The fine for SZV-M: how to minimize it?

NEWS, PUBLICATIONS \ 15.06.2020

It is known that accounting and tax reporting are not the only types of documentation that organizations are obliged to compile and submit to public authorities. Companies should also submit statistical and personnel reporting, the composition of which depends on the type of activities performed and other characteristics of the organization.

The complexity of compiling each type of report depends on the purpose of the document and the volume of information that needs to be entered into it. Despite the simplicity of drawing up some reports, it may be difficult to avoid mistakes in them. The reason may even be the usual human factor, but the price of such a mistake is high – it entails the imposition and payment of a fine in a considerable amount.

For example, you may receive a significant fine for mistakes in information about insured parties. However, in practical terms there are cases when the scope of the punishment may be minimized. We will tell you more about such cases in this article.

What is the information about insured parties? 

Information about insured parties (Russian acronym – SZV-M) is a report that all employers (including foreign organizations and their divisions in the Russian Federation) are obliged to compile if they have employees in their staff.

The report includes not only in-house employees who are registered under a labour contract, but also individuals who work under a civil law contract (Russian acronym – GPH). It is not necessary to enter information in the document about individuals who:

– do not have an employment relationship and lease out their property to organizations;

– are only founders (and not simultaneously the General Director), with whom no labour contract or a civil law contract not been concluded;

– are citizens of a foreign state and carry out their work in remote mode outside the Russian Federation.

It is necessary to submit a report in any case even if the company has only a General Director, who is simultaneously the sole founder. At the same time, it does not matter whether the organization performed actual activities and whether payments were made to individuals in the reporting month. 

The report should be submitted monthly to the local branch of the Pension Fund (Russian acronym – PFR) at the place of the insured company’s registration. If the company has a separate subdivision with a separate settlement account that accrues remuneration to employees, then it necessary to submit a report to the PFR department at the location of the division. If payments are made through the parent company, this report is submitted to the PFR at the head office’s place of registration.

The deadline for submitting the report is not later than the 15th day of the month following the reporting month. The form for submitting the report depends on the number of employees working: if there are 25 or more of them, the report is submitted in electronic form. If there is less of them, the information may be submitted on paper.

The essence of the SZV-M is to inform the PFR authorities in a timely manner about the receipt of income from labour activity by individuals. In the future, this information will be used for the reassessment of pensions of employees who have ceased their labour activity owing to retirement.

What is the fine for mistakes in the SZV-M?

The report itself consists of four sections:

1. The insured company’s reference details, specifying its registration number in the PFR, name, taxpayer ID number (Russian acronym – INN) and code of reason for tax registration (Russian acronym – KPP).
2. The reporting period – the month for which it is necessary to submit information about employees.
3. The type of form (outgoing, supplemental, or cancelling) the choice of which depends on changes in the scope of information in the document.
4. Information on insured parties – i.e. employees, specifying their full name, personal insurance policy number (Russian acronym – SNILS) and taxpayer ID number.

The most important and informative section is the last one. This is where you most often run the risk of making a mistake and receiving a fine. Such mistakes may include:

– a lack of information about the insured party (for example, the employer forgot to specify information about individuals working under civil law contracts)

– the presence of entries about irrelevant employees (for example, data about dismissed employees)

– the presence of mistakes (for example, the employee’s taxpayer ID number was entered incorrectly).

You may also receive a fine for the late submission of the report. The amount of punitive sanctions for all these types of violations is the same – 500 rubles for each individual. At first glance, this amount does not seem intimidating. But if you take a large company with a big staff of employees, information about whom will need to be entered in the report, the total amount of the fine may reach an impressive sum.

Let’s say you didn’t submit your report in due time, and the number of individuals working in the company is 400 persons. As a result, the amount of the fine that you will have to pay is 200,000 rubles. If you entered incorrect information for several employees (for example, the number of them is 5), the mistake will cost 2,500 rubles. In other words, the amount of the fine will directly depend on the number of employees you have.

Officers who commit such mistakes will be subjected to administrative liability under article 15.33.2 of the Administrative Code of the Russian Federation and will be fined 300-500 rubles.

If a company with more than 25 employees ignores the obligation to submit information in electronic form, it may also have financial penalties charged in the amount of 1,000 rubles. The amount of such penalties is fixed and does not depend on the number of employees.

However, practice shows that even if there is a slight violation of deadlines and mistakes in the report, the amount of the fine may be disputed or avoided at all. The main thing is to know the circumstances that mitigate the scope of punishment, and to have the necessary evidence for this.

In what cases may the amount of fine be reduced?

If even the slightest mistake is made, the decision of the PFR is always unambiguous – a fine is imposed. This is owing to the lack of powers for government authorities to apply mitigating circumstances and reduce the amount of penalties. But the judicial authorities have this right and may reduce the amount of the fine in the following cases:

1. Independent detection and correction of a mistake. If a company, after submitting a report in a timely manner, independently detects a mistake in it (before the PFR authorities do so), corrects it and sends a supplemental form SZV-M, the PFR does not have the right to impose a fine on the company. This is proved by Rulings No. 306-ES19-23114 and No. 301-KG18-24864 of the Supreme Court of the Russian Federation dated December 20, 2019, dated February 8, 2019 and Resolution No. F03-3898/2019  of the Commercial (‘Arbitration’) Court of the Far Eastern District dated September 5, 2019.

It is important to know! If a company sends a report before the 15th day of the month and receives a mistake notification from the PFR, it may also avoid a fine. To do this, it is necessary to send the corrected form of the document within 5 working days from the date of receipt of the notification. If you miss this deadline, the fine from the PFR will be recognized as lawful (Resolution No. F07-4647/2020 of the Commercial (‘Arbitration’) Court of the North-Western District dated April 23, 2020).

• Slight default on the deadline. The Commercial (‘Arbitration’) Court of the Central District proved that the company had no guilt and there was a lack of gravity in what was done, since submitting the report one day later than the established deadline could not be an offence and did not entail the causing of  damage, so the large amount of the fine did not meet the principles of justice. The amount of the fine was reduced from 478,500 rubles to 500 rubles (Resolution No. F10-1071/2018 dated April 27, 2018).
• Technical problems. The fine may be reduced in cases of technical failures, such as repair operations in the department responsible for drawing up the report, network equipment failure, or an absence of electricity. (Resolutions No. F01-369/2019 and No. F01-2826/2017 of the Commercial (‘Arbitration’) Court of the Volga-Vyatka District dated, respectively, March 28, 2019 and July 17, 2017).
• The accuracy of the information. Despite the fact that the organization specified an incorrect reporting period in the document, the information about employees was accurate. On this basis, the PFR authorities accepted the report (which is confirmed by receiving a notification from them). The mistake was recognized as a technical typo and was corrected by the organization in due time. In this connection, the company managed to avoid a fine (Resolution No. F09-9095/18 of the Ural District dated January 31, 2019).
• The mistake was made for the first time. The Commercial (‘Arbitration’) Court of the East Siberian District in its Resolution No. F02-6776/2017 dated December 22, 2017 reduced the fine for late submission of the SZV-M, since the company initially had no intention of not submitting it in due time. In addition, the judicial authorities noted that this kind of violation had been committed by the company for the first time.
• Severe situation. The courts reduced the company’s fine by 10 times for the presence of a mitigating circumstance in the form of a long period of illness for the employee responsible for sending the report (Resolution No. F05-17103/2018  of the Commercial (‘Arbitration’) Court of the Moscow District dated November 16, 2018).
• The deadline for the recovery of the fine was missed by the PFR authorities. If the company does not comply with the requirement to pay a fine, the PFR authorities have the right to go to court to recover the amount of it. The deadline for an application to the court is 6 months from the date of the delay in compliance with the requirement to pay a fine. If the PFR authorities miss this deadline, it will be impossible to recover the amount of the fine from the organization (Ruling No. A34- 2099/2019 of the Supreme Court of the Russian Federation dated January 13, 2020).

What should companies do to avoid the risk of being fined

Despite the majority of court cases being resolved in favour of companies, it is undesirable to participate in disputes with the PFR authorities and in legal proceedings. Therefore, it is necessary to correctly draw up the SZV-M, following three simple rules:

However, it is important to understand that drawing up the SZV-M correctly depends on human resources documents being filled in and maintained accurately. The presence of mistakes in one document may entail the risk of mistakes in another, which causes new problems and requires more time to correct documents.

An alternative solution is to outsource HR record management. HR record management includes a full range of services: from audits to maintaining cadre personnel or even reconstructing personnel records. Acsour’s specialists will determine the characteristics of maintaining personnel records specifically for your company and organize this process in such a way as to minimize the risk of mistakes in the drawing up of any human resources documentation.