What Companies Need to Understand About Payroll in Russia

Russia is not only the largest country in the world, but also one of the great and influential economies. The country’s GDP is 1.6 trillion rubles, with growth of 1.3%. These indicators speak of the power of the country’s economy.

Russia is one of the leading countries in procurement of energy, metals, and rare earth resources.

Lately, Russia has become the center for foreign investment. However, when opening a business on this territory, one must observe local laws. When developing your company articles of incorporation, one needs to understand the complex system of the Russian labor law. This article explains the basic principles of the Russian system of payment for labor.

Types of payroll systems in Russia

Picking the right payroll system is one of the key aspects of organizing an effective management system. There are several modes of paying salaries, however, in Russia it makes sense to underscore two main ones, and we will explain them below.

Time based system of payment for labor

A standard time interval for payment of salary in Russia is one month. When picking an hour-based system of payment the amount of salary is calculated based on actual time spent at a work space working. This method disregards employee’s productivity at workspace. Physical presence at a workspace and performance of one’s duties makes the basis for payment of salary. There is a fixed amount of time such an employee must be at work every month.

Piece-rate based system of payment for labor

A piece-rate based system of payment for labor is calculated based on actual work performed, such as a number of units of products produced, or another amount of work.

The piece-rate based system is used in cases when there is an option to quantify the results of an employee’s labor. It is often used in such production systems as consumer goods manufacturing and food industry, transportation services, and agriculture. People working often remotely use this scheme, payment is gained for a number of ready projects or other quantifiable work.

Minimum wage in Russia

Labor code of the Russian Federation sets a minimum wage. It is introduced based on a month of work provided the standard working hours are met. The payroll management system does not affect the minimum wage.

From January 1, 2023 the federal minimum wage is established to be 16,242 rubles, or $ 216.74 USD. It is normally calculated based on a fraction of a median wage. In 2022 the increase was going faster due to growth of subsistence rate. In a stable economy the minimum wage increases once a year, while in crisis it may be appended by indexation.
Different regions of Russia establish an additional multiplier depending on its climatic conditions.Any failure to timely pay the salary is a violation of the worker’s rights, entailing an administrative fine.

Dates of payment of payroll

As a rule, payroll is managed monthly. However, the actual salary is paid out not less than 2 times a month. Payment dates must be fixed in the labor contract.
The payment dates must be established not later than within the period from the 15th and the last date of every month, and from the 1st to the 15th date for the second half of the month. If the date of payment falls on a weekend or a holiday, it must be made one day earlier.

The labor code does not set specific dates, however these dates must be within these periods. The employer also has the right to set the length of the working day, when it starts and when it ends. All of these important moments must be set out in company documents.

Salaries are paid out in rubles. However, as tax authorities explain, if workers are physically working abroad, another currency may be used.

Today, in the majority of cases, salaries are paid out using a wire transfer to the employee’s salaries account. Labor laws reserve the employee’s right to receive payment in cash, however employees require it very rarely.

Still, the way to receive payment, choice of bank, and banking card remains with the employee. The employer may only suggest using a certain salary project, however they cannot enforce it.

Personal income tax

If a person is employed with a certain company, then the employer takes the responsibility as its tax agent. The company is obligated to calculate, withhold, and pay such tax into the tax budget. The rates, size, and order of administering the personal income tax are set out in the Tax Code of the Russian Federation.

The payment per period, according to the Tax Code, is established depending on the type of income. When such income is obtained as salary, the personal income tax is paid the next day after payment of salary.

Payment for sick days

The employer must pay for the first three days of the employee’s temporary incapacitation. From the fourth date of the employee’s sick leave, the sick leave is paid for by the Social Security Fund.

The compensation is calculated based on the special formula based on the employee’s yearly income and insurance payments for the last two years. Depending on the length of the period of sick leave determines a share of the vacation compensation.

Payment for pregnancy and birth leave

A woman may leave for 70 days before and after birth. If a mother gives birth to two or more children, she has the option to take another 70 days of leave. These are paid periods compensated by the Social Security Fund. A woman may extend the childcare period up to 1.5, and later, up until 3 years of age. When this is the case, she is taken care of by the state. The only obligation of the employer is to preserve her position. During her leave the employer has the right to employ another person for the same position, but it is possible only for a fixed period before the young mother’s leave ends.

Termination of employment

Employment may be terminated in two cases:

1. By one’s own initiative. In this case, an employee must stay at work not less than 2 weeks, or 10 working days, so that the employer could find her substitute. When the parties agree to do so, termination of employment may be performed earlier.
2. By the employer’s initiative.

There are reasons unrelated to a specific employee, such as staffing reduction, reorganization, closing down of a business. When this is the case, the employer must pay a regular fee to the employee, the size and the period of which are determined by the Labor Code. There are also reasons related to a specific employee. Here, the employer must provide legal reasons for termination of employment. These reasons maybe unauthorized absence, labor misconduct, appearance at work while intoxicated, bad performance, and many other reasons. All of these reasons must have a legal base, documented, and the employee has to provide an explanatory report.
Termination of employment at his or her fault is a long and hard process. Both the parties are not in benefit from the process. The employer gets a negative record in one’s labor history (such a record is a kind of CV the employer is obligated to keep). The employer loses time and is taking the risk of the employee being restored by the court. If that is the case, the employer must pay the days of forced unemployment to the employee.
It is for this specific reason that employees tend to take the initiative to terminate employment themselves.
More: A guide to employment, payment, and benefits in the Russian Federation

Manufacturing risks insurance

Any profession carries potential risks, however there are other professions which specifically carry risks or are susceptible to accidents. According to Thomas-Fenner-Woods Agency Inc., professional risk insurance is a way to provide financial protection in case of injury or loss of life while at work.

Employees engaged in dangerous operations have the right to all kinds of accident insurance at work. However, the right to participate and eligibility to insurance are different depending on the country.

Employers in Russia must pay for mandatory work accident insurance, which is operated by the state Social Insurance Fund. They must also provide payments for Social Benefits. Such payments are within the range of 0.2 to 8.5 depending on the type of work. 0.2 are generally provided to office workers.

Conclusion

Expansion of your business in Russia may become the best choice for growth and success of your business. However, as you go along, you may encounter some obstacles. The list of such obstacles includes issues related to law, regulation, compliance, and payroll.

Businessmen are recommended to turn to outsourcing agencies offering services for payroll management in Russia. Therefore, the employer’s concern is transferred to an external organization which specializes in such solution. As a result, you have the option to give all your attention to company development in all ways you can think of.

Rivermate offers solutions for payroll management, which will certainly simplify international expansion of business into Russia. Best personnel managers will take the task to implement all documents necessary for your organization to comply with all the Russian laws and regulations