Standard risks identified during
payroll and payroll taxes review
www.pwc.com
Mach 2014
Payroll assessment and payment
Taxation of severance
pay upon dismissal by
consent of the parties
Ri sk descri ption
• Th e Com pany does not levy insurance contributions, A I and WD contributions on the severance pay totalling 3 average monthly salary;
• Th e Com pany incorrectly determines the amount within the 3 average monthly salaries which is not su bject to PIT.
Recommendations
We recom mend that the Com pany assess contributions on th e total severance pay upon dismissal by consent of th e parties.
To determ ine the PIT exempt amount, the Com pany sh ou ld consider the average daily earnings calculated for bu siness, rather than calendar days.
Non-compliance with
the PIT payment
deadline
Art. 223.1.1 of the Russian Tax Code, Art. 226.4 of the Russian Tax Code, Art. 75 of the Russian Tax Code
Non-compliance with the
deadline for paying accident
and work-related disease
(AI and WD) insurance
contributions
Art. 22 of Fe deral Law No. 125-FZ of 24 July 1998
Ri sk descri ption
Th e Com pany remits AI and WD insurance contributions by th e 15th day of the subsequ ent month.
Failure to pay contributions on time may result in an interest of 1/300 of the refinancing rate being charged for each calendar day of the delay between the date when the salary is transferred to the employee accounts and the contribution payment date.
Recommendations
We recom mend that the Com pany pay insurance contributions at the day when the salary is transferred. In particular, if the Com pany pays salary upon dismissal, it sh ou ld remit contributions at the day when final settlements with the employee are made.
Ri sk descri ption
Th e Com pany remits the severance pay, bonuses and vacation allowances at days different from the date when th e base pay is transferred. However, the PIT imposed on th e said payments is remitted to the budget at the day wh en the final pay is settled.
Failure to pay tax to the state budget on time may result in (1) an interest of 1/300 of the refinancing rate being ch arged for each calendar day of the delay between the date wh en the said payments are transferred to the em ployee accounts and the PIT payment date and (2) a penalty in the amount of 20% of non-timely paid PIT . Recommendations
We recom mend that the Com pany pay the PIT within the du e dates set in the Russian Tax Code:
•th e day to pay the PIT imposed on the severance pay, bonu ses, advance vacation allowances should coincide with the days of the relevant payments.
Average salary computation
Accounting for bonuses
and other payments
cl. 5 (a) of the Regulation on the Specifics of the Proce dure to Assess the Average Salary approved by Re solution No. 922 of 24 December 2007 issued by the Russian government
Accounting for social
payments
para 3 of the Re gulation on the Specifics of the Proce dure to Assess the Average Salary approved by Re solution No. 922 of 24 December 2007 issued by the Russian government
Recomputing payments
based on the average
salary
The Re gulation on the Specifics of the Procedure to Asse ss the Average Salary approved by Resolution No. 922 of 24 De cember 2007 issued by the Russian gove rnment
Ri sk descri ption
Wh en computing the average salary for the annual leave and business trips, the Com pany incorrectly accou nts for bonu ses and improperly records payments for working overtime and working on weekends and h olidays during bu siness trips.
Th is results in either increased or decreased payments based on the average salary.
Recommendations
We recom mend that the Com pany analyse the average salary computation algorithm, and introduce relevant ch anges in the computation methodology, if required. In particular, the Com pany may introduce new assessment types – “Payment and additional payment for working on weekends/holidays during business trips”, “Working overtime during business trips”.
Ri sk descri ption
Th e Com pany includes meal allowances into the average salary computation base.
Meal allowance is a social payment and should not be included into the average salary computation. Th e Regu lation on the Specifics of the Procedure to Assess the A verage Salary sets out that “social payments and other non-payroll payments (financial support, meal allowances, travel costs, trainings, utilities, annual leave etc.) are not accounted for in the average salary com pu tation”.
Th is results in the increased payments based on the average salary.
Recommendations
Meal allowances should not be included in the average salary computation base no matter if they are fixed in labou r contracts and local documents.
Ri sk descri ption
• Th e Com pany does not recom pute the average salary after reporting the annual leave/business trips for the previous periods.
• Th e Com pany incorrectly determines the
com pu tation period for calculating future vacations. Th is results in either increased or decreased payments based on the average salary.
Recommendations
If th e payroll computation includes annual
leave/business trips/sick leaves for the prior periods, the Com pany's accountant should review and, if required, recalculate the average salary for the periods after these events.
We also recommend that the Com pany enhance control over th e computing chain for the annual leave payments, if th ey are paid in advance in the month preceding the
Risk related to the Russian labour law requirements
(1 of 2)
Lack of payment/failure
to provide additional
days-off for working on
weekends
Art. 99.6 of the Russian Labour Code, Art. 153 of the Russian Labour Code
Ri sk descri ption
Irregular working hou rs are set to em ployees. A ccording to th e timesheets used to bill clients, employees work on weekends/holidays, but do not receive any payment for th is work or additional days off.
V iolating requirements set by Art. 99.6 and A rt. 153 of the Ru ssian Labour Code m ay result in the administrative liability to the Com pany and its officials.
Recommendations
To avoid potential claims by supervisory authorities and em ployees and escape liability for breaching the Russian labou r law, we recommend that the Com pany amend the procedu res for engaging employees in working on weekends/holidays and review the compensation procedu res.
1
Payment for work
during business trips
Art. 167 of the Russian Labour Code2
Ri sk descri ption
• Th e Com pany does not perform payroll computations du ring business trips based on the average salary;
• Th e Com pany neither pays for nor provides additional days off for the departure/arrival days falling on weekends.
In th is situation:
• Em ployees m ay claim recalculation of payments for th e bu siness trip periods based on the average salary;
• Em ployees m ay demand that the Com pany pay additional compensation for working on weekends;
• Th e em ployer should pay additional compensation for late salary payment.
A dm inistrative and financial liability Recommendations
We recom mend that the Com pany pay for working during bu siness trips based on the average salary; execute orders on engaging employees to work on weekends if
em ployees are travelling on business on weekends and h olidays, and provide the relevant compensation.
Risk related to the Russian labour law requirements
(2 of 2)
Improper annual leave
execution and payment
Art. 114 of the Russian Labour Code
Ri sk descri ption
Th e Com pany neither calculates periods during the annual leave based on the average salary, nor maintains th e annual leave orders, nor keeps applications for the annual leave.
In th is situation:
• Upon dismissal, employees may claim compensation for u nused annual leave for the total period of em ployment with the Com pany;
• Em ployees/labour inspectorate may demand that the Com pany recompute all annual leaves based on the average salary and pay compensation for the late salary payment.
A dm inistrative and financial liability. Recommendations
To avoid potential claims from employees and
su pervisory authorities and escape liability for breaching th e Russian labour law, we recommend that the Company docu m ent annual leaves in full, and com pute payments based on the average salary.
Lack of mandatory
local regulations and
other documents
The Russian Labour Code
Ri sk descri ption
Th e Com pany lacks local regulations and other HR documents which should be developed by the employer on a com pulsory basis as required by law. These include:
• Payroll schedule (Art. 57.2 of the Russia Labour Code);
• Docu m ents establishing the procedure for personal data processing (Art. 86.8 of the Ru ssian labour Code);
• V acation schedule (Art. 123.1 of the Russia Labou r Code);
• Docu m ents establishing the payroll system (Art. 135.4 of the Russia Labour Code);
• Staff handbook (Art. 189.4 of the Russia Labou r Code).
Lack of du ly prepared mandatory local regulations and HR documents may result in adm inistrative liability to the Com pany and its management and other unfavou rable consequ ences.
Recommendations
We recom mend that the Com pany keep all mandatory local regulations and HR docu m ents.
Kirill Nikitin
Partner
+7 495 967 6442
kirill.nikitin@ru.pwc.ru
Ekaterina Ryabova
Director
+7 495 967 6438
ekaterina.ryabova@ru.pwc.com
Julia Ramazanova
Director
+7 495 967 5474
julia.ramazanova@ru.pwc.com
Elena Moryakova
Senior Manager
+7 495 967 6077
elena.moryakova@ru.pwc.com
Albina Nurtdinova
Manager
+7 495 967 5613
albina.nourtdinova@ru.pwc.com
Contacts
Th is publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication withou t obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or com pleteness of the information contained in this publication, and, to the extent permitted by law, PwC Russia, its m embers, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequ ences of you or anyone else acting, or refraining to act, in reliance on the information contained in this pu blication or for any decision based on it.
