– What is an employment package? What goes into to it? And what do Russian regulators require regarding it?
There are, essentially, two concepts of the “employment package”. The so-called “statutory employment package” which the employer is obliged to guarantee the employee by the Russian Federation law according to the Labour and Tax Code: paid annual leave, paid sick-leave, deductions paid into the Pension Fund and other funds, and statutory medical insurance. And there is the “supplementary employment package”, a collection of compensations and benefits not provided for by the RF Tax Code or other regulation, which employers offer employees. Each employer decides themselves what to include in the supplementary package and whether to offer employees any additional benefits in general.
– What differences in labour relations are there in this respect between Russia and the West?
The practice of providing an employment package came to us from the West with foreign companies, primarily large multinational corporations, applying a common Human Resources standard. The system of extra privileges and bonuses was developed in the West, mainly as a recruitment and motivational tool. In Russia, where for a long time the advantage lay with the employer, nobody thought it necessary to introduce any products similar to this. Nonetheless, with time, there was a shift in the balance towards the job applicant, and companies were obliged to introduce intangible benefits in order to attract the best candidates.
About AP Companies
AP Companies (international medical services) is involved in delivering medical assistance around the world, including to foreign citizens living within the territory of the Russian Federation. The company has undergone successful development on the international market for over 17 years and works in tandem with some of the largest Western insurance companies. Call-centre specialists offer 175 foreign languages, and the level of services provided meets the very highest standards.
– What kind of employment package is usually provided by Russian and Western companies in Russia?
In Western companies, over half of the value of the package lies in various forms of insurance. Above all, medical insurance. In addition to which, many Western companies present in Russia include options in their remuneration package i.e. they offer the employee the option of buying and selling shares in the company, something which can produce a fairly decent income. This privilege, in the majority of large Western companies, is afforded to high-level management or to managers with a record of service exceeding 10 years.
The contents of the package in Russian companies are virtually the same as those of a Western one. For RF citizens, the employment package includes: payment of average (actual) earnings for sick leave and maternity leave, optional private medical insurance, private pension funds, career development courses, presents for employees on special occasions, and passes for children to holiday camps. As well as this, the employer often takes it upon himself to pay for food for employees, refund travel costs or provide company transport, provide interest-free (or low interest) loans, find rented accommodation (if the employee is moving from another city to work), pay for gym membership and mobile phone costs, and provide other benefits.
For foreign senior managers, the employer arranges additional benefits such as paying for rent on a flat, for car ownership and a driver where necessary, VIP gym passes, education, including schooling for children, and trips home. Year on year demands regarding the level and scope of medical insurance are on the rise.
If it is a matter of small or micro businesses, the situation there is nowhere near as good. According to the figures from the Russian Federal State Statistics Service alone, 19% of citizens of working age are employed in the shadow economy and are paid “under the table”. With such companies, even statutory payments into funds, and payment of sick leave and regular leave are not always guaranteed for employees. If it states in a job advert “full employment package”, then, more often than not, this refers to the employer fulfilling the statutory obligations: paid leave and sick leave.
– How should the Western entrepreneur starting a business in Russia go about putting such a package together? What would be the best strategy in the case of a small to medium-sized business?
If the employer is interested in attracting loyal and qualified staff, then there is no way round a good employment package. First of all, it should include medical insurance. It may well be worth putting together two different packages: one for Russian employees and another for foreign employees. Russians have a Statutory Medical Insurance policy (OMS), which entitles them to free medical services but this does not extend to expatriates. As I said earlier, if it is a small company, then an officially declared salary and paid leave may well be decisive enough for many potential employees when weighing up whether to accept a job.
If the employment package is put together properly, then the investment in it will recoup itself without question.
For the entrepreneur, it is worth carefully studying the market they are intending to enter. In certain spheres of business there is a serious lack of qualified personnel, so the package should, at the very least, be no worse than that offered by competitors. But there are also areas where, on the contrary, the employer has many potential staff to choose from. Here it is possible to economise on the employment package somewhat.
It is important to remember the fundamental function of the employment package: increasing the company’s attractiveness, motivating staff, increasing work productivity, securing a sustained intake of staff to the general trades, and the long-term stabilising of your workforce. If the employment package is put together properly, then the investment in it will recoup itself without question.
– What are potential mistakes or pitfalls in this area of labour relations? How can they be avoided?
In the current economic climate, we are witnessing a sharp rise in the cost of services, including medical and insurance services. It is vital to choose reliable partners. If it transpires that an insurance company is unable to pay out, then employees will not be able to receive any assistance from their company private insurance policy (DMS). Also, the employee might find difficulties arising regarding settlement of insurance pay-outs when working with an insurance company directly. The ideal therefore is to work through an international healthcare management company like AP Companies. That kind of mutual arrangement reduces to a minimum the risk of non-payment, as well as simplifying communication due to service companies having their own levers of pressure on both the insurance companies and the medical establishments.
When formulating an employment package, it is worth bearing in mind that medical insurance remains for the majority of job candidates (around 77%) the most important element of the package. In second place is free training. Then come mobile phone bills and gym membership. For executive personnel, an incentive might be the providing of free meals (about 35%) and the chance of taking out a loan to buy a house (about 30%).
– Which trends can now be observed in the sphere of social welfare? What influence are they having on the employment market and labour relations?
The sphere of social welfare is undergoing constant redevelopment. If we are talking about those aspects which may be of interest in the context of the employment package, then, arguably, that would be education and healthcare. The employer has the capability to fine-tune one or two of the benefits offered in their employment package. What is more, now there are free distance courses for further education and improving qualifications available at a level that can compete with courses which are quite expensive. Thus, it is possible to economise on certain options, and, as a result, offer something else in addition.
In many ways, starting a business in Russia is simpler than it is in Europe.
– What advice would you give to a Western entrepreneur launching a business in Russia? What should they pay most attention to?
They should study Russian legislation meticulously. In many ways, starting a business in Russia is simpler than it is in Europe, but the aforementioned has its own nuances which are important to be aware of. It isn’t worth cutting costs on staff if it is your intention to build a strong and competitive company. Don’t forget that salary expectations in different cities in Russia may differ many times over, so, if the profile of the business allows for working with employees remotely, then it is worth looking for them in some of the smaller cities. There are quite a few qualified experts there who would ask for a salary half the size of, say, that of someone living in the capital. Many successful Western business models might not work in Russia due to several factors regarding the mentality and layout of the country. Therefore, it is worth studying the market before putting your idea into practice. But the most important thing is: having a solid team.