One of the most pressing issues for employers, bookkeepers and employees is what is wage indexation and how to produce it in budget and commercial companies. Also, everyone needs to remember that these actions can be carried out in various ways and methods. In addition, it is important not to forget about sanctions applied to organizations that do not index.
What is salary indexation?
It is the responsibility of each employer to conduct indexation in accordance with the requirements of Article 134 of the Russian Labor Code. The said norm says that in commercial and budgetary organizations, an increase in the level of labor income is mandatory due to higher prices for various goods and services for citizens.
According to the letter No. 1073-6-1 issued by Rostrud on April 19, 2010, despite the absence in the norms of the Labor Code of instructions on the indexation procedure and the deadlines, it must be implemented in every company. In addition, it should be enshrined in the regulatory local acts of the company or the provisions on wage indexation.
Legal framework for indexing
After considering what wage indexation is, the regulatory framework governing the issue should be examined. In the field of labor relations, the legislation of the Russian Federation protects the rights of workers in practice using various methods.
One of the options for implementing this principle is the indexation of employees' wages. The absence of this mechanism in the organization contributes to the deterioration of the standard of living of employees due to the discrepancy between the level of earnings and the prices for various services and goods for citizens.
The topic is for the most part disclosed in the Russian Labor Code.
The rules governing the issue include the following:
- Article 22, which lists the basic requirements for an employer in relation to employees. Despite the absence of a direct instruction to increase real wages, this norm refers to the responsibility of the employer for non-compliance with the provisions of labor law.
- Article 46 governing the structure of various collective agreements and agreements between employers and workers. One of the features of this norm is an indication of the mandatory inclusion in the established acts of information on methods and measures to ensure a real increase in the level of employees' labor income.
- Article 130 discloses standards affecting the implementation of statutory guarantees of a social nature with respect to employees who are involved in the performance of their labor duties. Also, this norm establishes specific types and types of guarantees in the field of remuneration for labor, including indexation.
- Article 134 establishes the direct obligation of the employer to index this year and for previous periods of time, securing the right to issue relevant acts in respect of public sector and public sector employees for certain entities.
Features of indexing for various companies
There are no indications in the Labor Code of the direct obligation of the employer to carry out indexation of wages in the extrabudgetary sphere. At the same time, there are explanations of some government bodies and court decisions (for example, explanations of the Russian Constitutional Court).
According to the above explanations, the employer, regardless of the form of ownership and the organizational and legal structure of his organization, must increase the level of employees' labor income depending on rising prices for various services and goods for citizens. An exception to this issue is the presence of various laws of the federal level or other legal acts affecting the work of specialists in the public sector.
It is important to remember that the indexation of wages in the organization can be carried out by different methods based on some indicators. Regardless of the options used, the procedure for increasing income should be carried out without fail.
Direct increase in the marginal level of labor income is not associated with the minimum wage. At the same time, labor legislation gives employers the right to use this indicator in calculating wage indexation.
It is necessary to remember the following: no matter what indicator is used by the employer, the wages of employees should not be lower than the minimum wage in the corresponding region in the specified year. If the minimum wage is increased, the minimum wage should increase proportionally.
Labor income indexation in 2018 for budgetary and state organizations and institutions
The issues of wage indexation to state employees are mainly regulated by the provisions of individual departmental-type documents. Due to the effects of the economic crisis, Federal Law No. 68 was passed on April 6, 2015, according to which the labor income of civil servants was not indexed until 2018.
This year this moratorium has been lifted. The salary indexation coefficient for the civil service sector this year was four percent. Since a new minimum wage has been operating in the Russian Federation since May 2018, and before that the minimum indicator was increased less than six months ago, for specialists in the budget sphere, a four percent indicator can be increased.
The indexation of labor income this year affects more than two million specialists in the public sector and public service. According to the latest news on wage indexation, the abolition of the moratorium positively affected a huge number of employees in these areas. This was especially reflected in the financial situation of those who did not fall under the previous increase in labor income.
Salary indexation in commercial organizations in 2018
The largest number of questions arises for those employers and employees who work in the extrabudgetary economic sphere. Based on the fact that the 134th article of the Russian Labor Code determines that the procedure for indexing and increasing the amount of labor income should be fixed in the regulatory local acts of the company or the relevant provisions, employers consider the increase in the amount of labor income not a duty, but a right.
Clarifications about the need to implement the procedure for indexing wages and calculating its size are contained in the following regulations:
- Decision No. 26188-O, issued by the Constitutional Court on November 19, 2015.
- Letter No. 1073-6-1 published by Rostrud on April 19, 2010.
- Letter No. 14-3 / B-1135 published by Rostrud on December 26, 2017.
Separate instructions are also contained in other informative and explanatory acts, which confirms the inalienable right to index the salary of employees.
Indexing Employer Rights
An employer in the field of indexing employee income is endowed not only with duties, but also with rights. First of all, this consists in the ability to independently determine which items will be contained in the regulation on wage indexation, which should be developed in each organization.
In addition, the employer himself determines the frequency of increasing payments to employees, as well as methods and techniques for calculating the amount of expenses spent from the company's budget. If the head of the company does not index the salaries of employees, he is threatened with prosecution.
Despite the responsibilities of various organizations to develop indexation provisions, legislation contains an exception to this rule. For example, microenterprises have the right not to issue established acts, but to introduce clauses on increasing the amount of labor income in labor agreements with employees.
Due to the fact that the income of workers includes many elements, the employer has the right to independently determine in relation to which income element to carry out wage indexation. In commercial organizations and public sector institutions, the main requirement is a general increase in employee income, regardless of which component of the salary has been increased.
Legislation also gives employers the right to index incentive payments. That is, the salary and tariff rate for the calendar year remained unchanged, but the level of wages increased due to bonuses and other incentive payments.
Rules for calculating the indexation of salaries of extra-budgetary employees in 2018
Since the employer himself establishes the procedure for indexing employees' labor income, he also has the right to choose the forms for fixing this duty in various regulatory acts (regulation, local regulatory act, collective agreement or labor agreement).
Also in the Russian Federation, wage indexation is carried out according to periods established by the employer. There are four options for choosing the period in which an increase in employee income occurs.
- Annually. According to legal regulations, this is the maximum period that can be used in an organization for not conducting the indexation procedure in commercial type companies. Most often, employers initiate indexation of employee labor income in December this year.
- Semiannually. This period allows the employer to make the growth of the organization’s expenses more smooth, increase the level of motivation among employees and ensure a stable and uniform increase in the well-being of employees.
- Quarterly. This method is the most common option among the leaders of Russian companies.
- Monthly. This period is the minimum for the indexation procedure. This is due to the fact that it is the monthly indicators of price consumer growth that are published by institutions of the official type. Frequent indexing increases the procedural burden on the organization and its employees.
Indexing mechanisms
The mechanisms for indexing vary according to the following indicators:
- The size of the minimum wage (minimum wage). The legislation of the Russian Federation gives employers the right to “tie” the indexation of labor income of employees to a change in the subsistence minimum or minimum wage. This is due to the fact that since May of this year, these indicators are identical. If this indicator is used, indexation is carried out in direct proportion to the change in the size of the minimum wage. Changes in the amount of salary can be made simultaneously with an increase in the established indicator or in another order. At the same time, the maximum period for making changes is no more than one year, and the total size of the indexation should not be lower than the index for increasing prices for consumer goods and services.
- Inflation rate. Employers are also given the right to orient themselves when indexing labor incomes of employees to the price growth indicators projected for the coming year. Despite the possibility of using this indicator, the employer must ensure that the level of indexation is not lower than the coefficient of increase in prices for consumer goods and services.
- Consumer Price Index. The last indexation of wages was to be carried out by at least four percent due to the fact that this corresponds to the index of increase in prices for goods and services for citizens. Even when using another indicator to calculate the size of the increase in employees' labor income, a price index is considered key to determining whether an employer complies with labor laws or violates them.
The procedure for indexing in organizations
Carrying out measures to index wages in a commercial or budgetary organization requires the head of the company to strictly observe a certain procedure. Also, the employer must take into account the mandatory nature of certain procedural procedures and the availability of important documents (internal).
This year, actions to index the employee's labor income in the company are carried out as follows:
- The employer develops normative local acts in accordance with which the procedure for indexing employees' labor income in a particular year or on an ongoing basis will be carried out. The most common form of local acts is a provision in which all actions in the framework of indexation are detailed.
- Conclusion of an additional agreement on changes in the size of the employee's salary. This clause is due to the fact that the employee's labor income refers to information of a mandatory nature, which is recorded in the labor contract of each employee. Therefore, any changes regarding wages should also be documented by both parties.
- Issuing an order to increase the size of the employees' labor income. Based on the fact of an increase in salary, it is necessary to draw up a document in which the subjects of the increase and its size will be reflected. It is allowed to publish a general order for all employees, as well as individual papers for each of them.
- Making appropriate changes to the staffing table, which is valid in the organization. Changes are made only to paragraphs relating to the size of the employee's income.
- Introducing appropriate changes to regulatory local acts previously in force in the organization that govern the amount of labor income or the rules for indexing it.
Responsibility for violation of indexing rules
If the head of the organization does not carry out indexation of wages (sample below), for such actions he may be held administratively liable. Sanction measures for relevant violations are provided for in Article 5.27 of the Russian Code of Administrative Offenses.
The article says that for violation of labor laws, the employer can be fined up to five thousand rubles (directly to the head or to the employee responsible for setting the rules and the procedure for calculating and issuing salaries) or in the amount of thirty to fifty thousand rubles (to an organization that has the status of a legal entity).
If the employer actually ensured the procedure for indexing employees' labor income in the absence of local regulatory acts that governs the procedure for its implementation, a milder sanction measure will be applied to it. In this case, the labor inspectorate has the right to issue an order for the compilation of the specified local document.
In addition to administrative, the employer may be held liable if the indexation of labor income has not been carried out, and the employee went to court. In this case, a decision may be made on the recovery in favor of the employee of the lost part of the income, as well as additional compensation payments. The second part of the penalty is voluntary and, according to the case law, is used quite rarely.
Also, in matters of indexation, there is a prosecution of the employer for tax evasion due to the failure of the indexation procedure. This is due to the fact that with an increase in the employee’s labor income, tax deductions from his salary also increase. Accordingly, the refusal to raise salaries entails the illegal reduction of the tax base.
It is important for employers and their employees to clearly understand what wage indexation is, how often it should be carried out and how much. Knowing and implementing the relevant standards will help the employer avoid responsibility, and the employee receive the proper salary.