Oleg Getman, coordinator of the Economic Expert Platform and associate expert at CASE Ukraine, explains in an article for Delo.ua why the practice of “off-the-books wages” has surged significantly over the past year, becoming the most prevalent of all “gray” schemes, and what needs to be done about it.
Key points:
🔹 The problem of shadow wages in Ukraine runs much deeper than mere dishonesty on the part of employers or employees.
The main reason is the high tax burden on the wage fund, which in Ukraine is one of the highest in the region and continues to grow (in particular due to the increase in the military levy to 5%).
🔹 The scale of the shadow economy
The shadow sector accounts for up to 40% of GDP.
The largest scheme in the “shadow” is unofficial payments to employees:
– “envelope” wages
– the “minimum wage + unofficial supplement” scheme.
🔹How the situation has changed since the war began
Some shadow schemes have decreased due to wartime restrictions, specifically:
– covert capital flight abroad
– certain financial transactions.
The number of informally employed workers has decreased due to:
– a reduction in the labor force
– mobilization
– the destruction of businesses.
🔹At the same time, new incentives for informal employment emerged:
– splitting businesses into sole proprietorships
– avoiding the need to report employees to the State Labor Service.
🔹 How many Ukrainians work informally
Before the full-scale war:
– over 3 million people worked informally. This is 19.5% of the total workforce.
The situation during the war:
– 14% of workers are employed without formal registration
– 4% are engaged in self-employment without registration
In total, 18% of the workforce is employed informally. The number of informally employed people is estimated at approximately 1.9 million.
➡️ Potential budget losses amount to: 150–253 billion UAH per year.
The most problematic sector is retail
In the top 50 retail chains, average salaries range from 8,000 to 60,000 UAH.
🔹To reduce wage shadowing, the following is proposed:
– reduce the tax burden on the wage fund to approximately 20% (instead of the current ~37%).
– Compensate for budget losses by: cutting inefficient spending; adjusting land and property taxes.
– Revise subsidy rules so they do not encourage informal employment.
– Simplify labor relations for small businesses—introduce flexible employment contracts without unnecessary bureaucracy.
📌 Key conclusion:
Without systemic tax reform and a reduction in the tax burden on wages, the state will continue to lose hundreds of billions of hryvnias every year—funds that are particularly crucial in wartime.