheapness and ease of implementation - "just did not open the door", has its own significant drawbacks. For example, a fine for the inadmissibility of the labor inspector is about 12 000$, and no one will forbid him to come with a visit tomorrow with an inspection and repeat everything again.

Therefore, non-admission of the inspector, who, if the business is properly organized, may not even find any violations, can lead to immediate expenses. Of course, non-admission can sometimes be a forced necessity, in case when, for example, there are more than 4 undocumented employees in the office (individual entrepreneurs, workers under the civil-law agreement, trainees; a reason why will be discussed later), and in this case non-admission can even save you money, because in case the presence of such workers will be discovered, the fine will be more than 18 000$.

The debunking:

non-admission of inspection bodies is not a very good strategy, but is appropriate if you have no better strategy or there are more than 4 undocumented workers in your office.

What to do?

Firstly, you need to know how to recruit personnel registered as individual entrepreneurs, or working under civil-law agreement, and trainees.

Myth No. 2

individual entrepreneur is a completely legal form of employment for an IT specialist and was created especially for this purpose. Therefore, its use does not involve any risks

Our legislative system should not be overestimated, as behind loud initiatives to regulate the status of the cryptocurrency and introduction of a blockchain, hides the same imperfect system with the remains of the Soviet legacy. The legislation of Ukraine can be compared to a bad software, where the code was written by more than a dozen developers and each of them was not very interested in studying its documentation or logic, and everyone created everything as from a "plain sheet". It’s predictable that in the result you’ll get a dirty and not optimized code, and the entire system constantly fails due to internal conflicts between the modules and a bunch of bugs.

Returning to the story of the individual entrepreneur, one should clearly understand that individual entrepreneur was designed to conduct individual entrepreneurial activities and should not be a form of employment. Therefore, if individual entrepreneur has one client (employer) and, in addition, works in the client’s office, and more, as it often happens with the individual entrepreneurs, says everyone that he is an employee at the IT company, it is very likely that such relations will be recognized by the supervisory bodies as labor with the imposition to the employer of a fine in the amount of around 4 500$. Someone may say that this sum is uncritical, however, given that this fine will be imposed for each individual entrepreneur, the whole story becomes much more fun.

The debunking:

using the individual entrepreneur scheme with one contractor-employer and providing a workplace for such an individual entrepreneur bears the risk of a fine.

What to do?

For starters, create an illusion of real economic activity for each of the individual entrepreneurs and think about the correct location of thir workplace.

Myth No. 3

Employment of IT professionals under a civil-law contract or internship agreements is a safe alternative to individual entrepreneur

Speaking of civil-law contract, it was originally conceived as a contract, according to which any person-expert in something could be involved to perform a specific task for a specific time and amount of work to achieve a certain result.

From the list of other available options for hiring personnel, civil-law contracts, most correspond to the very essence of the IT industry, because the work performed, as a rule, has a clearly defined structure of tasks set out in the technical assignment and has a final result.

Everything would be too good, however it’s not, since if the civil-law contract, in essence, meets the requirements, its content, unfortunately – does not. Supervisory bodies often see the use of civil-law contracts as hidden labor relations, for example: the contract specifies a workplace, working hours and the obligation to comply with internal labor regulations, payments based on the principles of payroll, the absence of a clearly defined result of work and other individual conditions that vary depending on the nature of the civil-law contract. The presence of labor relations in the civil-law contract entails a penalty, similar to the case with individual entrepreneurs.

It is much easier with the internship contracts, as they can be used only with students. Therefore, internship contracts, even substantially modified, will not help to resolve the issue of hidden employment.

The debunking:

employment under a civil-law contract can be really safe only if the contract was correctly drawn up. The internship agreement is equal to the penalties provided for undocumented workers. In addition the internship itself confirms the fact of the existence of the relationship between the employer and the trainee.

What to do?

It is necessary to draw up the civil-law contract correctly and taking into account the current judicial practice. Use internship contracts only with students.

Myth No. 4

We are a small IT company, so nobody will come here

Quite often, in order to have legal grounds for presence of individual entrepreneur or worker under the civil-law contract on the client’s premises (IT company) or in co-working, the lease contracts of workplace or its components are concluded and, when necessary, are provided during the inspection.

What does the inspector do? He enters the room, sees that the employer and the landlord is one person and qualifies such relations as hidden labor with the corresponding consequences. In addition, if leases contain any derivatives of the words "job" or "work", the probability of a fine is almost one hundred percent, often regardless of the context of these words in the text. Someone may say that you can always ignore the guesses and assumptions of the inspector, but it will be more difficult to ignore the position of the courts, because they unanimously point to the same thing: if the client provides the workplace to the contractor, he hides labor relations with his employee.

The debunking:

renting a workplace or its individual components gives additional grounds to qualify the relationship between the customer and the contractor as labor.

What to do?

renting a workplace or its individual components gives additional grounds to qualify the relationship between the customer and the contractor as labor.

Myth No. 5

Leasing: tables, chairs and equipment can not be proof of labor relations

It is difficult to find a more speculative legal topic in the IT business than: "they'll come to you tomorrow with a search". This is often said, often written about and often frightened with this. Although, for the sake of justice, they come to some. As a rule, in such moments our law enforcers protect their personal interests. They do not only conduct procedural actions, but also have prepared articles for prepared media in order to discredit such companies.

As a rule, the sick imagination of our law enforces makes them see the following crimes supposedly committed by IT-companies: tax, including a single social contribution evasion, the financing of terrorism, smuggling, illegal purchase, sale or use of special technical means of obtaining information or fictitious entrepreneurship. At the same time, the substantiation of the existence of the crime is reduced to the minimum and, therefore, usually everything ends with loud searches, interrogations and does not reach the court.

The debunking:

unfortunately, in our country no one is immune from illegal actions of law enforcement bodies which have their own financial interest, whether it's IT business or any other kind of business.

What to do?

You need to be prepared for potential searches, teach staff and obtain operational support from your lawyers.

I hope I managed to debunk at least some of these myths

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