What awaits employers when switching to direct payments

Changes to the law 478-FZ from December 29,2020 governing the Russian Social Fund’s “Sick – List” system of employee compensation and employer reimbursement have gone into effect since the beginning of the year that may have a small (but always welcome) cash – flow benefit.  Prior to January 1, 2021 when an employee was out of the office and unable to fulfill their responsibilities due to illness or maternity leave, the employer applied to the Social Fund for reimbursement of the employee’s salary for periods more than 3 days.  Under the new rules, payments made during the period of this  “Sick – List” will be paid directly by the Fund. 

Previously, reimbursements to the employer were made following the employer’s submission of copious amounts of medical documentation to the Social Fund and a desk audit.  As of the first of this year, however, employees will be paid directly from the Fund  and the Employer simply withholds payment for salary after the 3rd day of inability.

Although, expected to change in the near future, reimbursements not yet covered by the new rules (and paid directly by the employer and subject to direct reimbursement by the Fund) include funeral allowances, payment for 4 days for a disabled child care and sick leave payments for reasons not stipulated in 255-FZ (such as Chernobyl victims). It can be assumed that it is only a matter of time before these payments are also transferred to the Fund as well.

From an employer’s perspective, the new system will certainly provide a cash – flow benefit but the administrative responsibilities stay largely the same for both employee and employer: The Employee continues to provide the medial documents to the employer who holds on to them in the event the Fund wishes to conduct an audit.  The Employee specifies the method for processing the payment.  

It was originally planned that payments for sick leave, exposer to radiation, maternity leave (up to 1.5 years), or childbirth, would be made only to  MIR accounts. However, the Russian Central Bank is currently introducing concessions which will allow the payment of allowances to cards of any payment system: MIR, Mastercard, Visa etc until July 1, 2021.

The method through Russia’s National Payment System MIR is preferred by the Fund as the employee need only provide their card number.  It may also be noted that having it’s citizens use a Russian based system is preferable during current East – West diplomatic tensions and additional cashback incentives were offered to encourage Russians to open accounts with MIR over the summer. 

For those currently without MIR accounts the alternatives are either:

  • To an account that is not linked to any card (in which case, the employee will have to provide complete banking details which increases the likelihood of delays or
  • By postal order (even less convenient)   

As usual, the responsibility for compliance with the system remains largely with the employer Reimbursements to the employee are processed and paid by the Fund who makes the calculations based on the prior two-year income.  As previously, the Employer remains liable for the accuracy of this information.

In summary, the administrative burden for the employer remains the same.  There is a strict schedule in place regarding the passing of documentation between the employer and the Fund (typically a three or five day period) and the rules provide for compensation to the Fund as well as fines for violation or inaccuracy.

As it is still early in 2021, how quickly payments are processed by the Fund remains to be seen.   It should noted, however, that although the administrative burden to the employer remains the same, this cannot be said for the Fund which is now be taking the lead in initiating payments.  As for the employees, perhaps some will take solace in that payments will be made by the government and not an employer made unstable by economic conditions brought on by the coronavirus.

Tom Stansmore
General Director
Rositsa Boyadzhieva
Deputy Head of Accounting and Tax Department in payroll and HR