Real and Imagined Revolution: Sounding Changes of the Labor Legislation in 2014

Although in the past year the most notable and discussed reforms were the reforms of tax legislation, another noteworthy trend should be noted as well. Lawmakers have begun to actively reform one of the most, perhaps, static branches of the Russian law – the labor legislation. Let’s recall in this article the most significant changes ​​in this area, some of which are already in force, and some will take effect in the years to come.

General amendments to the labor legislation

Cancellation of “salary slavery”: the main fiction of the year

The prize for the main fiction of 2014, if such a nomination had been established, would have been given to the law that, in the light of the sounding statements of journalists, cancelled the “salary slavery” depressing most Russian employees, when the employer, concluding with a bank chosen at his/her own discretion, an agreement for service of the so-called “salary project”, forces the employee to receive the salary through the personal account opened with this bank. To protect employees from the arbitrariness of employers an amendment was made to article 136 of the Labor Code of the Russian Federation, which, as previously thought, was unequivocal and needed no adjustments.

The lawmaker proposed to employees to feel the difference between the two formulations:

What has changed? For the employee’s salary to be transferred to a bank account he/she still have to submit the application. Unlike the earlier rule in force, now this application shall not contain all the details of the account, but only the name of the credit organization (it is still not quite clear how the employer will be able to transfer the salary having only such a limited data, but we’ll omit this question as irrelevant). In addition, the employee is now entitled to replace such credit organization by submitting a new application to the employer. The deadline for submission of the application, subject to which the employee will be able to get the next payment to the new details, can be really considered an innovation of the labor law. Such deadline makes up 5 working days1. Let’s try to understand the profound differences between the old and the new edition. The old edition required that if the conditions of the employment contract with the employee or the collective contract had provided for the possibility to transfer the salary to a bank account, the details of such account should have been communicated by the employee independently by drawing up a separate application. It’s not a too convenient option, but as we see, it does not suppose the right of the employer to choose on its own the credit organization through which the employees will receive their salary. Even if the “salary project” existed, it would not change the employee’s right to require the transfer of his/her salary to other details, including to another credit organization.

Prohibition of agency labor

Rumours about this change went a long time. Agency labor, often referred to as outstaffing, i.e. provision of staff, was not anyway conferred on by control and supervisory authorities, and when checking immigration or sanitary and epidemiological legislation they made clients of such services responsible for the activity of outstaffing companies. Although higher courts periodically take the side of clients2, the so-called “staff leasing” remains a risk zone for Russian entrepreneurs.

Since 2016 in most cases outstaffing will be outlawed. On 5 May 2014 the President of Russia Vladimir Putin signed the law prohibiting from 1 January 2016 the agency labor, except for agencies specially accredited to staff legal entities, affiliated entities with actual employers.

The concept of agency labor introduced in the labor legislation means the work, carried out by employees on the orders of the employer on behalf, under the direction and control of the individual or legal entity other than the employer of that employee3. Thus, the prohibition covers the services that have in total several features:

  1. Persons who act as legal and actual employers do not match each other.
  2. The employee in the course of the labor activity obey the orders of the actual employer, the legal employer is excluded from the process of the operational interaction of the employee and the actual employer.
  3. The actual employer controls the work of the employee, and as a derivative feature, the employee in his/her labor activity is guided by the internal labor regulations of the actual, rather than the legal employer.
  4. The employee performs his/her labor functions at the actual employer at the direction of the legal employer, rather than on his/her own initiative.

In the case of the above features, the activity of the legal employer shall comply with statutory requirements and restrictions. Such restrictions laid down by the legislation on employment of population, can be divided into restrictions on relations with employees, and additional requirements to the employer4.

So, entrepreneurs using outstaffing services, have a year to decide whether they will continue to use this tool, and, accordingly, to select an organization that will meet the new requirements, or, on the contrary, during the same year will ensure that the services acquired from third parties, do not meet the features of  “staff leasing”.

Changes in the legal status of foreign employees in Russia

The Labor Code is supplemented by a chapter regulating the particularities of labor relations with foreign citizens and stateless persons

On 1 December 2014 the Russian President Vladimir Putin signed a law requiring foreign citizens and stateless persons employed in Russia to independently acquire or obtain from the employer guarantees of primary health and urgent specialized medical care5.

The law also included in the list of documents that must be submitted by a foreign citizen for employment in a Russian organization, besides the primary identification documents, visas, temporary residence permit or residence permit, as well as a work permit or a patent, insurance for provision to the employer of primary health care and emergency specialized care in Russia. If the employee does not have such insurance, the employer is entitled to conclude in his/her favor a contract for provision of paid medical services, but anyway the foreign employee or the employee who does not have citizenship, upon employment must have guarantees of the minimally necessary set of health care services6. In this case, the termination of health insurance is one of the grounds for termination of the employment contract with the employee7.

Other additional grounds for termination of employment contract with a foreign employee are as follows:

  1. Suspension, expiration or cancellation of the permit to hire and use foreign employees issued to the employer.
  2. Expiration or cancellation of the document justifying the right of residence (temporary stay) and (or) the employment of employees in the Russian Federation, issued to the employee.
  3. Bringing the number of employees who are foreign citizens and stateless persons in accordance with the legal regulations.
  4. Impossibility of provision to the employee of previous job at the end of the temporary transfer of the employee to another job due to exceptional cases endangering the life or normal living conditions of all or a part of the population, or downtime.
  5. Impossibility to temporarily transfer the employee to another job due to the fact that during the calendar year such transfer has already been made8.

The last two grounds for termination of the employment contract with foreign employees are connected to another important rule introduced in the Labour Code regulating the right of the employer to transfer the foreign employee to another job for a period not exceeding one calendar month and at most once a year in case of emergency situations that threaten the life or normal living conditions of the population. In such cases, the employer is entitled to hire the employee for the work, not specified in his/her work permit or patent9.

The sense of the rules introduced in the labor legislation in respect of foreign employees is that, on the one hand, the official employment of such persons is complicated by the need for provision by the employee of health insurance; on the other hand, the difficulties faced at the employment stage are compensated by the simplified procedure of dismissal.

It appears that although the lawmaker attempts to solve urgent problems of migration with labor law means that, of course, is worthy of all praise, now they are extremely careful and awkward. Despite this, if the trend continues, perhaps the official employment of unskilled foreign labor force will compete with illegal methods.

On 1 January 2015 accreditation of foreign employees of branches and representative offices of foreign companies in Russia is introduced.

Accreditation of branches and representative offices of foreign organizations, opened in the Russian Federation, become a familiar procedure. Prior to the state registration of such separate divisions with the tax authority, documents for accreditation are submitted to the State Registration Chamber of the Ministry of Justice of Russia, and as for the representative offices of credit organizations – to the Bank of Russia.

On 1 January 2015 personal accreditation of employees of branches and representative offices of foreign legal entities is introduced10. The accreditation authorities are the same authorities that are responsible for the accreditation of the relevant branches and representative offices as well: the State Registration Chamber of the Ministry of Justice of Russia for branches and representative offices of any companies other than credit organizations, and the Bank of Russia for credit organizations.

The State Registration Chamber posted on its official website only information about accreditation of employees of representative offices and their family members; such information on employees of the branches is likely to appear in the near future. Thus, the Chamber communicated that the term of personal accreditation of employees and their families will be limited to the term of the business permit of the representative office issued by the Chamber. The extension of the personal accreditation will be made in case of extension of accreditation of the representative office.

As confirmation of accreditation foreign employees and their family members are issued accreditation cards.

  1. Article  136 of the Labor Code of the Russian Federation as amended by the Federal Law No. 333-FZ from 04.11.2014.
  2. For example, in the Resolution No. 18-AD13-36 from 24.12.2013  the Supreme Court of the Russian Federation acknowledged that the client that shown due diligence in conclusion of the outstaffing contract, shall not be held administratively liable for violation of immigration laws by the employees of the contractor.
  3. Article  56.1 of the Labor Code of the Russian Federation as amended by the Federal Law No. 116-FZ from 05.05.2014.
  4. The relevant requirements are provided for by article 18.1 of the Law of the Russian Federation No. 1032-1 from 19.04.1991  “On employment in the Russian Federation” as amended by the Federal Law No. 116-FZ from 05.05.2014.
  5. Point 10 of article 13 of the Federal Law No. 115-FZ from 25.07.2002 “On the legal status of foreign citizens in the Russian Federation” as amended by the Federal Law No. 409-FZ from 01.12.2014.
  6. Article  327.3 of the Labor Code of the Russian Federation, as amended by the Federal Law No. 409-FZ from 01.12.2014.
  7. Point 8 of part 1 of article 327.6 of the Labor Code of the Russian Federation, as amended by the Federal Law No. 409-FZ from 01.12.2014.
  8. Article  327.6 of the Labor Code of the Russian Federation, as amended by the Federal Law No. 409-FZ from 01.12.2014.
  9. Article  327.4 of the Labor Code of the Russian Federation, as amended by the Federal Law No. 409-FZ from 01.12.2014.
  10. Article 15.1 of the Law of the Russian Federation No. 5340-1 from 07.07.1993 “On chambers of commerce and industry in the Russian Federation”, as amended by the Federal Law No. 106-FZ from 05.05.2014.
Olga Kuramshina

Ex-Leading Lawyer

Tax and Legal Practice

Korpus Prava (Russia)

Other Articles on Topics
See Also Articles from the Issue
New Approach to the Determination of Tax Residency of Legal Entities: Now We’ll Begin to Live Like in Europe

So far, in the Russian law tax residency of a legal entity was determined either by the place of its state registration (incorporation), or by availability of permanent establishment of the entity.

January 16, 2015

Deoffshorization or Come back! I’ll forgive everything

In December 2013 in the address to the Federal Assembly the president Vladimir Putin stated that Russia needs a system of measures for “deoffshorization” of the Russian economy. According to him, some estimates evidence that 9 out of 10 transactions, including transactions with state-owned companies, are not subject to the Russian laws.

January 16, 2015

Overview of Legislative Changes of Foreign Jurisdictions

We will speak about Cyprus, which adopted FATCA, the requirements for filing financial statements of Cypriot companies tightened, the rules of the regulator changed. In addition, we will mention the changes of the legislation of the British Virgin Islands.

January 16, 2015

VAT 2015. Big Data Collection System. Change of the Procedure of Control of Deductions and Consequences for Taxpayers

From 1 January 2015, submitting VAT returns, we’ll begin to upload there purchase ledgers and sales ledgers, the ledger of invoices issued and received for intermediaries. All information will be stored in “Big Data” system of the FTS of Russia.

January 16, 2015

Last Bow of the RF SAC

Starting to speak about the Resolutions of the Plenum of the RF Supreme Arbitration Court, they should be treated with a special respect, as these are the last Resolutions of the RF SAC. That is not the last in time, but the last in general. From 7 August 2014 the RF SAC ceased to exist.

January 16, 2015

What the Past Year Left: Tax Legislation Amendments

When there are disasters around such as law on controlled foreign companies, it is difficult to get distracted and to pay attention to anything else relating to taxes. However, the Tax Code sheds its editions like leaves and, whether we like it or not, we shall follow this process in order to not be trapped.

January 16, 2015

Amendments to the Russian Law on Individuals

The past year brought to the citizens of the Russian Federation, who have the legal right of permanent residence outside the Russian Federation, the obligation to notify the authorities of the federal migration service of the existence of this right.

January 16, 2015

Intellectual Life News

The civil law in Russia gradually evolves under the general roar of probably historically significant events. This also concerns the intellectual property rights: in March 2014 a package of amendments to part 4 of the RF Civil Code was adopted.

January 16, 2015

Corporate Law Reform

The past year 2014 is best remembered for its succession of important and significant changes that affected the foundations of the Russian civil law. The adopted innovations did not come by the part of the civil law, which regulates corporate relations as well.

January 16, 2015

Q&A: Specific Issues Related to the Implementation of CFC

The CFC law is not our invention. It’s a trend. And we now move with the time. However, when reading the law one thing is clear: in a first approximation our bill is a usual CFC law. If you look under a magnifying glass, the question: what were the goals of the legislator while adopting the law arises.

January 16, 2015

International Mutual Assistance in Tax Matters: A Helping Hand or a Noose Around Neck

In the wake of the financial crisis plaguing the world economy, countries came to the conclusion that new sources of income shall be opened as soon as possible, thus they focused their efforts on taxation, in particular on fighting against use of schemes of tax evasion.

January 16, 2015

Subsribe to the Journal

Your subscription to our journal will definitely boost the efficiency of your specialists and downsize your expenses for consultants.