Global employment guides

What Global Companies Need to Understand About Payroll in Russia

Published on:
December 20, 2022
Written by:
Lucas Botzen

Russia, the largest country in the world, is also regarded as the most influential political party in the world. Its Gross Domestic Product currently stands at $1.6 trillion and its growth rate at 1.3%. These statistics, among other factors, greatly contributed to the maintenance of the country‚Äôs economic power. Russia has lately begun working toward a more market-based and globally integrated economy which were previously the country‚Äôs primary weaknesses. Its economy was previously considered ‚Äúglobally isolated‚ÄĚ and ‚Äúcentrally-planned‚ÄĚ.

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Russia is also one of the leading countries in the world that produce oil, natural gas, and metals such as steel and aluminum. 

Russia has, without a doubt, become a hub for foreign investment. However, registering a company and establishing an entity in the country can be tough, considering the complexity of its payroll system. This article therefore discusses the salient information that you need to understand about payroll in Russia. 

Types of Payroll Systems in Russia

In running a company, a payroll system is one of the primary facets the administration has to be fully aware of. There are many modes of a payroll system that you can choose from. The following, however, are the most commonly used systems in Russia:

Time-based payroll systems 

A time-based payroll system compensates the employee based on the number of hours the employee has rendered during the pay period. The compensation for the employee is not linked to their performance but to their physical presence at the workplace. Using this system, employees must be paid according to the number of hours they render not on their output. 

Time-based payroll systems are usually enforced when paying  employees who are not engaged in the production processes. The most perfect examples for these types of jobs are accountants and economists. 

Piece-rate payroll systems 

Piece rate pay takes place when workers are paid on the basis of the number of completed tasks, such as the number of tee shirts or bricks created.

When employees have a high level of control over the results, certain industries or occupations often employ piece rates. Several examples of this type of labor include things like plucking tea, tending fruit trees, sifting through old books, making clothes, or driving a certain number of kilometers. People who work from home and those who work from other locations are commonly paid piece rates as well.

Workers in developing nations commonly hold jobs using piece rate earnings, a situation that puts them at risk due to their reliance on the informal economy. The majority of large numbers are women. In the textile, garment, footwear, and leather industries, and across worldwide supply chains, piece rate compensation is widespread.

Minimum Wage in Russia

The Labor Code in Russia states that the salary of an employee who completed their required number of work hours within a month and accomplished their job duties should not be lower than the minimum monthly salary regardless of the company’s payroll system. 

Since January 1, 2021, the federal minimum monthly salary has been set to RUB 12, 792 or 174.74 USD. This was based on the median wage instead of the minimum subsistence level. The Labor Code also states that the minimum monthly wage is determined by a regional agreement and can be higher than the federal minimum monthly salary.

Dates of Payroll

The salary of the employee must always be included in the written contract. The salary is normally established through the employment agreement. Russian labour law mandates that companies pay salaries on a bi-monthly basis. In other words, the employees are paid twice in a month: at the end of the first half of the month (usually the 15th day), and at the end of the month (usually the 30th day). 

The Labor Code is not strict regarding the dates when employers must turn over the employees' salaries. Most companies pay the salaries on or after the 15th day of the month. Employers also have the right to decide when to begin and end the workdays and these must be documented in the company's internal policies. 

When the payroll date falls on a holiday or on a day-off, the salary should be paid on the prior day. The standard currency of the payments is the Russian Ruble. However, according to the Federal Tax Service, if the employees' tasks and obligations are outside of the country, employers may pay their employees in a foreign currency. In this case, the employee's place of work must be outside of Russia's borders in the signed employment agreement or the employee contract. Salaries are paid by electronic transfers, sometimes known as bank transactions.

The Labor Code mandates that a workable way be devised for an employee to receive his or her income. There are several limitations on the ways employers can obligate their employees to receive their salaries in a cash-based manner, and among these is that employers may not force their employees to receive their payments on a bank card. 

Personal Income Tax

Companies and employers who are tax agents must assess, withhold, and pay to the state budget personal income tax on the employee's income as indicated in the Tax Code. Salary payment dates are determined by the nature of the revenue received. 

The dates when the salary payments ought to be made are customarily determined by the nature of revenue received. The personal income tax payment should be submitted the day after when the salary payments were made.

Sick Leave 

In general, employers are only responsible for compensating their employees for the first three days of sick leave. The Social Security Fund is responsible for covering the fourth and subsequent sick leave days. Compensation is calculated using the employees' annual income and pension insurance from the last two calendar years.

Maternity Leave

A mother is entitled to 140 days of leave following childbirth. That is, 70 days before the delivery and another 70 days after. If the mother delivers twins, she is entitled to an additional 70 days days of leave for a total of 210 days. Maternity and child-care leave compensations are provided as an insurance benefit and paid out of social security.

If a woman wants to extend her maternity leave until the child is three years old, she can do so. The employer is not legally required to pay the employee on maternity leave but the employee's job position unless otherwise the employee decides on resigning.

Employment Termination

Employers are only permitted to terminate an indefinite-term employee for a legally recognized reason. Numerous legally permissible causes are not employee-specific, such as layoffs or staff cutbacks as a result of business reorganization. Other termination causes are specific to the employee, such as the person becoming incapable of performing the job, frequently failing to satisfy job requirements, or committing an act of major misconduct, an unjustified absence from work, being intoxicated on the job, or stealing from the organization.

Terminating an employee for poor performance or serious misconduct requires a lengthy process that includes documenting the individual's transgressions, offering warnings, and alerting the employee in advance. Many businesses arrange simply the employment contract in such a way that this may be ended by mutual consent, rather than going through such complex termination process. 

Read more: Guide to Employment, Payroll, and Benefits in Russian Federation

Work Hazard Insurance 

Any profession is potentially dangerous, but certain jobs are more prone to accidents and risks. According to Thomas-Fenner-Woods Agency Inc., occupational hazard insurance is a financial protection for employees in the event they are injured or killed on duty. 

Employees performing hazardous tasks are eligible for all types of Work Hazard Insurance. However, eligibility and requirements for each type of insurance differ by country.

Employers in Russia are required to pay compulsory work hazard insurance, which is administered by the state social security fund. They must also contribute to the social security contributions. Rates for these payments vary from 0.2 and 8.5 percent, depending on the type of job. The 0.2 percent is mostly allocated to office workers.

Final Thoughts

Growing your business into Russia could be the greatest course of action for your company's growth and success. However, there will be various obstacles along the way. This list includes issues in legislation, regulation, compliance, and the payroll system. Entrepreneurs are advised to rely on an outsourced agency that provides payroll services in Russia. In this manner, the employer's issue regarding compliance is compartmentalized to the third-party solutions entity. As a result, you may already devote your complete attention to growing your company by any means.

Rivermate provides payroll solutions that will undoubtedly simplify the process of international business expansion in Russia. Superior human resource managers will take care of all the paperwork necessary to guarantee that your organization complies with all applicable Russian laws and regulations.

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