How to pay international contractors in Russia
Paying international contractors in Russia right now can be complex. Since Russia's invasion of Ukraine, many countries have placed it under sanctions that affect businesses and freelancers based in the country. And Russia has responded in some cases with its own sanctions, creating a difficult landscape for Russian entrepreneurs and the international businesses that have depended on them since before the war.
The Russo-Ukrainian War will continue to have effects, and the situation is changing rapidly. The guidance below should help you better understand how to hire and pay contractors in Russia as a global business.
Step #1: Classify your workers in Russia
One of the first things you need to do when working with contractors in Russia is ensure they're classified correctly. The Russian government takes worker classification seriously, and misclassification comes with serious risks. In Russia, employers who are found misclassifying employees are subject to:
- Back taxes owed, plus up to a 20% fine on the amount of tax due
- Additional penalties for late payment of taxes
- Back social security contributions owed, plus up to a 20% fine (40% if the violation was intentional) on the amount of social security due
- 5% fine for each month of late payment, up to 30%
In Russia, independent contractors can be individuals or legal entities. When a misclassification dispute arises, Russian courts look at both the service agreement and the relationship in practice. Below are some of the factors they consider:
Contractors
Employees
High level of worker control. Contractors should be able to choose when, where, and how they get their work done, without direct supervision or instruction from their employer(s).
More direction from the employer. Employees have a more subordinate relationship with their employer, who can require them to work specific hours or at certain locations.
Equipment and tools are owned by the worker.
Equipment and tools are typically provided by the company.
Performs specific tasks or projects. Contractors' work is often limited by scope or timing.
Performs more general roles. Employees are more likely to perform general functions rather than only specific tasks.
No entitlement to benefits. Contractors are not entitled to statutory benefits provided by employers and must provide their own benefits if they want them.
Entitled to benefits. Employees receive paid leave, retirement benefits, overtime, social security contributions, or other statutory benefits from their employers.
Paid after performing services and invoicing. Contractors should not receive regular payments, but should only be paid after invoicing upon completion of work.
Paid in regular salary installments. Employees are paid regardless of whether services were provided during the pay period.
Not subject to disciplinary action. Contractors are not subject to disciplinary action for misconduct. Instead, they can be terminated for breach of contract.
Can be subject to disciplinary action. Employees can be disciplined by their employer for misconduct and this should occur before they are terminated.
Not exclusive. Contractors can work with multiple clients simultaneously, and can't be contractually bound to just one employer.
Can be exclusive. Employees can be contractually bound to a single employer.
Step #2: Determine the best way to pay your contractors in Russia
While the digital age and the rise of remote work have made it easier than ever to send online payments across borders, the situation in Russia is more complex than in many other countries. How you’ll be able to pay contractors in Russia depends on where your business is based, and it may change as the sociopolitical situation evolves over time.
For example, the US government has banned US companies from investing in Russian entities, which includes blocking most payment systems from being able to transfer money from US-based businesses to anyone in Russia. Similarly, Russia has been blocked from many e-wallets and digital payment platforms, like PayPal and Wise.
Below are some possible payment methods, but remember that these will vary based on where your business is located:
- Bank transfers. If you have or can open a Russian bank account, you can deposit payments into your Russian contractors' accounts. If you use a foreign bank, you may be unable to make the transfer, as Russia has been disconnected from the SWIFT network. Some websites recommend transferring money to a bank in a country like Belarus, China, or Kazakhstan before transferring it to Russia, but the practicality (and legality) of this advice may be questionable.
- Cryptocurrency. Crypto transactions can still be made in some cases—just be careful that your payments aren't violating sanctions. Keep in mind that crypto prices can be volatile, subjecting both you and your contractors to bad "exchange rates" for the payments.
- Global payroll services. Contractors aren't typically included in payroll since they aren't subject to the same taxes and withholdings as employees. Instead, their invoices often go through accounts payable. But with Rippling, you can pay employees and contractors in a single pay run, no matter where they are in the world. Rippling's global payroll services still support contractors in Russia, with some exceptions—Rippling cannot send payments to sanctioned banks, invaded regions of Ukraine, or sanctioned individuals and families.
Step #3: Use global payroll software to process payments for Russian contractors
As you can see, paying contractors in Russia is challenging in the current political climate. The fastest and simplest way by far is using global payroll software.
Rippling allows you to pay employees and contractors, around the world, in a single pay run. Here’s a preview of Rippling’s global payroll system:
Step #4: Ensure your Russian contractors have the right tax information
Self-employed contractors in Russia must file their own tax returns. They have several options to do so, but the easiest way is online via the Federal Taxatio Service of Russia (FTS) website, or via their mobile app, Налоги ФЛ.
The contractor will need their universal tax number (INN in Russian, ИНН — индивидуальный номер налогоплательщика). They can also choose to file their tax returns via an authorized special operator or pay their taxes in person at the local tax office in their city, through their bank account, or at a post office.
To file their tax returns, contractors may need copies of payment documents, tax declarations, and other documents from their employer(s). One of the benefits of paying contractors through a global payroll service like Rippling is it handles things like paperwork for you—and ensures compliance with local tax laws.
Frequently asked questions about running payroll for contractors in Russia
Do you need to withhold taxes when paying contractors in Russia?
No. It's up to the contractor to file their own tax returns and pay their own tax.
Does the Russian minimum wage apply to independent contractors in Russia?
No. In Russia, employees have a right to a minimum wage, but that does not extend to independent contractors.
Do Russian contractors get benefits?
No. Contractors in Russia are not entitled to statutory benefits provided to employees, like paid annual leave, maximum working hours, overtime pay, etc.
Can you pay contractors in Russia in your home currency?
Generally, foreign companies should try to pay contractors in their home currency (in Russia, that's Russian rubles or RUB). Some contractors prefer to receive payments in other currencies—especially if they can get paid in a stronger or stabler currency like USD. If you pay your contractors in a different currency, make sure to get their permission in writing first.
Can you manually pay contractors in Russia?
You can always pay contractors manually, and many businesses do as a cost-saving measure. But making manual payments each month is time-consuming and labor intensive, and comes with risks to your business:
- Compliance. Manual payments risk human error, omissions, and other compliance issues. It’s better to use software like Rippling, which automatically enforces compliance with local laws and regulations.
- Security. Manual payments often mean paper, spreadsheets, and other less-than-secure methods. These methods expose your contractors' personal data to theft, breaches, and other security risks.
How do you turn a contractor into an employee in Russia?
While contractors come with many financial benefits, sometimes you need a full-time employee—and Rippling makes it easy to make that transition. Hiring employees means complying with a new set of labor laws—drafting a compliant offer letter, offering the right benefits, and more. From onboarding to offboarding, Rippling makes it easy to manage your entire global workforce—all in one place.
Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.
