Employer liability for delayed payment of wages in Russia
What are the deadlines for employers to pay wages?
The Labor Code provides no mandatory deadlines for employers to pay wages, but it requires employers to pay wages in installments of at least twice a month. Internal regulations, collective agreements or employment contracts set out the payment dates. When setting these dates, the following rule should be considered:
Salaries for a fully worked month must be paid to employees within 15 days of the end of the month.
When should other payments be made to employees?
The deadlines for payment of vacation, benefits and payroll advance must also be observed (Article 236 Russian Labor Code).
Vacation pay must be accrued and paid within three days of the beginning of vacations.
That is why employers are advised to request vacation applications 2 weeks before the beginning of vacations. Vacation applications are to be approved and processed by the HR department, and for calculation and accrual to the payroll department. The payment officer then enters the data and transfer it to the bank for payment.
Benefit for temporary incapacity to work (sick leave) must be paid within 10 days of submission of a sick leave note by the employee.
What happens if payment is delayed?
- Article 142(1) of the Russian Labor Code provides that in case of delayed payment of wages to employees, employers must pay compensation;
- The obligation to pay compensation is not dependent on whether the employer is at fault;
- Compensation is due even in case of 1-day delay;
- The compensation amount is calculated as indicated in the section below. Compensation may be increased in accordance with collective agreements, employment contracts or internal regulations;
- Delays and compensation cannot be regular and cannot be greater than monthly salaries as inspection authorities could suspect the intent to reduce taxes.
If the payment of salaries is delayed for more than 15 calendar days, employees will be entitled to stop working until the delayed amount is paid, provided they have notified their employer in writing (Article 142(2) Russian Labor Code). Employees are entitled not to be at their workplace until they are paid by their employer (Russian Ministry of Labor Letter No. 14-2-337 dated December 25, 2013).
Moreover, employees will retain their average earnings despite the work suspension due to delayed payments (Article 142(4) Russian Labor Code).
In order for employees to start working again, employers must notify their employees in writing that they are willing to pay the delayed wages in full on their day back to work. Once notified, employees must start work no later than the next business day (Article 142(5) Russian Labor Code).
If employers pay delayed wages only partially, employees will not have to perform their work duties.
In international practice , wages arrears are more important and settled before budget arrears and creditors’ claims.
Criminal liability for non-payment of wages
Criminal liability is provided for if it is proved that the employer was able to pay wages but did not do so self-servingly or for its own benefit:
Partial non-payment for no more than 3 months
- A fine of up to RUB 120,000 with disqualification for up to 1 year; or
- Community service for up to 2 years; or
- Imprisonment for up to 1 year.
Full non-payment for over 2 months
- A fine from RUB 100,000 to RUB 500,000; or
- Community service for up to 3 years with or without disqualification to hold certain positions or engage in certain activities for up to 3 years; or
- Imprisonment for up to 3 years with or without disqualification to hold certain positions or engage in certain activities for up to 3 years.
In case of first-time offense, offenders may be exempted from criminal liability under the following conditions:
- Full payment of wage arrears;
- Full payment of compensation for the delay;
- These payments must be made within 2 months of the date of initiation of the criminal case.
How to calculate compensation for delayed payment of wages?
Payment for delay in any payment or part of payment is calculated as follows (Article 236 Russian Labor Code):
Compensation = amount owed × 1/150 of the Central Bank key rate × number of days of delay
Compensation may be greater (if this is established in collective agreements, employment contracts or internal regulations) but may not be smaller than the amount calculated as indicated above.
Example: Calculation of compensation for the delayed payment of RUB 100,000 (the Central Bank rate is 6%). In this example, the employee should have received this amount after deduction of personal income tax.
- Per day: RUB 100,000 * 6% / 150 * 1 day = RUB 40
- For 1 month (31 days): RUB 100,000 * 6% / 150 * 31 days = RUB 1,240
Similarly, compensation is calculated for any payments:
- If only part of the salary, advance payment is delayed;
- If vacation pay is compensated;
- If maternity benefit is compensated;
The delayed amount needs to be taken for calculation.
Is compensation subject to personal income tax and social insurance contributions?
Personal income tax
The statutory compensation (i.e. the compensation calculated according to the Russian Labor Code) for delayed wages is not subject to personal income tax (Article 217(3) Russian Tax Code). If the compensation paid by an employer is greater than the statutory compensation, then the difference between the compensation paid by the employer and the statutory compensation will be subject to personal income tax.
In our example, the statutory compensation payable by the employer is RUB 1,240 per month of delay in payment of wages. If this employer’s internal regulations provide for a greater compensation (e.g. RUB 1,540), then personal income tax should be deducted from RUB 300:
- RUB 1,240 + RUB 300 * 87% = RUB 1,501 payable to the employee;
- RUB 1,540 – RUB 1,501 = RUB 39 to be withheld as personal income tax.
Social insurance contributions
The list of payments exempt from social insurance contributions provided in Article 422 of the Russian Tax Code is exhaustive, and payments related to delayed wages are not included in this list. We therefore recommend deducting social insurance contributions from compensation for delayed wages.
What if no compensation is paid for delayed payment of wages?
The following fines are imposed when employers fail to pay compensation for delayed payment of wages or other payments (Article 5.27(6) Russian Code of Administrative Offenses):
- RUB 30,000-RUB 50,000 – for legal entities;
- RUB 10,000-RUB 20,000 – for company officers;
- RUB 1,000-RUB 5,000 – for individual entrepreneurs.
Summary of what employers should remember about payments
- Salaries should be paid in installments twice monthly. Employers are to provide for both payments in their internal regulations bearing in mind that payments for the previous month must be paid no later than 15 days after the end of the worked month.
- Vacation days must be paid at least 3 days before the beginning of the vacation, so it is recommended to set out in internal regulations that employees should submit their vacation application 2 weeks before their vacation so that employers have enough time to pay vacation days.
- Sick leave must be paid within 10 days of submission of sick leave notes by employees.
- If there is a delay in payment of wages for any reason, compensation must be paid for each day of delay. Please see the examples provided in this article for calculation of compensation.
- Employees are entitled to stop working after 15 days of delay in payment of wages.
- Compensations for delayed wages are small and imperceptible only in case of short incidental delays. In case of a long delay in payments, it will be necessary to pay the delayed amounts + compensation + fines + average earnings payable to employees in case of idle time of over 15 days. Employees may also complain about delayed payment to labor authorities, and such complaints will trigger unscheduled inspections. And if it is proved that the employer is at fault, then the employer could be brought to criminal liability.