Starting September 1st, a significant change in Russian labor law will take effect, aimed at protecting employees from substantial, arbitrary reductions in their income. The new legislation will restrict employers` ability to drastically cut bonuses, particularly when disciplinary measures are involved.
This move comes amid concerns, voiced notably by the Federation of Independent Trade Unions of Russia, that some companies structure employee compensation with a small fixed salary and a large, variable bonus component. This practice leaves employees vulnerable, as a disciplinary infraction could potentially result in the loss of a major part of their expected earnings, leaving them with only the minimal base salary.
Photo: Ivanov Alexey / Lory Photobank
Yakov Kupreev, head of the legal department at the Federation of Trade Unions, highlighted this issue, citing examples where a base salary might be as low as 20,000 rubles, while the bonus makes up the remaining 80,000 rubles of a typical 100,000 ruble monthly wage. A single disciplinary issue could lead to the employee receiving only the 20,000 ruble base, a drastic and potentially unfair reduction.
How the New Law Aims to Help
The amendments to the Labor Code are intended to prevent such drastic scenarios. While the precise mechanism regarding the “20% of salary” limit mentioned in the source text is open to interpretation (it could mean the bonus reduction itself cannot exceed 20% of the base salary due to disciplinary action, or that disciplinary action cannot lead to a total pay cut exceeding 20% of the overall compensation structure), the clear intent is to stop employers from using minor disciplinary issues as grounds for stripping employees of the majority of their income.
Furthermore, employers will be required to clearly define the types of bonuses and the specific conditions under which they are paid out. This increases transparency and provides employees with a clearer understanding of how their variable pay components function.
Business Reactions: Skepticism and Adaptability
However, not all stakeholders view the new law without reservation. Some business representatives have expressed doubts about the practical implementation of these restrictions.
Georgiy Soldatov, CEO of Aditim polymer processing holding, commented:
“This is unlikely, because there are different labor relations, different agreements, different projects. What does `cannot reduce a bonus` mean? Yes, perhaps there was a project – it was paid, then the project ended. Or, for example, there is a market downturn. How can you pay a bonus if there`s nothing to pay for or nowhere to pay from? Let the trade unions finance the business then. I understand everything, but when there`s nothing else to do, people start getting carried away. Sometime before, they structured it by dividing fixed and KPI, but that hasn`t mattered for a long time now. If there are labor disputes and a certain amount wasn`t paid consistently, taking into account this KPI or pseudo-bonus, it will be accepted in court during a labor dispute. So these tricks haven`t worked for a long time. They won`t be able to pay only the salary amount upon dismissal – the employee will sue and easily prove that they consistently received this bonus. Therefore, all these formalizations are the past century, they mean nothing. Now people are fighting for the worker, salaries are being increased top-to-bottom. What are they even talking about? They just woke up. Maybe this was an issue five years ago.”
Soldatov`s comments highlight the tension between employee income stability and the need for businesses to maintain flexibility based on performance, project success, or market conditions. His perspective suggests that existing legal frameworks already offer some protection against arbitrary bonus stripping for regular payments and that the new law might be addressing an outdated problem, or simply adding complexity where flexibility is needed.
Looking Ahead
Despite business concerns, the bill, which aims to shield workers from unjustified bonus cuts, was adopted in late May and is set to become law in the autumn. Employers retain the right to apply standard disciplinary measures such as warnings, reprimands, or even dismissal. However, the key prohibition is against using these disciplinary actions as the sole or primary basis for arbitrarily reducing all forms of payment, including performance-based premiums or bonuses for specific paid services.
The new law represents a step towards greater employee financial security in Russia, attempting to close a loophole that left many vulnerable to significant income loss. Its implementation will be watched closely by both employees and businesses as they navigate the balance between worker protection and operational flexibility.
