Binding of employees’ salaries to foreign currencies: possible or not?

During last six months of year 2014 the exchange rate of the Russian Ruble spiraled downward; in the mid-December (on the so-called Black Tuesday), the Ruble has been named as the most unstable national currency in the world.

It should come as no surprise that in the last months, one of the most popular questions asked by our foreign corporate clients has been: “Can we bind our employees’ salaries to the currencies of their countries or to standard conventional units (c. u.) in Labor Contracts?” They ask about possible problems with the Russian supervisory bodies in this case.

Certainly, according to officials’ statements, the answer to this question is unambiguous: the salaries of employees of the companies operating in the Russian Federation can be paid in Russian Rubles only.

But there is the Russian proverb: “Something is not allowed - one has a great wish - then it is allowed!”

In fact, why is it impossible?

The Federal Labor and Employment Service has stated its point of view several years ago in the Letter N 1688-6-1 dated 10.10.2006.

The officials have considered that unpredictable currency fluctuations will result in the salary cut (in the event of fall in exchange). The salary cut is the impairment of the employees’ rights, even if the employee has agreed to bind the salary to any currency or c. u. exchange rate having signed his/her Labor Contract.

To officials’ mind, provisions of Article 72 of the Labor Code of the Russian Federation, which allow amending Labor Contracts “as agreed by the parties” are not applicable in this case, because they contravene Article 135 of the Labor Code of the Russian Federation – specifying that labor payment conditions may not be impaired.

After all, why is it possible?

However, the letter of the Federal Labor and Employment Service is the ultimate truth. 
First of all, the careful examination of Articles 131 and 136 of the Labor Code of the Russian Federation brings us to the conclusion that the law does not prohibit the employer to establish the salary amount in foreign exchange (c. u.), but to make payments in Russian Rubles at the exchange rate as of the date specified in the Labor Contract (e. g., at the exchange rate as of the last business day of the corresponding month).

Secondly, the letter of the Federal Labor and Employment Service is the explanatory document. 
It cannot be considered as the binding regulation.

In any case, make you safe

If you wish to reduce your risks, we advise you to make your safe as follows.

Option 1.

Specify in the Labor Contract that the employee’s salary is equal to the determined amount in standard conventional units (c. u.) and describe the income determination method:

1) What currency means c. u.

2) How the exchange rate for payment amounts determination is calculated (e. g., the exchange rate as of the date of calculation / date of salary payment to the employee)

3) What is the Ruble equivalent of the c. u. amount.

In any case, specify that the employee’s salary cannot be lower than the determined amount in the Ruble equivalent (to avoid potential allegation of labor payment conditions impairment).

Option 2.

In the Labor Contract, you can establish the USD/EUR salary amount and specify as follows:

1) Payment amount shall be determined at the exchange rate of the Central Bank of the Russian Federation as of the date of salary calculation/payment;

2) Internal fixed exchange rate is established within the company; accordingly, the difference arisen from official exchange rate falling shall be compensated to the employee (to avoid potential allegation of labor payment conditions impairment too).

We are responsible for our words

We know that many accounting companies providing services to foreign companies are afraid to argue against officials. These companies not only persuade from, they even prohibit their clients to bind the salary to foreign currencies or c. u.
However, we always act in favor of our clients!

We not only explain to our clients their rights, but in case of claims from governmental authorities we are ready to protect clients’ interests in all instances and by all legal methods. 
And we do it!

See example 1, example 2, example 3.

Contact us! We are always near you!