Relatives working in business: when "family help" can turn into a fine for the entrepreneur

Family members who help run a business do not have special privileges in labor relations. If a relative actually works for the entrepreneur, they must be officially employed; otherwise, the sole proprietor faces fines.

As reminded by the State Labor Service of Ukraine, Ukrainian legislation does not provide exceptions for the husband, wife, children, or other close relatives of the entrepreneur. The mere fact of family ties does not allow working without formal registration.

If a family member performs regular duties in the business — for example, works as a salesperson, serves customers, has an established work schedule, and acts on behalf of the sole proprietor — such relations have the characteristics of labor relations.

According to Article 21 of the Labor Code of Ukraine (LCU), labor relations arise on the basis of an employment contract, under which the employee performs specified work, and the employer undertakes to pay wages and provide working conditions.

According to Article 24 of the LCU, an employee cannot be allowed to work without concluding an employment contract, formalized by an employer’s order or directive, and without notifying the State Tax Service about the employee’s hiring.

Thus, even in a small family store or other business, a relative who regularly performs employee work must be registered in accordance with the law.

For lawful employment of family members, the sole proprietor can:

• conclude an employment contract with the relative and officially hire them;
• if the relative wants to conduct activities independently — register them as a sole proprietor;
• in cases provided by law, use civil law contracts.

At the same time, the State Labor Service emphasized that a civil law contract cannot replace labor relations if the person actually works as a staff employee.

For example, concluding a contract with a store salesperson as a contractor for a one-time service is usually unlawful, since the salesperson has a permanent workplace, schedule, complies with internal labor regulations, and performs a work process rather than producing a specific final result.

Allowing an employee to work without official registration is a violation of labor legislation.

According to Article 265 of the LCU, for actual allowance of an employee to work without an employment contract, financial liability in the amount of 10 minimum wages is provided for each unregistered employee.

For single tax payers of groups I–III, the law provides a warning for the first violation.

Additionally, under Article 41 of the Code of Ukraine on Administrative Offenses (CUAO), the entrepreneur may face an administrative fine ranging from 500 to 1000 non-taxable minimum incomes of citizens.

As previously written by the "Judicial and Legal Newspaper", the main feature distinguishing civil law relations from labor relations is that labor legislation regulates the process of organizing labor activity. Under a civil law contract, the process of organizing labor activity remains outside its scope, and the contract’s purpose is to obtain a certain material result. This was emphasized by the Supreme Court in the composition of the panel of judges of the Cassation Administrative Court when considering case No. 420/2174/19.

Thus, legal entities and sole proprietors who use hired labor bear responsibility in the form of fines in case of actual allowance of an employee to work without an employment contract (contract), registration of an employee for part-time work while actually performing full-time work established at the enterprise, and payment of wages (remuneration) without accrual and payment of the single social contribution and taxes — in the amount of thirty times the minimum wage established by law at the time of violation detection, for each employee regarding whom the violation was committed.