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Wage indexation may depend on a company’s financial performance

Wage indexation may depend on a company’s financial performance

LEGAL DIGEST \ 10.05.2018

In view of the recent practice of audits by the State Labor Inspectorate and clarifications of the Ministry of Labor and Social Security of the Russian Federation, companies need to pay close attention to the setting, in their internal regulations, of a procedure for wage indexation.

The Russian Constitutional Court has emphasized more than once that wage indexation should be carried out for all persons who work under an employment contract. The Court’s argument was that indexation is a state guarantee for employees to receive payment for their work. The main purpose of the guarantee is to ensure that the level of the actual content of the salary grows. Statutory provisions entitling commercial companies to individually set an indexation procedure ensure that it is possible for such companies to take account in their entirety of the circumstances which are relevant for them and their employees.

Recent case law and clarifications of the Ministry of Labor which were obtained further to Acsour’s request enable an employer to peg the indexation procedure to the achievement of certain financial figures.

Thus, Mariinsky Municipal Court resolved an indexation dispute in favor of the employer. In that particular case, a company’s collective bargaining agreement established that, in order to ensure that the level of the actual content of salaries increases, the employer is to annually adjust the base pay (wages) of its employees in accordance with the official inflation rate and taking account of the financial and economic status of the enterprise.

Yet, the company adopted an order to gradually reduce its production program owing to a decline in its sales volumes and, at the same time, to the increased cost of financial and material resources because of the economic crisis. On this ground, the company refused an employee reimbursement of outstanding wage indexation together with interest. The court found this to be lawful.

Similar judgments have also been adopted in St Petersburg.

If a company does not have a regulation defining the procedure for wage indexation, a fine may be imposed:

– on an officer of a company – from RUB 1,000 to from RUB 5,000;

– on a legal entity – from RUB 30,000 to RUB 50,000.

To develop an internal regulation setting a procedure for wage indexation, please contact Acsour.