What Global Companies Need to Understand About Payroll in Russia

Russia is the largest country and is one of the leading countries in oil, gas, and steel production. It is also home to many highly skilled workers, whom many foreign employers find to be a perfect fit for their business.

Russia's workforce is highly educated. Tertiary education is very valued in Russia, and it is easy to find highly skilled workers in the IT, Medicine, and Education sectors. Overall, the Russian workforce offers great opportunities for foreign employers.

However, hiring people in Russia usually requires registering a company and establishing an entity there, unless you are going with an EOR. In both cases, there's also the complexity of its payroll system.

Let's discuss all there is to payroll in Russia so that you know what obligations you'll have to meet when hiring Russian workers for your company.

Employment Essentials in Russia

To hire someone from Russia, you'll must establish a presence in the country, which is mandatory for legally hiring employees. The alternative is to hire an Employer of Record who already has an established presence in the country.

Employment agreements

Russian labor law mandates a written employment agreement. These are considered indefinite by default. You need to explicitly state the duration of the contract if you want to hire someone temporarily.

To have a valid employment contract in Russia, the contract must include identification of both parties, the nature of work, and job title, duties, and responsibilities. It should also outline the contract start and date, basic salary, workplace, and working hours.

The contract should also include workplace conditions, including risks related to work, and the following compensation. Lastly, make sure not to forget to include social insurance contributions.

The probationary period in Russia

It is customary in Russia for companies to have a trial period, though these are typically established through collective agreements. For lower-tier positions, the length of the trial period typically lasts for three months, but for directors and senior managers, this usually extends to six months.

Working hours and overtime

The standard working hours in Russia equal 40 hours, or 8 hours per day. Russian labor law allows overtime but restricts it to 4 hours in two consecutive days. The overtime is capped at 120 hours per year.

Workers who take on overtime can expect compensation of up to 150% of the regular hourly rate. This compensation applies to the first two hours and increases to 200% for the following hours. The employees have the right to request time off instead of increased pay. However, time off cannot be less than the time they already worked overtime.

Overtime can also be subject to collective bargaining agreements.

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.

On January 1, 2023, Russia set the federal minimum monthly salary to RUB 16,242. This was based on the median wage instead of the minimum subsistence level. It may also vary across federal districts.

Russian employees are not entitled to bonus payments or 13th-month salary bonuses.

Dates of Payroll

The salary of the employee must always be included in the contract. The salary is normally established through the employment agreement.

Russian labor law mandates that companies pay salaries on a bi-monthly basis. The employees are paid twice in a month: at the end of the first half of the month (usually the 15th day), and 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 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 foreign currency.

Fiscal year in Russia starts on the first of January and lasts until 31 December. The companies use this time frame for financial and tax reporting.

Employment Taxes in Russia

Companies and employers who are tax agents must assess, withhold, and pay to the state budget employer tax on the employee's income as indicated in the Tax Code.

On average, employers can expect to pay on average 30% employer tax. State pension fund requires employers to pay up to 22% on top of wages. This applies to wages of RUB 1,465,000 per year, and there is an additional tax of 10% calculated for the amount that exceeds the amount.

The tax contributions per employee typically add 7.8% on top of the employee's salary.

This includes medical, pension, and social insurance for all employees. It also covers accident insurance, and one type fee for processing the employment agreement. The employees do not have to meet similar requirements, as these are covered by the employer.

However, individuals in Russia are subject to individual tax. This depends on the individual's income, which divides them into two categories:

1. The 13% tax bracket applies to those who earn from 0 to 5 million Russian rubles

2. 15% tax bracket which applies to those who earn more than that.

Tax records must be kept for at least five years, and employers have the responsibility to keep books on their employees, including records of wages and total hours worked.

Pension plans in Russia

Once your employees meet all conditions for retirement, they can expect to receive a gross pension that is around 19,000 RUB.

Leave Entitlements in Russia

All full-time employees in Russia can expect 28 days of annual leave. These 28 days include public holidays in Russia. These include 5 days around New Year's Day, two days for the Orthodox Christmas, and six other days for other national holidays.

Paid annual leave must have a minimum of 14 consecutive days. Employees can also count on vacation pay, which must be paid three days before the leave. Or, they may also carry over the unused days into the next year.

Sick Leave

In terms of sick leave, your Russian employees are entitled to it in case of illness or injury. In this case, the 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.

The sick leave benefits depend on how long the employee has been covered within the social security system. In cases where the employee has been covered for less than six months, they are entitled to the minimum wage. When the employee has been covered for more than eight years, they are eligible for 100 % of their average earnings.

This calculation applies to the first 10 days of sick leave. After ten days, the payments are halved. Compensation cannot exceed 2,301 RUB daily.

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 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. Maternity leave allowance is capped at 340,795 for 140 days, but it is calculated individually based on average daily wage.

New mothers can extend their maternity leave until the child is three years old. The employer is not legally required to pay the employee on maternity leave. However, they are obliged to keep the employee's job position open for them throughout the leave.

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.

At-will termination is strictly forbidden in Russia, and terminations must be done for a just cause. It could be a mutual agreement, an employee resigns voluntarily, or if their contract expires.

The notice period depends on the cause for termination. In most cases, notice is not required. However, in cases of liquidation, the employee gets a 2-month notice. For redundancy, expiration of the contract, and unsuccessful probation period, the employee is entitled to a three-day notice.

Employees are also entitled to severance pay, which on average equals one month's salary.

Work Hazard Insurance

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.

FAQs

What is the salary system in Russia?

In Russia, most people get a set amount of money each month, or a salary. They might also get extra money for working overtime or bonuses for high-quality work. Taxes are taken out of their salary automatically.

What is the minimum wage in Russia in US dollars?

The minimum wage in Russia is about $229 per month at the moment of writing this article. The actual minimum wage in US dollars depends on the currency exchange.

Is living in Russia expensive?

Living in Russia can be pricey in big cities like Moscow, but it's much cheaper in smaller towns. Things like rent and imported goods can be expensive, but everyday items and public transportation are usually affordable. The cost of living varies significantly across the country.