Indexation of salary – the employer’s right or duty?

Indexation of salaries is regulated by Article 134 of the Labour Code of the Russian Federation (the LCRF), but it does not establish a fixed indexation procedure. Many employers believe that only budget organizations are obliged to index the employees’ salary. Advocate Anna Kotova-Smolenskaya, Doctor of Law, Associated Partner of the Law Firm "YUST", answers the indexation-related questions of the readers of New Accountability.

1. Are employers of all forms of ownership obliged to index the employees’ salaries? Or does such obligation lie with only the budget organizations?

The increase of the level of the real salary value is ensured by its indexation in connection with the growth of consumer prices for goods and services (Article 134 of the TCRF). Budget organizations do such indexation in the procedure fixed by the labour legislation and other regulative legal acts containing labour law provisions. All other employers – in the procedure stipulated by collective agreements, contracts, local normative acts.

In other words, non-budget commercial and non-commercial organizations may independently decide on the amount and the procedure of the salary indexation. Following the wordings of Article 134 of the TCRF, the indexation issue may be resolved within the framework of a social partnership – in a collective agreement or by the employer himself – in a local normative act (for instance, Labour Remuneration Regulations).

The Federal Service of Labour and Employment of Russia, in its letter No. 1073-6-1 dated 19.04.2010, expressed its position that the employers were not obliged to index the salaries. The Constitutional Court of the Russian Federation found no motives to check Article 134 of the LCRF for its compliance to the provisions of the Constitution of the Russian Federation (see Ruling No. 913-O-O dated 17.06.2010). This Ruling was made on the basis of a request by an employer, who noticed the different constructions of the norm in law-application practice. Said Article is defined as the obligation for the employers, who are not funded by the budget, to independently fix the procedure of indexation of the salaries or as a similar right. The applicant is of the opinion that said circumstance leads to non-compliance of Article 134 of the TCRF to the general law criterion of certainty, clarity and unambiguousness of a legal norm.

In its Ruling, the Constitutional Court of Russia pointed out that indexation of salaries as such is aimed at the increase of the salaries’ purchase power, and its legal nature is that of a state guarantee of the employees’ labour remuneration. Article 134 of the LCRF does not contradict the other articles of the Code and permits the commercial organizations to fix the procedure of such indexation independently, including with the participation of representatives of the employees (unlike the budget organization employers) and to take into account all circumstances, which are important to the parties to the employment relations.

Even though the Constitutional Court of Russia gave no clear answer regarding the indexation obligations for all categories of the employers, its expressed position enables us to employ the following logic.

If indexation is a state guarantee, it means that, as is the case with the other state guarantees, indexation becomes obligatory pursuant to the provisions of the respective legislative act. Such logic reflected in the court practice on labour disputes at the level of several units of the Russian Federation. See rulings by the Saint Petersburg City Court on the case No. 33-8880/2012 dated 10.07.2012, by the Sverdlovsky Region Court on the case No. 33-5756/2012 dated 10.05.2012, by the Moscow City Court on the case No. 33-3216 dated 06.02.2012, by the Nizhegorodsky Region Court on the case No. 33-10824 dated 25.10.2011 etc.

2. What is the correct way to formalize and substantiate the amount of indexation? What norms should be followed, when calculating that amount?
Does it have a minimum and a maximum?

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Full version of the interview – .