Kazakhstan: Changing The Rate Of The Tenge: Salary Issues

Last Updated: 26 July 2016
Article by Victoriya Trofimovich

As everyone knows, on 20 August 2015, the Government and the National Bank of the Republic of Kazakhstan made the decision to launch a new monetary credit policy based on an inflation targeting regime and to move to the free floating currency of the tenge.

In connection with this, many of our clients ask the question: Is it possible to set the salary in the employment contract in foreign currency or to set the indexation in the event of a change in the currency exchange rate?

Considering the urgency of these issues, we decided to release the Client Update on "Changing the rate of the tenge: salary issues"

In case of the employer's interest in the social support of its employees in a period of national currency instability, the issue of salary indexation can be settled in employment contracts.

The Labour Code of the Republic of Kazakhstan provides for salary payment in cash in the national currency of the Republic of Kazakhstan.

This means that, as a general rule, the employer cannot pay its employees their salaries in foreign currency.

However, the Law "On Currency Regulation and Currency Control" allows exceptions to this rule.

Thus, salary payment in foreign currency is permitted for resident legal entities of Kazakhstan when their employees are non-residents as well as for non-resident legal entities for salary payment to all their employees regardless of their residency status.

Considering that the majority of employers do not fall among these exceptions, the inclusion of the employment contract's so-called "currency clause" may be the way out of this situation.

In the section of the employment contract that determines the amount of the salary, the Parties may specify that, in the case of a change in the US dollar (or other currency, for example, euro) to tenge rate, the fixed amount of the salary in tenge in the contract is subject to recalculation in accordance with the contract.

At recalculation, the applied coefficient is defined as the ratio of the tenge rate to the respective currency rate on the date of salary payment and the exchange rate of that foreign currency on the date of the execution of the employment contract.

Usually, the exchange rate established by the National Bank of the RoK is taken as the basis for recalculation. However, the parties may determine other ways.

For the ease of use of such a clause, Parties usually provide that it is applicable only in the event of a significant rate change, for example, one greater than 5%.

Besides the currency clause, the salary indexation mechanism by the Parties of the employment contract provided for by Labour legislation of the Republic of Kazakhstan can be used.

Indexation is carried out based on the assumption of the inflation rate as defined in the respective period of the legislation of the RoK. The procedure involved in such indexation may be determined by employment, collective agreements as well as by the acts of the Employer.

In conclusion, it should be mentioned that the balance of the convenience of employees and that of the employer is not only one of the principles of Labour Law, but it is also one of the fundamental factors that affect the labour market and business development in general.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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