How to index wages according to the Labor Code? Is annual salary indexation required?

Based on Article 134 of the Labor Code of the Russian Federation, wage indexation must be carried out in all organizations without exception.

Its obligatory nature is beyond doubt. Although unscrupulous managers ignore this legislative norm and do not increase people’s wages for several years in a row.

Inconsistent indexing

Salary indexation is the responsibility of companies by law, but there is still no uniform regulation for its implementation.

The ambiguity of the issue gives rise to many disputes leading to conflict situations between employee and employer, employer and regulatory authorities.

Due to the lack of a unified regulation for its implementation, the indexing mechanism is unclear:

• What exactly should be indexed: the constant component of the salary or the variable part too?
• What should be the frequency of indexing?
• What indicators should be taken to calculate the indexation coefficient?
• How to legally formalize such an increase in earnings?

Only one thing is clear, that indexation must be carried out mandatory for all employees of the organization without exception.

Differences between salary increases and salary indexation

Many employers mistakenly believe that if they annually increase salaries at the enterprise, then there is no need to index wages.

The fact is that increasing salaries and indexing earnings are two different things. After all, the salary can be increased for one or all employees. Some will receive an increase of 10% of their salary, while others will receive a 50% increase. When the salary is increased, an order is issued, a new staffing table is approved, and additional agreements to employment contracts are signed. The purpose of increasing the salary is to interest a specific employee in further cooperation.

The purpose of wage indexation is to bring workers’ earnings into line with current consumer prices and thereby, at a minimum, maintain their quality of life at the same level.

Wage indexation, in contrast to salary increases, is carried out at the same time for all employees by the same factor.

Due to the lack of a unified procedure, we recommend that in order to comply with labor legislation, all organizations adopt an internal document regulating the procedure for indexing wages. This will protect companies from trouble in the event of an audit of compliance with labor law standards and will allow performers to have a clear understanding of its procedure.

Points that a local regulatory act on indexing should contain:

1. Frequency of salary indexation: monthly, quarterly, every six months, annually. It is not advisable to carry out indexation once a month or quarter, since this is a very labor-intensive process, especially in enterprises with a large staff. It is important that indexation is carried out at least once a year, for example, annually from January 1.

1. Indexation level. Due to the uncertainty of the issue, it is permissible to link this coefficient:

• to the consumer qualification index for a specific period in the region where the company is located or in Russia as a whole;
• to the officially recognized federal or regional inflation level;
• to increase the national or regional subsistence level for the working population;
• to an increase in the minimum wage in the whole country or region.

If none of these indicators are satisfactory, then there is no indication anywhere that it is impossible to establish a specific coefficient by which wages will be regularly indexed.

It is important that a document regulating the indexation of earnings be developed and approved and its requirements be fulfilled unquestioningly.

What components of earnings need to be indexed?

To carry out mandatory indexation of wages, it is enough to index its constant part - salary, tariff rate, piece rate. In most companies, all other parts of earnings - allowances, bonuses, as a rule, are tied as a percentage to the constant component. Therefore, their increase will naturally lead to an increase in everything else.

But you need to take into account that if at an enterprise, allowances and bonuses are fixed in labor, collective agreements or in the Regulations on remuneration in a specific figure, then their indexation in this case will not entail the indexation of allowances and bonuses. And then the indexation of earnings will be partial. Therefore, it cannot be assumed that due to rising consumer prices, workers did not lose wages.

Therefore, in organizations in which the payment of allowances and bonuses is made in fixed amounts, it is advisable to include them in the local regulatory document on earnings indexation in order to carry out full indexation.

Dependence of wages on the selected indexation coefficient

When choosing a coefficient on the basis of which the organization will periodically adjust employee wages, it is necessary to first calculate what workers will be able to receive for their work in the end.

Example #1. Options for calculating salary indexation

Let's consider how an employee's earnings will change in 2016 at Alpha LLC compared to 2015, provided he meets all planned targets and does not violate the work schedule. For clarity, we summarize the calculation results in the table below.

In 2015, Ivanov received a salary of 30,000 rubles. Every month he receives a bonus of 15% for fulfilling the plan and 5% for the absence of violations of labor regulations.

Let's calculate the salary for various salary indexation coefficients (options 1-3). Salary recalculation takes place annually on January 1; the salary is indexed to the level:

• Option 1: Minimum wage set for the new year compared to last year.
• Option 2: at the officially planned inflation rate for the next year
• Option 3: by the earnings indexation coefficient established in the organization -1.05.

Ivanov’s earnings in 2015, taking into account allowances, will amount to 36,000 rubles.

Calculation according to Option No. 1

The minimum wage in the Russian Federation in 2015 was 5,965 rubles. For 2016 it is set at 6204 rubles.

Therefore, the coefficient of increase in earnings depending on the increase in the minimum wage will be:

6204 / 5965 = 1,04

Ivanov’s earnings in 2016 under option 1 will increase by 4%:

36000 x 1.04 = 37440 rubles

Calculation according to Option No. 2

For 2016, the authorities have set an inflation rate of 6.4%. Earnings will also increase by this percentage:

36000 x 1.064 = 38304 rubles

Calculation according to Option No. 3

In 2016, earnings according to the 3rd option will be:

36000 x 1.05 = 37800 rubles

The example clearly shows that the level of wage indexation directly depends on the chosen indexation indicator.

Dependence of the amount of wages on the chosen indexation coefficient and the adopted method of material incentives for workers

Employee incentives can be made either as a percentage of salary, tariff rate or piece rate, or be a constant value.

Example #2. Calculation of salary indexation with bonuses and allowances

Let's consider a situation where Ivanov is not given monthly bonuses as a percentage of his salary, but is paid a fixed bonus of 6,000 rubles for the same indicators. And we will accept that only salaries are indexed at the enterprise. We will leave all other data unchanged. The result of the event is shown in the table below.

From this example it is obvious that with this method of bonuses and indexation of only salaries, workers seriously lose in earnings.

Choosing an indexation coefficient as a way to protect workers' rights

We looked at only 2 examples. In fact, there are many options. The conclusion suggests itself. The level of indexation depends on the specific parameters prescribed in the Regulations on remuneration and material incentives, and in the regulatory act on indexation of earnings.

The team of any enterprise has the opportunity to influence the level of indexation through the remuneration system and its indexation indicator.

The employer can direct its responsibility in the direction it needs to go, increasing the interest of employees and reducing staff turnover.

According to the Labor Code, wage indexation is a guarantee for the remuneration of workers provided by the state, along with the establishment of a minimum wage, strict supervision of compliance with labor legislation, and the establishment of deadlines and frequency of salary payments. Article 134 of the Labor Code of the Russian Federation reveals the essence of the concept of “indexation”: since prices for goods and services are constantly rising, employers must index wages in the manner established by labor legislation or local regulations.

In budgetary organizations, wages are indexed much more strictly than in commercial ones. Legislation requires them to carry out wage indexation. Other employers (not related to budgetary institutions - commercial organizations) carry out indexation in the manner established by the collective agreement, agreements, and local regulations.

However, the law for “merchants” only establishes the employer’s obligation to carry out indexation. The current legislation does not establish the procedure for indexing wages in 2017. How often should indexing be carried out, and in what order? What documents should be used to document such an increase in employee salaries?

As practice shows, many employees do not even know about the existence of such an opportunity to increase their salary. Employers mistakenly believe that periodic salary increases allow them to avoid indexing wages throughout the company. However, indexation and periodic salary increases are not the same thing. Salary indexation is carried out for all employees of the company, the indexation coefficient is the same for all employees. Salary increases are periodic and not systemic. Salaries may not be increased for all employees, but in different amounts - the head of a department may receive a salary increase by 30%, and his employees by 10%.

In addition, some employers prescribe the indexation procedure in local regulations as a right and not an obligation of the employer, thereby protecting themselves from possible problems during inspections.

Wage indexation in 2017

If the company decides to carry out indexation, then it is necessary to act as follows. An increase in employee salaries due to rising consumer prices must be provided for in an employment or collective agreement, or other local act of the employer. Accordingly, if there are no such documents, it is necessary to correct this. You can draw up an additional agreement with the employee to the employment contract, where you can specify the details of indexation: conditions, frequency, etc. The agreement should make a reference to the internal document that regulates indexing. This could be, for example, an order to index wages in a company.

It is worth noting that despite the instruction in the labor code to act in accordance with the law, the employer must establish the conditions and procedure for indexation independently. When establishing conditions and procedures, the employer must remember that indexation should not become an unbearable burden for him.

The conditions for indexation can be specified in the collective agreement:

“In order to increase the level of actual wages (in connection with the increase in consumer prices for goods and services), it is necessary to index them in the following order:

1. Wage indexation is carried out every six months, provided that the consumer price growth index in the region exceeds 5 percent in the billing period. To comply with the conditions, it is necessary to use officially published data from Rosstat and its territorial bodies.
2. The size and procedure of indexation is determined by order of the general director of the company. The order must be issued no later than two months after the end of the billing period.”

What should be included in the document regulating the procedure for indexing?

• frequency of this procedure. Indexation can be carried out once a month, once a quarter, six months, or a year. It is advisable to choose periods of six months or a year - indexing too often is quite labor-intensive;
• payments that are indexed. This question also remains at the discretion of the employer.
• how to calculate the coefficient for indexing. The amount of indexation can be calculated based on the consumer price index established for a certain period for the country as a whole or in a particular region. The indexation coefficient can be calculated based on the amount of inflation that was recorded or based on changes in the minimum wage.
• the procedure and conditions for the indexation itself. It is logical to formalize each procedure with an order in which the head of the company will fix the coefficient applied to the calculation this year, the date from which employee salaries should be indexed.

Any work must be paid. Any monetary compensation, taking into account the qualifications of the employee, the complexity, quantity and quality of conditions when performing the work, as well as various incentive and incentive payments are called wages and are deducted from it.

Any payments for an employee’s wages under the generally accepted work schedule are made in accordance with the Labor Code of the Russian Federation, Art. 139, based on the following indicators:

• the period of time actually worked by the employee over 12 calendar months;
• actual accrued wages.

Any wages with rising prices and inflation are subject to indexation, i.e. its increase.

According to the Russian Labor Council, wage indexation is the direct and constant responsibility of the employer. Failure to fulfill obligations on the part of the employer may be challenged by the employee in court.

So, how to correctly calculate salary indexation. As the indexed value, it is necessary to take the core inflation index, i.e. indicator of changes in consumer prices according to Rosstat. You can find them on the Internet, where they are constantly updated. You can view inflation rates online for any period.

As for the frequency of indexation, information about this is set out in the regulations on wages, as well as in labor and collective agreements. Indexation is carried out both quarterly and once every six months. The organization indexes employee salaries, as well as tariff rates.

An example of calculating wage indexation for an employee of an enterprise

This enterprise must index the salary for its employee quarterly, taking into account the consumer price index provided by Rosstat.

The price inflation index for 2012 relative to December 2011 was (presumably):

• March – 102.1%;
• June – 104.5%;
• September – 101.9%;
• December – 104.9%.

The calculation of wage indexation is carried out on the basis of salary data, as well as on the basis of the daily rate.

Calculation of salary indexation based on salary:

To calculate earnings from vacation pay, as well as compensation for unused vacations over the last year, the method of dividing the amount of accrued wages by twelve is used. The result obtained must be divided by the average monthly number of calendar days 29.3. This is a generally accepted number approved by Federal Law dated April 2, 2014 No. 55-F3.

If we talk about calculating earnings for the payment of vacations provided in working days, as well as in other cases that are provided for by the Labor Code of the Russian Federation, then the calculation is carried out using a different method - the salary amount is divided by the number of working days according to six working days of the week.

Important points to remember

When calculating wages, financial assistance should not be taken into account.

Payment for travel, recreation, food and utilities are also not included in this calculation.

Payment of vacation pay to the employee must be made on time, i.e., three days before the vacation. This requirement is approved by Art. 136 of the Labor Code of the Russian Federation.

Any calculation of average earnings takes into account the increase in tariff rates, but on one condition, that this will affect all employees without exception.

And if the indexation being carried out does not include at least one employee (this could be a newly arrived person who has worked for less than three months, or an employee on maternity leave), then none of the employees will receive a salary increase.

During the period of general indexation of wages, the indexation coefficient is calculated for each employee for the current billing period.

Stages of calculating the wage indexation coefficient

Stage 1. Indexation of average earnings by the employee’s salary increase factor. This coefficient is calculated by dividing the salary after the increase by the salary before indexation.

2 – stage. Indexation of average earnings by a composite increase factor. This method is used if there have been additional payments, bonuses or allowances. The increase coefficient is determined by dividing the total amount of all allowances, additional payments and bonuses after indexation by the amount of bonuses, allowances and additional payments before indexation.

The use of one or another calculation method applies to each employee individually. Since here there is indexation of both the entire salary and partial earnings.

Take into account the fact that bonuses, allowances and additional payments are no longer adjusted by the calculated coefficient, which are set in an exact amount (for example, 5,000 rubles) or in a range of values ​​(for example, from 0 to 20% of the salary amount, or in the amount of one up to five salaries).

It is very important to know that the process of increasing average earnings during the period of salary increases directly depends on the time of indexation.

What influences changes in salary indexation

When indexing is carried out during the billing period, certain payments are increased by a factor from the beginning of the billing period until the month of indexation.

From the article you will learn how to index wages in 2019 in commercial companies. We have provided sample entries for different options, examples of salary calculations.

How to index wages in 2019

The Labor Code of the Russian Federation requires commercial companies to increase wages in connection with rising consumer prices for goods and services (Article 134 of the Labor Code). The consumer price growth index is published by Rosstat on its website www.gks.ru in the “Official Statistics” section in the “Prices” subsection.

The Ministry of Labor believes that it is possible to focus on the inflation rate (letter dated December 24, 2018 No. 14-1/OOG-10305). For 2019, it is predicted to be 4.3 percent (Article 1 of Federal Law No. 459-FZ of November 29, 2018).

A commercial company has the right to focus on any of the indicators or establish its own indexation procedure, for example, focus on the financial indicators of its activities. Both the law and officials allow this (Article 134 of the Labor Code, letter of the Ministry of Labor dated December 24, 2018 No. 14-1/OOG-10305).

What is considered a violation of the indexation procedure in 2019

During the inspection, labor inspectors will consider that the company has violated the law if (letter of the Ministry of Labor dated December 26, 2017 No. 14-3/B-1135):

• did not establish conditions and procedures in local regulations;
• doesn't work at all.

For this, the company faces fines under Part 1 of Article 5.27 of the Code of Administrative Offenses in the amount of up to 50 thousand rubles, and its director - up to 5 thousand rubles.

How to Design an Indexing Order

The most convenient way to install it is to install it in a local regulatory act. This is a one-sided document. It does not require the involvement of a union or other employee representatives in the development.

When developing a procedure, a commercial company has the right to take into account the specifics of production activities, level of solvency and other significant factors. Officials confirm this (letter of the Ministry of Labor dated December 24, 2018 No. 14-1/OOG-10305). In diagram 1, see the provisions that should be reflected in order.

Scheme 1

Wage indexation in 2019 in commercial organizations

There are 4 options for how to index wages. This can be done depending on:

• consumer price index;
• inflation rate;
• living wage for the working population;
• financial indicators.

Option 1. Increase in consumer prices

Rosstat publishes on its website consumer price growth indices relative to the previous month and to December last year. Both indicators are federal (table below).

You have the right to state in the document that you are using the increase in consumer prices in your region. It can be viewed on the regional Rosstat website.

Let's look at how to do it using example 1.

Example No. 1

According to the staffing schedule, the employee’s salary is 27,000 rubles. per month. The procedure provides for quarterly salary increases taking into account consumer price increases of over 2 percent. In the fourth quarter it grew by 3.4 percent.

How to install, see sample 1.

Sample 1.

Option 2. Inflation

The procedure for indexing wages depending on the level of inflation can be set as shown in sample 2 below.
Sample 2.

Let's look at example 2.

Example 2

According to the staffing schedule, the employee’s salary is 27,000 rubles. per month. The procedure provides for an annual salary increase as of January 1 of each year. The projected inflation rate for 2019 is set at 4.3 percent.

Option 3. Living wage

The government determines the subsistence level of the working-age population quarterly for Russia as a whole or for a specific region. For example, this figure for the third quarter of 2018 is 11,310 rubles. (Order of the Ministry of Labor dated November 12, 2018 No. 695n), and for the second quarter of 2018 - 11,280 rubles. (Order of the Ministry of Labor dated August 24, 2018 No. 550n). Coefficient - 1.0027 (RUB 11,310: RUB 11,280).

Option 4. Financial indicators

The employer has the right to tie indexation to the achievement of financial performance indicators based on the results of work for a certain period. If a company does not achieve these targets, it may not pursue it. The Supreme Court also agrees with this approach (ruling dated April 24, 2017 No. 18-KG17-10). How to apply depending on financial indicators, see sample 3.

Sample 3.

What documents to prepare in 2019

You have developed a procedure, approved it in a local act or included it in a collective agreement. To carry out the next promotion, issue an order. Familiarize employees with the order and sign it.

Based on the order, make changes to the staffing table.

The salary amount is a mandatory condition of the employment contract. Due to the fact that the terms of remuneration are changing, enter into additional agreements with employees to employment contracts. Indicate the new salary and allowance amounts.