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Employment in Russia

The regulation of employment in Russia is governed by the Labor Code of the Russian Federation which applies equally and must be complied with by both executives and employees. Russian labor laws apply to foreign nationals and foreign businesses in Russia in the same manner as domestic entities. Typically, an employment agreement governed by a foreign law will be disregarded in the Russian court, where the Code prevails. Making employment decisions in Russia must be made with full compliance to the Labor Code, as all regulations related to minimum guarantees, employment benefits and compensation supersedes any agreement between the employer and employee. The employee-sided nature of Russian labour legislation makes employment in Russia complex.

For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in Russia.

Key points on employment in Russia

There are several key areas to be aware of within Russia’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resource department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.

 

 

  1. Contracts

    The most prevalent form of employment contract in Russia is a simple written employment agreement in Russian, which outlines the basic terms and conditions of the employment relationship between the employee and the employer. The contract must include:

    • Job description
    • Probation period (3 months for standard employees)
    • Salary in roubles
    • Mandatory holiday allowance
    • Working hours (Generally less than 40 hours per week)

    Generally, these contracts are specified for an indefinite period of time, unless a fixed-term agreement of up to 5 years is entered into under specific condition under Article 59 of the Labor Code.

    It must be noted that any terms in the employment contract that worsens the position of the employee than if they were under the mandatory minimum guarantees, benefits and compensation under the Labor Code will be rendered invalid.

  2. Probation Periods

    The rules for probation periods are outlined in the Labor Code, and are generally set at a maximum of 3 months for most employees, and 6 months for executives, deputies and head of departments. The probation period must be expressly specified in the employment agreement prior to employment.

    Special conditions apply to pregnant women, women with young children up to one and a half years and other specific individuals, where probation periods are not permitted.

    During the probation period, the employment agreement may be terminated by the employer with three days’ notice, where the reasons for failure to pass the probation period must be provided by the employer. The employee may also terminate the agreement with three days’ notice.

     

  3. Termination Procedures

    Termination by Employee

    Termination of the employment agreement may be carried out by providing two weeks’ written notice to the employer, which is a basic right under the Labor Code that cannot be overridden by contractual terms. With the consent of the employer, termination may occur within the two weeks’ notice, and it may also be withdrawn by the employee given that the employer has not legally entered into another employment agreement in this time for that position. If the two weeks’ notice has expired and termination has not occurred, the employment agreement may continue if the employee chooses not to terminate.

    Termination by Employer

    Only upon specific grounds specified in Article 81 of the Labor Code may the employer terminate an employment agreement. These conditions typically apply to most employees except for CEOs and executives with contractual terms in their agreements, which include:

    • Redundancy or liquidation event
    • Poor health rendering the employee incapable
    • Insufficient qualifications rendering the employee incompetent
    • Non-performance of employment obligations
    • Violation of the employment agreement

    Employees who are sick, on vacation or are pregnant may not be terminated except in the circumstance of the company’s liquidation.

    An employer must comply with the detailed procedure of employment termination under the Labor Code, or it will be invalid by a court. Disputes may be heard in courts of general jurisdiction or commercial courts, where the former is typically used for general situations; however it is unclear which court is chosen for CEOs and executives and is highly circumstantial. Employees may be entitled to reinstatement at work, salary compensation for their absence, and compensation for moral harm, depending on each case at the judgment of the Russian courts.

    Compensation

    In the condition of an employer-terminated agreement as a result of redundancy or liquidation, two months’ notice is given along with a two months’ salary severance payment to the employee. The employer bears the burden that the redundancy or liquidation was driven by business factors, and not with the motive of dismissing select employees.

    As Russian employment laws on compensation are employee sided, Russian employers prefer to negotiate a settlement amount usually from two to three months’ salary for regular employees and up to six months for senior executives.

    Labour Books

    Employment laws in Russia is unique in that the employee’s employment history is recorded in a “labour book” (trudovaya knizhka), which extend to foreign employees as well. The book contains records of employment, positions, dates of joining and termination, and disciplinary sanctions from the employee’s first employment up to retirement. The employer is required to keep records and updated information on each employee’s labour book with full disclosure of appropriate employment information for any employment exceeding 5 days.

    It is in the employee’s interest to keep their labour book “clean” by avoiding any disciplinary sanctions or termination for reasons that will make future employment difficult. This feature of Russian employment gives the employer some bargaining power as a negotiation tool for termination agreements.

     

  4. Statutory Leave

    Holiday

    The minimum holiday entitlement for all employees under the Labor Code is 28 calendar days per year of employment, where public holidays will not be counted in their annual leave entitlement. In the first year, the employee may take holiday leave after 6 months they commence working, and at any time in subsequent years. An employer may recall an employee from holiday leave with written consent from the employee, except in the case of pregnant women and situations of hazardous employment.

    The employer may postpone the vacation of an employee if it disrupts normal business operations, where unused annual holiday leave may be carried forward to the next year. The employer is prohibited from denying employee vacations two years in a row. Any accrued vacation days will be compensated during termination of employment.

    Sickness & Maternity Leave

    Employees may take sick leave provided they present a medical certificate to an employer when they return to work. In the event of an employee’s illness, injury or a sick family member, sick leave compensation is required at varying levels depending on the situation. Occupational injuries or sickness provide the employee with 100% of the employee’s average earnings in the preceding two years. All sickness compensation, however, is capped at RUR415,000, or US$12,700. An employer is only required to pay sick leave compensation for the first three days of sick leave, where further sick days are payable from the Russian State Social Insurance Fund, funded by the employer’s mandatory contributions as a percentage of employee salary.

    Maternity leave must also be granted to pregnant women if they procure a medical certificate. This is also payable from the Russian State Social Insurance Fund. Paid maternity leave accrues 70 calendar days prior to birth and extends to 70 calendars after birth, except in the circumstance of birth complications.

     

  5. Pensions and Benefits

    Currently, the Russian social security contributions system involves separate contributions to the State Pension Fund, Social Security Fund and the Federal Mandatory Medical Insurance Fund, which replaced the Unified Social Tax in 2010. As of 1 January 2015, social security contributions apply at an aggregate rate of 30% of an employee’s annual salary, up to these social contributions thresholds:

    • State Pension Fund – 22% up to RUB711,000 (approx. $USD12,640)
    • Social Security Fund – 2.9% up to RUB670,000 (approx. $USD11,910)
    • Federal Mandatory Medical Insurance Fund – 5.1% with no threshold

    All social security contributions apply to all payments to individuals.

    For certain categories of payers, there will be a reduced rate of contributions from 2011 to 2027, particularly for employees in IT companies, agricultural producers, companies in special economic zones and budgetary scientific institutions.

    Benefits

    There are no benefits that come with continuous employment, unless provided by the employer or by a collective bargaining agreement.

    Unemployment benefits apply to those who are older than 16, ready and able to perform suitable work, have no work or income and are looking for a job. Unemployment benefits by law are set at a minimum of RUB850 per month, up to RUB4,900 (US$160) per month. This system is somewhat concerning for Russia as individuals in low salary regions are finding it more attractive and easier to live off unemployment benefits.

  6. Working Hours

    A normal Russian working week must not exceed 40 hours, and overtime work must be requested in very specific circumstances stated in the Labor Code, and must also be accompanied by the employee’s written consent. This overtime work must not exceed 4 hours in two consecutive days, and not over 120 hours per year. It must be paid at 150% of the regular hourly rate for the first 2 hours, and at 200% for subsequent hours.

    Very specific categories of employees may work under the “irregular working regime” (nenormirovanniy rabochiy den), where overtime work is at the employer’s discretion. These employees must not be subject to daily overtime work, and may also receive additional holiday leave.

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Russia. For companies which intend to employ their staff directly through their incorporated Russian entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Russia.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Russia.

The Shield GEO solution is an attractive alternative where

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in Russia

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in Russia

– the company needs help with tax, employment, immigration and payroll compliance in Russia

Shield GEO can contract directly with the company to employ and payroll their staff in Russia. Shield GEO supplies local employment contracts for the staff which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits.  Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO.

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