Leased labour – how great the change since the new Federal Law 116-FZ?

Leased labour and temporary staffing in various forms and under different names (leasing, outstaffing and rent of the personnel) were commonly used in Russia since late 90s. This kind of services was much in demand especially among international businesses operating in Russia. However it was not set out in a legal framework, duties and responsibilities of the parties – legal entity providing personnel and another one receiving it – were not determined. Starting from the 1st of January 2016 the Federal Law 116-FZ came into force and introduced a number of significant amendments to the Russian Tax and Labour Codes, to the Employment Act, to the Act №125-FZ “On compulsory social insurance against accidents at work and occupational diseases”. Particularly the Law implemented important supplements to the Labour Code: the Article 56.1 gave a definition of the named term: «“zayomny trud” ( leased labour) – is a labour of an employee pursuant to the order of his/her employer in the interest and under the authority and control of the individual or legal entity who/which is not his/her employer». The Federal Law 116-FZ arranged legal frames of the personnel provision. The companies were allowed to provide it under specific requirements and conditions.

According to the Federal Law 116-FZ only accredited private employment agencies (PEAs) which comply with specific requirements regarding authorized capital, tax and duties clearance, determined qualification of the company`s Head, tax treatment etc. can provide temporary staff.

Moreover 116-FZ introduced several requirements concerning salary level and labour conditions as well as possible duration of the contract and number of provided staff and so on.

The Law prohibits staff provision for working in hazardous conditions of different levels as well as replacement of the strike participants etc.

Thus from 2016 personnel provision is legitimate and possible under a number of conditions and requirements that actually help customer companies choose from a list of accredited (and approved) employment agencies to be confident in service quality and its safety.

The Law is in effect for two years already. Is the kind of services in demand today? Coleman Services as other staffing agencies can`t help admitting that it has not become popular due to many restrictions of the 116-FZ. The main reason is the duration of a contract (only up to 9 months), equal payment as to general staff, increased responsibility of the receiving company including subsidiary responsibility on employer`s obligations, on paying salary and other allowances. 

For many companies the service would become much more attractive if the contract could be prolonged after 9 months. The Law doesn`t determine terms of contract prolongation but if the receiving party has one project ended and another started a new agreement is not prohibited by 116-FZ.

For today you can find neither legal practice nor official opinion of Rostrud or other controlling entities on the issue. And the companies tend not to take risks.

Under the named conditions the choice of an adequate provider has also become more careful. In addition to official accreditation the potential provider faces higher demands because of the increased responsibility of the Client and his wish to reduce risks.

That explains why only 10% of the companies use the service. If the project is short-termed and meet the requirements of 116-FZ the companies take the scheme.

But it is still not adopted to suit all the companies and many of them face difficulties to regulate precisely their staff amount. Seasonality, special requirements of HQ regarding possible personnel quantity (for international companies) are to be considered. Only a little number of the companies abandoned personnel leasing and widened their general staff. Many of them in just a year decided to switch to outsourcing of some business processes and functions.

A large number of companies have chosen outsourcing solution especially in situation of long-termed projects.

116-FZ doesn`t regulate or set any restrictions for outsourcing (a transfer of the determined business and production processes to a provider specializing in the corresponding field).

The following is to underline by analyzing conditions of the labour market under 116-FZ: 

Legal regulation of leased labour, the activities of employment agencies and delineation of responsibilities of the parties were really necessary and this function was in general successfully performed by 116-FZ.

The practice of staff provision has changed – «tough» regulation of PEAs accreditation resulted in a dropped amount of «grey» providers. Prescribed restrictions made most companies give up using such services and consequently some of them extended general staff while significant part decided for outsourcing services.

It is worth stressing that staff provision market tends to be more civilized: the companies raise their requirements by choosing service provider, they control his accuracy in performing duties according to the Russian Labour Code and conduct internal audit of his work in order to reduce their own risks.

The demand for temporary staffing without the growth of general staff is visibly high and businesses are still looking for an adequate solution.