Often the employee’s leave begins at one month, and ends at the following. However, leave allowances are paid in one lump sum, regardless of whether the leave is within the limit of one month.
How does it affect taxation?
Calculation of surcharge to minimum wage
The wage for an employee, who performed monthly rate of labor, should be paid not lower than the minimum wage. If he/she does not comply with the rate of labor, the guaranteed amount of the minimum wage is determined in proportion to the time worked. Such a rule is established by Article 3-1 of the Law of Ukraine “On Remuneration of Work” of 24.03.1995, No. 108/95-ВР (hereinafter - Law No. 108). Thus, if, during a certain month, the employee did not work because of a leave during a certain period, the guaranteed amount of the wage for him/her should be calculated proportionately.
Amounts of average earnings during the leave are not taken into account for the wage to ensure its minimum size (letter from the Ministry of Social Policy of 13.02.2017, No. 322/0/101-17/282).
If the leave falls not for one calendar month, but for several, the amount of leave allowance should be distributed in proportion to the time that falls on the leave days of the corresponding month (paras. 1.6.1 of the Regulations on wage statistics, approved by the order of the State Statistics Committee of 13.01.2004; (hereinafter – Regulations No.5).
PIT and War Tax
Payment for a leave time is a salary (paras. 2.2.12 of Regulations No.5). Therefore, it is necessary to use the salary rules in order to tax the leave allowances.
Incomes in the form of wages are included in the total taxable income of the payer in accordance with sub-para. 164.2.1 of the Tax Code of Ukraine (hereinafter – TCU). The PIT is withheld from the amount of leave allowances at a rate of 18%.
The amount of leave allowances as well as the wages should be taken into account when the maximum amount of income is determined, which gives the right to apply a tax social benefit (hereinafter - TSB). Transitional leaves are distributed between the respective months of their accrual (para. 169.4.1 of TCU).
TSB is applied to income in the form of wages if its monthly amount does not exceed the amount equal to the size of the monthly living wage effective for an able-bodied person on January 1 of the reporting tax year multiplied by 1.4 and rounded to the nearest 10 UAH (para. 1 sub-para. 169.4.1 of TCU). In 2018, the maximum amount of income for the use of TSB is UAH 2 470.
The object of taxation of the personal income tax when accruing the leave allowances is reduced by the amount of TSB (if there is a right for it) (para. 164.6 of TCU). However, it can only be applied if the total monthly income is known. Since the leave allowances are accrued and paid no later than three days before the leave start (Art.21 of the Law of Ukraine “On leaves” of 15.11.1996, No. 504/96-ВР), the total monthly income of an employee is unknown. Therefore, during the taxation of the leave allowances, TSB does not apply.
The war tax is also withheld together with the PIT from the amounts of the leave allowances (sub-para. 1.2 of para. 16-1 of sub-sec. 10 of sec. XX of TCU). The rate of tax - 1.5%. TSB does not apply during the taxation of the wages.
USC
The leave allowances as one of the elements of wages are the basis for the calculation of the USC (para.1 of sec.1 of Art.7 of the Law of Ukraine “On the Collection and Accounting of the Unified Contribution to the Mandatory State Social Insurance” of 08.07.2010, No. 2464VI; hereinafter – No. 2464). People with disabilities are entitled to accrue the USC at a rate of 8.41%, on wages during the leave of remaining employees - 22%.
The USC are counted within the maximum base of accrual (part 3 of Art. 7 of Law No. 2464). In order to compare the leave allowances with the maximum base of accrual of the USC, it is necessary to allocate them between the months for which such sums were accrued (sub-paras.2 of para. 3 of sec. IV of Guidelines on the procedure of accrual and payment of the unified contribution to the mandatory state social insurance, approved by the order of the Ministry of Finance as 20.04.2015. No. 449). That is, the transitional leaves for each month in the amount of salary should be compared with the maximum base. Of course, if the amount of the leave allowances exceeds the maximum value of the USC, the restriction applies already when calculating the USC on the leave allowances.
When the accruing of the USC, the amount of the leave allowances payable for each month of leave may be less than the size of the minimum wage. However, the USC is not accrued from the amount of the minimum wage. After all, in aggregate with the wages of the corresponding month, the employee’s income may be higher than the minimum wage. Then it is not necessary to apply the minimum insurance premium.
Therefore, in order to calculate the USC, transitional leaves should be distributed between the months of the leave in proportion to the number of days of leave. The USC is accrued on the actual amount of leave allowances, since the total income for both the current month and the next is unknown.
Accruing the salary for the month of the beginning of the leave, the amount of leave must be added to the wages. If the total income is less than the minimum wage, the USC is calculated on the minimum wage. It is necessary to take into account the sum of the USC already accrued on the leave allowances. If the total income exceeds the minimum wage, the USC is calculated on the actual amount of the accrued salary.
Similarly, the USC is accrued when wages are calculated for the month of the end of the leave.
