Reservation employees liable for military service: for whom and how to avoid mistakes?

It is very important for all our clients to maintain their business processes during the war to ensure their ongoing operations and thus help the country on the economic front. To this end, the state has made it possible to reserve employees, namely, the Cabinet of Ministers of Ukraine approved the Procedure forReservation of Persons Liable for Military Service during Martial Law by Resolution No. 76 dated 27 January 2023.

Who is it for?

• For state authorities and local public authorities;
• For enterprises, institutions and organisations that have been assigned a mobilisation assignment (order);
• For enterprises, institutions and organisations engaged in the production of goods, performance of works and provision of services necessary to meet the needs of the Armed Forces of Ukraine and other military structures;
• For enterprises, institutions and organisations that are critical to the functioning of the economy and ensuring the vital activity of the population during a special period.

Since we are more focused on IT companies, we will consider the last option in more detail, as almost all residents of Diia City will be able to use it.

To reserve employees, an IT company needs to obtain the status of a company critical to the functioning of the economy and ensuring the vital activity of the population during a special period. This status can be obtained by companies that meet three or more of the following criteria:

• the total amount of taxes, duties, payments accrued, withheld and paid to the state and local budgets, except for customs duties, during the reporting tax year exceeds the equivalent of EUR 1.5 million, determined at the weighted average official exchange rate of the National Bank for the same period;
• the amount of foreign currency revenues, other than loans and borrowings, for the reporting tax year exceeds the equivalent of EUR 32 million determined at the weighted average official exchange rate of the National Bank for the same period;
• be of strategic importance for the economy and security of the state in accordance with the list of state-owned objects of strategic importance for the economy and security of the state;
• be important for a sector of the national economy or for meeting the needs of the local community;
• absence of arrears in the payment of the unified social tax to the obligatory state social insurance;
• the average salary of employees for the last calendar quarter is not lower than the average salary in the region for the fourth quarter of 2021 (according to the State Statistics Service);
• Diia City residency.

The determination of critical importance for the functioning of the economy and ensuring the vital activity of the population during a special period is carried out by the central executive authority whose jurisdiction extends to the company’s activities. For IT companies, this authority is the Ministry of Digital Transformation.

Thus, if a company meets three or more of the above criteria, it applies to the competent authority to obtain the appropriate status. The application must be accompanied by copies of supporting documents for the relevant criteria, as well as information on the submission of tax returns for the last calendar quarter in accordance with the procedure established by law, which is confirmed by the relevant documents.

Based on the results of the review, the competent authority decides whether the company’s status as a critical company is important for the functioning of the economy and ensuring the vital activity of the population during a special period. After the company receives a positive decision, it may submit a list of persons liable for military service who are offered for reservation for the period of mobilization and wartime to the same authority in charge of the area of activity, i.e., in our case, the Ministry of Digital Transformation.

Who do we reserve and what mistakes can be avoided?

We reserve only employees who are liable for military service, i.e. employees who are employed by the company under employment agreements (gig-specialists are not included) and who have military registration documents and meet the criteria for persons liable for military service.

Persons liable for military service are granted a deferral from military service during mobilization. The term of the deferment cannot exceed six months.

The number of persons liable for military service who are subject to reservation should be 50% of the number of persons liable for military service in the company as of the date of submission of the list. If there is a justified need, the number of persons liable for military service subject to reservation may exceed 50% of the number of persons liable for military service in the company as of the date of submission of the list.

When calculating the quota, it should always be borne in mind that it is possible to reserve 50% of the number of persons liable for military service in the company (and not of all employees).

Also, please note that persons liable for military service, as listed in Article 23 of the Law of Ukraine “On Mobilization Preparation and Mobilization”, are not subject to a call-up for military service during mobilization. That is, such employees do not need to be reserved, but they are taken into account when calculating the 50% quota.