What is indexation

Salary indexing is the increase in employee wages in accordance with the rise in prices. Indexing the salary level is an obligation, not a right, of the company. This is stated in Article 130 of the Labor Code. The Supreme Court also indicates this in the definition of 08.04.2019 No. 89-KG18-14.

Legislation requires employers to index wages but does not specify how commercial companies should do it. Commercial companies can decide for themselves how to increase wages, taking into account their specific circumstances and financial capacity.

Instead of indexing, companies can periodically raise base salaries, provide monthly bonuses, and so on (paragraph 10 of the Review of the Presidium of the Supreme Court dated 15.11.2017, response from Rostruud). However, in the local regulation (e.g., Remuneration Regulation, Indexation Regulation), the employer should stipulate that increasing base salaries and paying bonuses is equivalent to indexing (Decision of the Supreme Court dated 08.04.2019 No. 89-KG18-14, Decision of the Moscow City Court dated 25.03.2019 No. 4г/8-3376).

Note: Increasing one-time bonuses dependent on work results does not qualify as indexing since such payments are not guaranteed and are irregular.

However, even if the employer has not established the procedure for indexing, they are still obligated to carry it out (Decision of the Supreme Court dated 08.04.2019 No. 89-KG18-14).

The remaining nuances, such as the frequency of indexing, the method of calculating its amount, and the list of payments subject to indexing, are not specified in the Russian Labor Code. The employer must outline all of these details in their local normative acts.

It is necessary to index the salary of all employees under employment contracts, regardless of income level, position, working conditions, etc., including the General Director and employees on probationary periods.

Indexing the salaries of only certain employees, rather than all, would be considered discrimination. Violations by the employer can be reported to the State Labor Inspectorate, prosecutor’s office, or court (Article 352, Article 353 of the Labor Code, Article 10 of the Federal Law dated 17.01.1992 No. 2202-1). In such cases, the amount of indexing should be the same for all employees.

The employer determines the timing and frequency of indexing in 2023 independently. According to recent clarifications from Rostrud, the absence of indexing throughout the calendar year is considered a violation of labor legislation, although until recently Rostrud allowed indexing to be conducted less frequently, such as once every three or five years.

Which payments are subject to indexation?

This is determined directly by the employer. It is possible to index all payments due to the employee or only increase certain parts of the remuneration. Typically, the base salary is increased. It is permissible to index not the entire base salary, but only a portion of it. This can be an arbitrary amount or, for example, equal to the federal or regional minimum wage. Rostrud considers this to be legitimate. Additional payments and allowances tied to the base salary do not need to be indexed since they will increase automatically.

Indexation amount

The legislation also does not regulate the specific size of the increase. The main rule is that the percentage of increase should not be lower than the inflation rate (Letter from the Ministry of Labor dated 24.12.2018 No. 14-1/OOG-10305). When establishing an indexing formula, one can consider official indicators such as the inflation rate, consumer price index (CPI), or the cost of living.

Fines and penalties for the employer

If an employer fails to carry out salary indexing, they may be fined according to Article 5.27, Part 1 of the Code of Administrative Offenses:

  • The General Director may face a fine of 1,000 to 5,000 rubles.
  • The company may face a fine of 30,000 to 50,000 rubles.

Repeated violations carry higher fines under Article 5.27, Part 2 of the Code of Administrative Offenses:

  • The General Director may face a fine of 10,000 to 20,000 rubles and a disqualification for 1-3 years.
  • The company may face a fine of 50,000 to 70,000 rubles.

The same responsibility is applied to employers who do not have local normative acts on indexing..

Our support

Our company’s legal experts can assist in analyzing existing local normative acts on indexing, offer solutions for this task, and develop necessary document templates that establish the indexing processes within the company. This will help minimize the risks of employer’s administrative liability for non-compliance with labor legislation norms.

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