Introduction to Payroll in Russia

Russia is a global player. This designation applies most to the in-country capabilities and skills for which Russia has for so long been known.

Tapping into Russia's vast talent is not an easy task, let alone managing nitty-gritty details of employment and payroll if you are not familiar with Russian ways of doing business and hiring.

Your trouble engaging and paying local Russian talent ends, though, once you approach us at Skuad, an established payroll provider in Russia, to help you:

• Manage payroll, compensation, social security, and compliance needs
• Customize compensation and benefits to attract and retain high-skilled employees
• Keep a tap on all withholdings, deductibles, and statutory obligations under the law in a matters of clicks
• Pay employees on auto-pilot, using a built-in compliant platform in 100+ currencies

Go no further and reach out to us at Skuad to walk you through payroll in Russia and much more.

Payroll Process in Russia

The payroll process is pretty much a universal, standardized process. Russia is not different. Three main phases define the payroll process:

(i) Pre-payroll

(ii) Payroll Calculation

(iii) Post-payroll

These phases can be broken down as follows:  

Pre-payroll Phase

This is a crucial phase for you as an employer not only to hire and pay employees but also to set up your business according to in-country laws and regulations.

To operate as a licensed, legal entity in Russia, you need to address many issues, including but not limited to:

Business Profile

This is where you obtain a business number or code to register your business.

The registration number both identifies your business and is essential for the tax compliance and regulatory requirements to which your business needs to fully adhere.

Work Location

Just as important, your business work location is not only needed to identify your business and enable you as a legal entity to perform different business activities but also for several compliance, regulatory, and communication purposes.

Leave Policy

Leaves for childcare, sickness, emergencies, and so on shouldn't be left to chance.

Instead, as an employer you should develop an official and formalized company-wide leave policy not only to monitor performance and for promotional purposes but also to calculate payroll.

Attendance Policy

Much similar to leaves, attendance is not just about performance and promotion but is part of payroll calculation performed for later compliance purposes.

Incorporating biometric devices is an effective way to record the attendance data needed to calculate payroll.

Statutory Components

One essential part of compliance with in-country laws and regulations is to ensure as an employer you address all required statutory components.

These include, but are not limited to, a wide range of basic employee rights and benefits such as minimum salary or wage, paid holidays, statutory benefits, and much more.

To stay compliant, you must adhere to payroll laws in Russia.

Salary Components

The basic salary components in Russia as elsewhere include but are not limited to minimum compensation, social insurance, deductibles, withholdings, and more.  

Beyond the basic salary components, additional benefits or perks are a bonus for high-skilled workers. These shouldn't necessarily be limited to in-cash benefits but could be creative offerings such as more flexible working hours, free meals, on-premise childcare, and much more.

Pay Schedule

Most jurisdictions, including Russia, specify in relevant labor laws and regulations when employees, permanent or temporary, should be paid.

As a general rule, employees are paid on a monthly, weekly, or hourly basis.

So make sure you set a specific day to pay your employees according to in-country labor and payroll laws and regulations.

Employee Information

This includes basic information required for payroll calculation and compliance purposes such as the employee's name, role, department, subsidiary, nationality, and more.

Payroll Calculation Phase

The payroll calculation phase can either be done manually using books to account for all payroll components — such as compensation, benefits, social insurance, etc. — or using special payroll software or service. Bear in mind costs when using a payroll service in Russia, as they could go well beyond your budget.  

Post-payroll Phase

This step, most important of all, concludes the payroll process. To finalize the payroll process you need to perform basic additional steps including:

Salary Payments

Here you pay employee salaries or wages according to your set payment schedule.

To do so, you can go conventional by having a separate, corporate account into which salaries or wages are deposited. Alternatively, you can use a salary or wage payment service to automatically process all payments. Make sure whatever service or software you use complies with in-country payroll laws and regulations.  

Payroll Accounting

Having paid salaries or wages, you need to account for payroll for later reporting and compliance steps.

This step can be done manually using books or by outsourcing payroll accounting to service. In either case, make sure whatever service or software you use complies with payroll taxes in Russia.

Payroll Reporting and Compliance

This step closes out the payroll process.  

In payroll reporting and compliance phase, you must complete and return all required tax forms by mandated deadlines, make all necessary and required deductions, withhold mandatory social insurance and health benefits, and more.

Payroll reporting and compliance is a mix of science and art a few companies can manage to do independently.  

The necessary understanding of Russian labor, tax and payroll and laws and regulations is not readily accessible to a good many companies.

That is why a short call to Skuad is all you need to do payroll management in Russia with peace of mind.

Payroll Processing in Russia

Payroll processing in Russia — just as in many jurisdictions — needs an in-depth understanding of in-country payroll laws and regulations informing the payroll process from pre- to post-payroll phase.

To get such knowledge as an international employer you will need to hire a expert legal team (with all that means of prohibitive expenses and additional payroll headaches).

Or, you can simply reach out to a payroll processing service, such as Skuad, to set you free from all payroll challenges you are likely to face as an international employer in Russia.  

Payroll Processing Company in Russia

As an established payroll processing company in Russia, Skuad is your ultimate go-to service of record to walk you through your payroll needs.

Just reach out to us and we'll handle all your payroll challenges.

Payroll Management in Russia

At a very basic level, payroll management is about keeping financial records of all payroll components including but not limited to employee compensation, benefits, bonuses, deductibles, and more.  

Also, part of the payroll management process is generating payslips, manually or electronically, to employees according to in-country tax and compliance laws and regulations.

In Russia, though, recent developments have further complicated payroll management and accounting in areas including but not limited to:

• SWIFT payments, as several Russian banks were banned from the SWIFT financial-messaging system after the Russian invasion of Ukraine
• Potential loss of control over legal in-country entities
• Significant volatility of exchange rates for the Russian ruble against international currencies
• Potential closure of business due to considerable losses

It behooves you as an international employer to monitor the impact of these developments upon your payroll management in Russia.

Payroll Compliance in Russia

In Russia as elsewhere, payroll compliance with statutory taxes and obligations is mandatory.

Typically, statutory compliance in Russia, includes such basic requirements of social security insurance, benefits and bonuses, withholdings, and more.

In addition to a long list of penalties, companies failing to comply with Russian tax laws and regulations are more likely to lose reputation among regulators as well as prospective and existing employees.

Here is a non-exhaustive list of tax penalties you should expect as an employer if you fail to comply:

• Penalty interest on unpaid taxes
• Pledge of assets as collateral for unpaid taxes and dues
• Freezing of bank accounts
• Seizure of assets

Payroll Components in Russia

Russia's comprehensive Labor Law 197-FZ of 2001 provides for a wide range of labor relations and rights that employers are obliged by and to which employees are entitled.

For current purposes, here is what matters most as statutory rights employees are entitled to and for you as an international employer planning payroll in Russia:

Compensation

• Set at a minimum of RUB (Russian ruble) 12,792 per month as of January 1st, 2021

Working Hours

Regulated under law  by age and profession per week as follows:

• 24 hours — for employees under 16 years old
• 35 hours — for employees between 16 and 18 years old as well as for disabled employees
• 36 hours — for employees working under hazardous conditions as well as for teachers
• 39 hours — for medical personnel

Overtime Laws

Under Russian labor laws, overtime work is regulated as follows:

• Should not exceed a cap of 40 working hours overall per week
• Set at a maximum of five hours for employees between 15 and 16 years old
• Set at a maximum of seven hours for employees between 16 and 18 years old
• Set at one hour less than day shifts for night shifts (between 10 pm and 6 am)

Social Security

Social security contributions as a percentage of base salary in Russia are specified as follows:

• 22% — Pension Fund of the Russian Federation
• 2.9% — Social Insurance Fund of the Russian Federation
• 5.1% — Federal Compulsory Medical Insurance Fund

Sick Leave

• Granted to a sick employee or for a sick child or relative
• Paid at varying percentages of base salary,  depending on the length of service and profession, from the Social Insurance Fund of the Russian Federation as follows:
  1. 60%-100% of base salary
  2. RUB 2,434.25 per day as a maximum amount for the sick allowance

Parental Leave

As per Article 255 of the Labor Law of 2001, pregnant women and working mothers are entitled to paid leaves as follows:

Pregnant Women

• Reduced working hours or transfer to less hazardous jobs
• 70 calendar days of paid leave before childbirth and 70 calendar days after childbirth
• An overall 110 calendar days of paid leave in case of multiple childbirths

Working Mothers

• Entitlement to paid leave until a child reaches three years old

Working fathers or grandfathers are entitled to a similar paid leaves under Article 256 of Labor Law of 2001

Public Holidays

According to the Bank of Russia (Russia's Central Bank), public holidays in 2022 are:

January 1-8 — New Year Holidays

January 7— Christmas Day

February 23— Defender of the Fatherland Day

March 8 — International Women’s Day

May 1— Spring and Labor Holiday

May 2 — Holiday

May 9— Victory Day

June 12 — Day of Russia

June 13 — Holiday

November 4— National Unity Day.

Payroll Taxes

Calculated as a percentage of annual salary for residents and non-residents as follows:

Residents

• 13% — in case annual income caps at  RUB 5,000,000
• 15% of [overall annual income - RUB 5,000,000] + RUB 650,000 — in case annual salary exceeds RUB 5,000,000

Non-residents

• 30%

Other Laws

In addition to Labor Law 197-FZ of 2001, several laws and regulations providing for labor relations in Russia include but are not limited to:

• The Employment of Population Act of 1991 (amended August 2007)
• The Collective Agreements and Accords Act of 1992 (amended May 1999)
• The Settlement of Collective Labor Disputes Act of 1995 (amended November 2001)
• The Trade Union Act of 1996
• The Fundamentals of Health and Safety Act of 1999
• The Compulsory Social Insurance Against Occupational Accidents and Diseases Act of 1998 (amended October 2001)
• The Minimum Wages Act of 2000

In addition to all statutory benefits employees are entitled to in Russia, a new set of regulations provide for additional benefits.

For example, as of January 1, 2021, in-country employees are entitled to work permanently or briefly, a major boon to high-skilled workers for whom flexibility is a significant perk.

Conclusion

The Russian Federation has a long history of labor laws and regulations dating back to the Soviet era and, as such, represents a challenge to international employers wishing to engage high-skilled Russian employees.

As an international employer, you should have a grounded understanding of a complex web of labor laws and regulations in Russia.

To pay your Russian or foreign in-country employees, you've got a few options:

• Managing payroll on your own, and risk pitting against Russia's labor law arsenal
• Instating in-house legal experts, and adding legal counsel expenses with which you may never be able to keep up
• Outsourcing part of your payroll needs (to save expenses), and risking missing important tax and compliance pieces

Or, simply contact us at Skuad and you've got nothing to worry about, legally or financially.

RUB exchange rate against USD is 0.017 as of May 25, 2022.