Recent changes in salary indexation in Russia have become an unconditional obligation of an employer regardless of whether the employer has an internal policy specifying the procedure or not. The violation of legislation can lead to administrative fines for the company ranging from RUR 30,000 to 50,000. Our team of experts will help you with compliant employment in Russia and relieve you from administrative difficulties
What is indexation all about?
Article 134 of the Russian Labour Code determines that organizations financed from the state budget perform salary indexation as provided by the legislation, whereas other employers (including commercial organizations) perform salary indexation as provided by the collective bargaining agreement, internal policies.
Based on the formal interpretation of the law, salary indexation is regarded as one of the options for ensuring an increase in salary level. Therefore, other options are theoretically possible.
Existing court practice confirms that salary indexation is an exclusive competence of the employer. The following conclusions can be figured out:
- the Russian Labour Code does not contain any mechanism for salary indexation, its amount and time period;
- the courts do not have any authority to force employers to adopt internal policies concerning order for salary indexation;
- the courts are not entitled to force employers to perform salary indexation in case of absence of the relevant internal policies;
- the courts are not empowered to annul/declare illegal internal policies.
Russian Employment Legislation on Salary Indexation
Based on the position of the Russian Ministry of Justice, the Russian Labour Code does not establish the requirements for the mechanism of salary indexation. At the same time, this does not mean that employers are exempted from the obligation of salary indexation. Such obligation of the employer is at the same time not unconditional and depends on different reasons, including also economic factors. Rather often in practice employers use this uncertainty and act not in good faith. As a result, formal fulfillment of obligation depends on the sole discretion of the employer.
In the former decision, the Higher Court of the Russian Federation confirmed that the obligation of the employer to increase salary level can be performed by way of its periodic increase, e.g. increase of monthly salary, bonus payment that does not refer purely to salary indexation. Whereas in the latter decision another position was ruled out. Internal policies must provide the exact mechanism for the increase of salary level, i.e. periodic increase by means of monthly salary increase, bonus payment, or purely salary indexation.
What should be done about it?
In order to avoid potential disputes with employees and the labor inspectorate, it is recommended to comply with the law as regards salary indexation. Thus, the order of salary indexation must be established in the relevant internal policy. This includes the following issues:
- the basis for indexation that may vary from a fixed part of the monthly salary (including or not bonus payments) to just a capped basis (e.g., statutory minimum salary);
- relevant time period (e.g., quarter, half a year, year, 2 years);
- the amount of the indexation (e.g., growth index for consumer prices, the percentage for the increase of statutory minimum salary / minimum subsistence level);
- the ground for indexation (e.g., achievement of financial results).