Recent developments in Russian employment law arising out of the President’s Order given on 14 March 2011 allow employees to work from home. These changes to the Labour Code of the Russian Federation (the “Labour Code“) are effective from 19 April 2013.
The current market requires more flexibility regarding the workplace since many professionals are able to work from a location other than their employers’ offices, i.e. home, local café, etc. Remote employment offers a number of advantages, including cost savings for both employer and employee. Moreover, it also gives employers access to professionals whom they might otherwise not easily employ (due to mobility problems or living outside the commuting area).
What does working remotely mean?
To work remotely, as defined in the Labour Code, means to work outside the employer’s place of operation (meaning any place under the employer’s control), to use networks (eg the internet) to interact with the employer, and to enter into a special remote employment agreement (the “REA“).
An REA can be concluded through electronic document exchange. The law requires a protected qualifying electronic signature to be used in all document exchanges between the employer and the remote employee, which will cost about US$200 for the employer and US$100 for the employee. The law covers specific instances when a document is to be provided in hard copy, for example, the employer is obliged to send an original hard copy of the executed REA to the employee, and the employee is to provide his employment record book (a document showing individual’s employment history, which is an obligatory document for Russian employees) to the employer. Moreover, each party may also require that the other party provides any document in hard copy.
By way of exception, it is allowed to not record information regarding the employee’s remote job in his employment record book if both parties so agree. In this case, his employment history will be confirmed by the employee’s counterpart of the REA.
An employer may indicate in the REA that the employee is to use specific hardware or software while carrying out his duties. As for the employer’s obligations to ensure workplace safety, they are very limited and include, amongst other things, an obligation to familiarise remote employees with the workplace safety requirements relating to the hardware and software recommended or provided to them by the employer.
The remote employees may set their work and rest schedule themselves, however granting vacations is still subject to Labour Code procedures.
The REA may contain additional grounds for the employee’s dismissal in addition to the list provided by the Labour Code. Having these grounds in employment agreements with the employees (except in those with the CEO) is not generally allowed in Russia.
Effects on tax regime
Generally, Russian companies are obliged to register their separate subdivisions with the tax authorities if they have employees with fixed work places at locations different from their headquarters. As the changes to the Labour Code contemplate that no such fixed work places should exist for the remote employees, we believe that the employers of such employees would not be obliged to register separate subdivisions as generally required for normal employees for those remote employees with the tax authorities (irrespective of the place where remote employees actually work).
Formal reading of the tax legislation brings us to the conclusion that the same logic should apply in respect of foreign companies having remote employees in Russia. This means that, formally, foreign companies should not register with the Russian tax authorities as a result of employing Russia-based remote employees. However, without registering with the tax authorities, the relevant foreign company would technically be unable to pay Russian payroll taxes which it is obliged to pay as a result of employing personnel in Russia. Consequently, and depending on the circumstances in question, foreign companies which intentionally employ remote personnel in order to avoid registration with the tax authorities (and payroll taxes) may be accused of tax evasion. While no guidance from the tax authorities is available on the matter as of yet, we expect it to be issued later this year.
To sum up
Remote employment, often referred to in Russia as teleworking, has become a common practice in many developed jurisdictions and there has been much debate about its advantages. By putting remote working as an option of conducting employment activities into the Labour Code, the Russian lawmaker keeps apace with global trends and satisfies the demands of the Russian labour market.