Employers Now Face Greater Liability for Violations of Legislation on Employee Compensation

Employee Compensation

David Denisenko and Alexei Dingin

January 4, 2017 12:00 AM

On July 3, 2016, Russian President Vladimir Putin signed into federal law No. 272-FZ: “On amending specific Russian Federation legislative acts on increasing employers’ liability for violations of legislation on employee compensation” (the law), which imposes greater liability on employers if they violate laws governing payroll issues.

Liability for Violations of Salary Payment Regulations

The law now classifies violations of payroll regulations as a separate type of administrative offense. Before the enactment of this piece of legislation, such violations were governed by general provisions (Part 1, Article 5.27, of the Code of Administrative Offences), whereas from now on they will be treated as a separate type of offense. However, the only change is the increased administrative penalty imposed on corporate officers. Furthermore, the law raises penalties for violations of payroll payment rules to be imposed on entities that were previously charged with administrative offenses for similar violations.

Changes Concerning Deadlines for Payroll Payments

The law also amends Part 6, Article 136, of the Employment Code, stipulating in particular that payroll payments be made within 15 calendar days from the end of the period for which they were accrued. According to the Employment Code bonuses are included in the legal definition of salary, therefore, compliance with this new rule will be problematic for employers as bonuses are usually paid later than 15 days following the period for which bonuses are accrued (for example, in case of an annual bonus). The authorities decided to introduce amendments to this new rule and exclude bonuses from the 15 days rule after numerous requests for clarification from businesses. As a result, this uncertainty will be eliminated after passing this amendment as a new piece of legislation, however, the exact date is not defined yet.

Changes Concerning Employers' Material Liability for Delays in Salary and Other Payments due to Employees

The law revises Article 236 of the Employment Code—in particular, if an employer fails to make payroll payments by a set deadline, it would be obligated to pay such amounts with interest (cash compensation) at a rate of at least 1:150 of the key rate of the Central Bank of Russia (CBR), then in effect (the previous version called for interest of 1:300 of the CBR refinancing rate) charged on the relevant salary or payroll arrears for each day of delay, starting from the first day after the payment due day and continuing through the actual payment date, inclusively.

Changes Concerning Unscheduled Inspections of Employers for Violations of Payroll Regulations

The law amends Article 360 of the Employment Code. From now on, unscheduled state labor inspections may be conducted based on information received by the federal labor inspectorate, including information on circumstances that lead to non-payment, incomplete payment of salary, other amounts due to employees on time, or setting salary amounts below the minimum level stipulated by labor law.

Changes Concerning the Statute of Limitations for Labor Disputes Concerning Payroll Payments

The law changes the period within which an employee can file a lawsuit in court for settlement of an individual labor dispute. In particular, a separate statute of limitations has now been set for disputes concerning non-payment or incomplete payment of payroll payments. Specifically, an employee can now file suit in court within one year from the original payment due date of the relevant outstanding amount, including cases of non-payment, incomplete payment of salary, or other payroll amounts due to an employee upon his or her termination.

Changes in the Venue Rules for Lawsuits Concerning the Restoration of Employee Rights

Together with the relevant changes in the Code of Administrative Offences and Employment Code, the law also introduces changes in regards to the rules on venue for lawsuits concerning the restoration of an employee’s rights. From now on, employees can file such claims at their place of residence, which could create difficulties in obtaining and reviewing case materials and lead to additional litigation-related expenses.

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