Changes to Russian Labor Law Affect Payments to Employees

A number of significant amendments to Russian labor legislation entered into force on October 3, 2016. The amendments were introduced by Federal Law No.272-FZ “On Introducing Amendments to Certain Legislative Acts of the Russian Federation on the Issue of Increasing Employers’ Liability for Violating Labor Legislation with Regard to Payment of Labor”, signed into law on July 3, 2016 (the “Amendments”). 

The Amendments establish more specific regulation in terms of payment of salary and increase the liability placed on employers for delays in salary payments. 

The hot topic from these Amendments relates to the required dates of salary payments. As before, salaries must be paid to employees not less than once every fortnight. An exact date for payment of salary must be established in internal labor rules, a collective agreement or in an employment contract. However, starting from October 3, 2016, this date must not be later than 15 calendar days from the end of the respective period for which the salary was accrued (Article 136 of Labor Code according to the Amendments). 

This new approach stems from the fact that some employers establish the dates of salary payment in such a way that the employee only receives his/her salary for the relevant month at the end of the subsequent month. For instance, the salary for the first fortnight is paid on the 15th day of the month after the month worked, while the salary for the second fortnight is paid on the 30th day. 

Under the Amendments, salaries must be paid not less than once every fortnight, which means that salaries must be paid as follows: 

• for the first fortnight of the relevant month – no later than the 30th day of the same month; and 
• for the second fortnight - no later than the 15th day of the subsequent month. 

It is worth noting that the Amendments were discussed at length in legal and business circles (including in the press). Discussions focused on whether the new requirements could be interpreted as stipulating that all bonuses must also be paid within 15 calendar days from the end of the period for which they are accrued (since, actually, under Russian labor law, the term “salary” includes bonuses and other incentive payments). If so, this would be problematic for employers, since it is often not possible for them to pay an annual bonus, for example, within 15 days of the end of the year for a variety of reasons. 

On September 21, 2016 however, the RF Ministry of Labor published official clarifications stating that the 15-day requirement refers only to salary, which must be paid not less than once every fortnight. Bonuses and other incentive amounts are accrued and paid over longer periods (i.e., a quarter, a year, etc.). The terms for their payment are established by collective agreements and internal regulations. Thus, bonuses and other incentive payments are not subject to the 15-day requirement. 

The above being said, in order to comply with the new requirements, employers should double-check and revise collective agreements, internal rules and employment contracts as needed to ensure the salary payment complies with the Amendments. As to bonuses and other incentive payments (if any), no revisions are required as a result of the Amendments, but the policy should be clear.

In addition, the Amendments introduced the following new requirements: 

• the amount of interest owed to an employee in the event of a delayed salary payment is raised from 1/300 to 1/150 of the refinancing rate of the RF Central Bank for each day of delay, commencing from the day after the day on which payment is due (Article 236 of the Labor Code according to the Amendments); 
• labor inspectorates are allowed to make unannounced inspections of employers based on employees’ complaints regarding late payment of salary or regarding a salary amount, which is below the minimum statutory wage (Part 7 of Article 360 of the Labor Code according to the Amendments);
• the period when an employee may apply to a court for resolution of a labor dispute with regard to the partial payment of salary and other payments due or failure to pay at all has been extended to up to one year from the date when the employee knew or should have known of a violation of his/her right (instead of the current three-month period). Thus, the statute of limitations established for relevant claims has actually been extended (Article 392 of the Labor Code according to the Amendments); and 
• in addition to the above financial liability, administrative liability can now be imposed on the employer in the event of a delayed salary payment. Partial payment of a salary or failure to pay at all now constitutes a separate violation under the RF Administrative Offence Code (parts 6 and 7 of Article 5.27 of this were introduced by the Amendments) and entails either a warning, issued by the State Labor Inspectorate, or imposition of the following fines: 
  • on an officer of a legal entity – in the amount of RUB 10,000-30,000 or disqualification for a period of one to three years; 
  • on individual entrepreneurs – in the amount of RUB 1,000-30,000; and 
  • on legal entities – in the amount of RUB 30,000-100,000.