Income indexation is the reimbursement, partial or total, of population losses in income that were caused by rising consumer prices.
The following two forms of this process are practiced in the world:
• Automatic - when the indexation of salaries and other types of income occurs in proportion to price growth.
• Semi-automatic (ie contractual), the essence of which is in negotiations with representatives of state bodies, trade unions and employers, as well as in attracting experts. This form of indexation is used in the EU countries, and the result of such negotiations is the creation of recommendations establishing a lower threshold for social protection for collective bargaining.
The Labor Code of the Russian Federation introduced an article obliging all employers to carry out indexation of salaries. At the same time, the Labor Code of the Russian Federation does not establish either a time frame or a rate of salary increase. Each employer is obliged to determine these parameters himself in agreements, VLA or collective agreements.
Salary indexation, as we have said, is associated with the concept of increasing consumer prices. The calculation of this indicator is carried out monthly according to the methodology of the State Statistics Committee, and characterizes the level of change in population spending on the purchase of consumer goods, as well as paid services in the current period compared to the previous one. The index is calculated both for individual regions and for Russia as a whole.
An employer may not make an increase in the salaries of its employees precisely by the amount published by Rosstat. The responsibilities of companies include only a periodic review of the level of salary. Rising prices for consumer goods and services is an occasion to increase wages in order to maintain it at the level of real content, as well as the purchasing power of workers. Therefore, Rosstat information is regarded as the minimum indicator of salary indexing. At the same time they are guided by the principle of freedom of choice of the employer, independently setting the working conditions for employees (but they should not worsen their financial situation and infringe on their rights).
To determine the required size of the indexation of wages, in addition to the indicator of growth in consumer prices, it is also possible to take into account other data, for example, the increase in the cost of living calculated for the able-bodied population or the inflation rate.
Indexation of salaries includes:
- Indexing mechanisms - that is, its size. This is what we talked about above.
- The frequency of its implementation.
The frequency of indexation is also defined in agreements, VLA or collective agreements. It can be any - annual, semi-annual, quarterly or monthly.
Salary indexation differs from its increase - these are two different concepts. For example, if budgetary institutions periodically experience insignificant increases in salaries or tariff rates, an increase in premiums, then this increase cannot be called indexation of salaries, since the conditions for the increase are not clear to the employee, and they are not specified in the local acts as indexation. In labor disputes , such cases are often dealt with when similar disagreements arise between the employer and employees about the nature of the increase in wages.
Therefore, the mechanism chosen by the head, as well as the frequency of salary indexation, is necessarily first of all fixed in the LNA or collective agreement. The absence in these documents of provisions on indexation of the salaries of employees of an enterprise is qualified during inspections of the labor inspection as a violation of labor law, and is fraught with fines.