How a Sole Proprietor (FOP) Can Hire an Employee in 2026: Step-by-Step Guide, Taxes, Reporting, and Penalties
Hiring an employee by a sole proprietor (FOP) in 2026 requires proper documentation, submitting a notification to the tax authorities, and timely payment of taxes.
Are you a sole proprietor and your business is growing so fast that you can no longer handle everything on your own? Congratulations, you are ready to become an employer! But before posting a job vacancy, you need to pause and clarify: are you allowed to hire employees under your tax group? How should you properly prepare the documents to avoid triggering an inspection? How much will one employee actually cost you?
In this article, we will go through every detail: from the first call with a candidate to reporting obligations. Plus – all the penalties that may apply for mistakes (spoiler: from UAH 1,020 to UAH 259,410).
Which FOP tax group is allowed to have employees?
The first thing to check is your right to hire. The simplified taxation system has clear limits:
Group 1: Hiring employees is strictly prohibited.
Important nuance regarding limits: when calculating the number of employees (for example, for Group 2), the following are not counted:
- employees who are on maternity leave (pregnancy, childbirth, childcare leave)
- employees called up for military service during mobilization
Example: If you have 10 employees officially registered under Group 2 and one of them goes on maternity leave, you have the full right to hire a new person to replace them without violating the limit. Technically, you will have 11 people on staff, but only 10 are actually working (the employee on maternity leave is not working), and this is legal.
If you are not sure whether your group meets the hiring conditions, it is worth checking this in advance before submitting the notification.
Step-by-step instructions for hiring an employee
The process must follow a strict algorithm. A mistake at any stage may cost from UAH 1,020 to UAH 259,410 in fines.
Step 1: Notify the tax authorities (most important!)
You must submit a Notification of hiring an employee BEFORE the person actually starts working.
Rule: If the employee starts on Monday, the notification must be submitted on Sunday or earlier.
Submit it via the Electronic Taxpayer Cabinet using the designated form. Failure to submit it results in a fine of 30 minimum wages = 8,647 × 30 = UAH 259,410
Step 2: Collect documents from the employee
- Passport (or another identity document)
- Tax ID number
- Employment record book (if available) or an extract from the insured persons register
- Diploma (if the position requires specialized education)
- Medical certificate (for specific professions, for example in the food industry or construction)
Step 3: Employment contract and hiring order
In 2026, while martial law remains in effect, the employment contract may be verbal. In this case, the employee submits a hiring application, and you issue an order.
However, we recommend immediately concluding a written contract. This will protect you from conflicts in the future.
Important: The job title must be official. Not “manager of everything,” but “sales manager” or “procurement manager.”
Step 4: Informing the employee about working conditions
You are required to familiarize the employee under signature with the workplace, duties, working hours schedule, salary payment terms, internal labor regulations, and occupational safety rules. For this purpose, an ознакомительный sheet is prepared or a note is made directly in the employment contract.
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Probation period: when it is allowed and how to оформить it correctly
The probation period allows you to check whether an employee is suitable before making a final hiring decision.
Maximum probation periods (according to the Labor Code of Ukraine):
| Employee category | Maximum period |
|---|---|
| Regular positions (salesperson, manager, cashier) | Up to 3 months |
| Directors, their deputies, chief accountant | Up to 6 months |
| Manual labor professions (skilled workers) | Up to 1 month |
A probation period is not established for certain categories of employees defined by Article 26 of the Labor Code of Ukraine. These include, in particular, pregnant women, persons with disabilities, minors, young specialists after graduation starting their first job in their field, employees hired through transfer, and other categories.
1. The probation must be included in the employment contract. If the contract does not mention probation, it is considered that the employee was hired WITHOUT it. You cannot “add” a probation period later through an additional agreement – this is a violation.
2. Salary during probation must be no less than the minimum wage. You cannot pay a “trial” salary below the minimum.
3. If the employee fails the probation period, you may dismiss them:
- WITHOUT a 2-week notice period
- WITHOUT severance pay
But you must notify them in writing 3 days before dismissal and state specific reasons for non-compliance.
4. The employee may also resign during probation. If the job does not suit them, they may resign with a 3-day notice.
How much does an employee actually cost a sole proprietor in 2026?
Salary must be paid at least twice a month (advance and final payment). The interval between payments must not exceed 16 days.
In 2026, the minimum wage is UAH 8,647 per month.
If the salary is below the minimum wage for a full month, the employer’s fine ranges from 3 to 10 minimum wages = from UAH 25,941 to UAH 86,470 per EACH employee.
Calculation example for a salary of UAH 10,000 (gross):
- Deductions from the employee (paid by the employee from their salary):
- Personal Income Tax (18%) = 10,000 × 18% = UAH 1,800
- Military levy (5%) = 10,000 × 5% = UAH 500
The employee will receive (net pay): 10,000 – 1,800 – 500 = UAH 7,700
- Payroll accruals (paid by the sole proprietor in addition to the salary):
- Single Social Contribution (22%) = 10,000 × 22% = UAH 2,200
Minimum SSC in 2026: 8,647 × 22% = UAH 1,902.34 per month. This is the minimum amount a sole proprietor must pay for an employee as SSC, even if the salary was lower due to a partial month.
Total expenses for an employee with a salary of UAH 10,000 will be:
10,000 (salary) + 2,200 (SSC) = UAH 12,200
Important: if you hire a person with a disability, the SSC rate for them is only 8.41% (instead of 22%).
Cash or card: how to pay salary
You can pay salary in cash through the cash desk or to the employee’s bank card.
Civil contract vs Employment contract: what is the difference and which is more выгодно
Many sole proprietors, instead of an employment contract, formalize cooperation with workers under a civil law contract (CLC) – a service contract or a contract for work.
The main difference between an employment contract and a CLC lies in the nature of the relationship.
An employment contract means ongoing work under the employer’s supervision: fixed schedule, workplace in the office, monthly salary, entitlement to vacation and sick leave. The employer controls the work process and bears full responsibility for the employee (pays 22% SSC, withholds PIT and military levy).
A CLC (service/work contract) is a one-time task with a specific result: flexible schedule, work from any location, payment only after completion, no vacations or sick leave. The client controls only the final result, and SSC may be paid either by the contractor or the client by agreement.
Key point: If a person comes to the office daily, works on a schedule, and receives a monthly salary – these are employment relations, even if formally documented as a CLC. The fine for such substitution may reach UAH 86,470 per employee.
What happens if you use a civil contract instead of an employment contract?
If the State Labor Service (Derzhpratsi) discovers that actual employment relations are hidden under the guise of a CLC, you will receive:
- Fine: from UAH 8,647 to UAH 86,470 per EACH employee
- Re-registration of all contracts as employment contracts
- Payment of all taxes, SSC, vacation pay, and sick leave for the entire period
- Penalties for late payment of SSC
If a person works permanently, in the office, on a schedule – this is employment relationship. A CLC will not work here. Do not try to “save” on SSC and vacation pay through a CLC – it may cost you much more.
Reporting and penalties for violations
A sole proprietor with hired employees submits combined reporting – a Tax calculation for PIT, military levy, and SSC.
The report is submitted monthly – within 20 calendar days after the end of the month through the Electronic Cabinet or accounting service.
The sole proprietor is required to:
- withhold PIT (18%) and military levy (5%) from salary
- accrue SSC (22%) at their own expense
- pay taxes on time
Penalties:
- Late submission of reports – UAH 1,020 (UAH 2,040 for repeated violation)
- Late payment of SSC – 20% of the debt amount + 0.1% penalty for each day of delay
Even if the salary has been paid but the report has not been submitted – this is a separate violation.
Sick leave and maternity payments: who pays and how much
When an employee gets sick or goes on maternity leave, a sole proprietor faces the question: who must pay these benefits and in what amount?
Sick leave (temporary disability)
- The first 5 days – paid by the employer (sole proprietor)
- From the 6th day – paid by the Pension Fund of Ukraine
The amount of sick leave pay depends on the employee’s insurance record:
| Insurance record | Payment amount |
|---|---|
| Up to 3 years | 50% of average salary |
| 3–5 years | 60% of average salary |
| 5–8 years | 70% of average salary |
| More than 8 years | 100% of average salary |
Maternity payments
Paid by the Pension Fund of Ukraine, NOT the sole proprietor. The sole proprietor only processes the documents, and the Pension Fund transfers the money directly to the employee.
1. Pregnancy and childbirth benefit:
- 126 calendar days (70 before childbirth + 56 after) – normal childbirth
- 140 days – in case of complicated childbirth
- 140 days – in case of birth of 2+ children
Payment amount: 100% of the average salary for the last 12 months
2. Childbirth allowance:
One-time payment from the state (not from the sole proprietor). Amount in 2026: ~UAH 41,280 for the first child.
3. Childcare allowance up to 3 years:
Monthly payment from the Pension Fund. The amount depends on the number of children and the average salary.
Full list of penalties for a sole proprietor employer in 2026
Mistakes in formalizing employees may cost a sole proprietor from UAH 510 to UAH 259,410 per single violation. The highest fines are imposed for failure to submit a hiring notification and for unregistered employees. Employers are inspected by two authorities: the State Labor Service (Derzhpratsi) monitors compliance with labor legislation, and the State Tax Service (STS) monitors timely reporting and tax payments.
| Violation | Fine amount | Authority |
|---|---|---|
| Unregistered employee | up to 10 minimum wages (up to UAH 86,470) per employee | Derzhpratsi |
| Failure to submit hiring notification | 30 minimum wages (UAH 259,410) | STS |
| Salary below minimum wage | 3–10 minimum wages (UAH 25,941 – 86,470) | Derzhpratsi |
| Delay in salary payment | 3–10 minimum wages | Derzhpratsi |
| Late reporting | UAH 1,020 – 2,040 | STS |
| Absence of HR documents | UAH 510 – 1,700 | Derzhpratsi |
| Occupational safety violations | UAH 1,700 – 5,100 | Derzhpratsi |
| Late payment of SSC | 20% of debt + 0.1% penalty/day | STS |
Saving on proper employee formalization may cost hundreds of thousands of hryvnias in fines. It is better to do everything correctly from the start.
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Termination: how to do it correctly
Termination of employment must take place on the employee’s last working day. The sole proprietor is required to provide a copy of the dismissal order, make a full settlement (salary for days worked + compensation for unused vacation), provide written notice of the accrued amounts, make an entry in the employment record book (or provide an extract from the register), and reflect this in the combined reporting.
Important: All payments must be made on the last working day. Delay in settlement results in a fine and penalty for each day of delay.
Termination is possible at the employee’s initiative (voluntary resignation with 2 weeks’ notice), at the employer’s initiative (staff reduction, systematic failure to perform duties, absenteeism), or by mutual agreement of the parties at any time.
Vacation for employees of a sole proprietor
Every employee is entitled to 24 calendar days of basic annual leave. Certain categories (persons with disabilities, employees working in hazardous conditions, Chernobyl victims) are entitled to additional leave from 7 to 35 days depending on their status.
The right to the first vacation arises after 6 months of work, but some categories (pregnant women, minors, combat veterans) are granted leave at a time convenient for them even earlier.
The vacation schedule must be approved by January 5 each year. Its absence results in a fine from UAH 1,700 to UAH 8,500.
Important: An employee must use their vacation at least once every 2 years, otherwise the sole proprietor may face a fine.
Compensation upon dismissal is paid for all unused vacation days on the last working day. Vacation may be divided into parts, but one part must be at least 14 calendar days.
FAQ: most common questions about hiring employees by a sole proprietor
1. Can a sole proprietor in Group 1 hire employees?
No, it is strictly prohibited. If you need an assistant, you will have to switch to Group 2 or Group 3.
2. How many employees can a sole proprietor in Group 2 have?
Up to 10 employees at the same time. At the same time, the following are not counted:
Mobilized employees
Employees on maternity leave
3. What is the fine for an unregistered employee?
Up to 10 minimum wages (up to UAH 86,470) per employee. Plus payment of all taxes, SSC, and vacation pay for the entire period of work.
4. Can you formalize an employee under a civil contract instead of an employment contract?
Only if it is truly one-time work. If a person comes to the office daily, has a fixed schedule, and reports to you – this is an employment relationship. A civil contract is not appropriate here.
Fine for substitution: up to 10 minimum wages (up to UAH 86,470) + additional tax payments.
5. What is the minimum wage in 2026?
UAH 8,647 per month
6. Does a sole proprietor need to maintain HR records?
Yes. If a sole proprietor has at least one hired employee, they are required to store HR documents. An HR archive is not a formality but a requirement of labor legislation.
Conclusion
Hiring employees is a responsible and paperwork-heavy process, but if everything is оформлено correctly from the very beginning, you will protect yourself from fines and inspection issues.
First of all, make sure that your FOP group allows hiring. Be sure to submit the notification to the tax authorities BEFORE the person starts working, because the fine for this violation is UAH 259,410. Prepare all necessary documents: employment contract, order, job description, internal labor regulations, and occupational safety instruction log.
Pay salaries on time, approve the vacation schedule, and ensure that employees use their vacation at least once every two years. Upon dismissal, make a full settlement and pay compensation for unused vacation on the last working day.
