Employer of Record (EOR) in Czech Republic

Responsibilities of the Employer of Record (EOR)

• Compliance with Local Laws : Ensuring that the worker’s employment adheres to Czech labor laws.
• Payroll Management : Administering the local payroll process efficiently and accurately.
• Tax Filing and Documentation : Handling the filing of employment-related taxes and all necessary paperwork.
• Providing Payslips : Issuing payslips to the worker for transparency and record-keeping.
• Salary Disbursement : Managing the timely payment of the worker’s salary.

Streamline your global expansion with our Global PEO services, providing a hassle-free solution without the need for setting up a local entity. Our Employer of Record (EOR) in the Czech Republic ensures a legal presence, compliance with local regulations, and protection of intellectual property, allowing your business to focus on its core operations.

Things you need to know before hiring in Czech Republic

Employment Contracts in Czech Republic

In the Czech Republic, an employment relationship is established through an employment contract, which outlines the dependent work performed by the employee for the employer. Understanding the contents and implications of the employment contract is crucial for both parties, as breaches of obligations can result in liability for damages or termination of the employment relationship.

• Working Hours: Employees typically work 40 hours per week, divided into five eight-hour days. A 30-minute lunch break is provided, which is not counted as part of the working time.
• Probation Period: The probation period for new employees cannot exceed 3 months; however, it can be extended to 6 months for managerial positions.
• 13th Month Salary: While not mandated by law, many employers in the Czech Republic offer a 13th-month salary bonus as a performance reward, providing an additional financial incentive for employees.

Termination, Severance Pay, and Notice Period

Termination

Your employment can be terminated in the following ways:

• Mutual agreement between both parties
• Notice given by either party
• Immediate termination by the employer
• Termination during the trial period
• Expiration of a finite-term employment contract

Notice Period

If notice has been given, employment will conclude at the end of the notice period, which lasts a minimum of 2 months. This notice period starts on the first day of the month following the delivery of the notice.

Severance Pay

As an employer, you are required to provide severance pay if an employee’s contract is terminated with notice or by mutual agreement for specific reasons, including:

• Organizational restructuring or changes
• Health-related reasons (e.g., work accidents, occupational diseases, or other workplace hazards)

To ensure compliance, it’s essential that the reasons for termination are clearly outlined in the written agreement. Failure to do so may result in the employee retaining the right to severance pay, even if not initially intended.

Severance Pay Calculation

For terminations due to organizational changes, the severance amount is based on the employee’s length of service:

• 1 month of the employee’s average monthly salary for employment up to 1 year
• 2 months of the employee’s average monthly salary for employment between 1 to 2 years
• 3 months of the employee’s average monthly salary for employment over 2 years

In cases where termination is due to health-related issues, severance pay must be no less than 20 times the employee’s average monthly salary.

Overtime Pay

Ordered overtime work must not exceed 8 hours in individual weeks and 150 hours in a calendar year. Any overtime beyond these limits can only be required with the employee’s consent. In such cases, the total amount of overtime work must not exceed an average of 8 hours per week over a maximum period of 26 consecutive weeks. A collective agreement may extend this maximum period to 52 consecutive weeks.

Employees vs Independent Contractors

Employees and independent contractors are subject to different treatment in several key areas, including benefits entitlement, tax contributions, leave, and protection against termination. Employees receive a full range of statutory benefits and rights as outlined in the Labour Code. These include the right to join trade unions, statutory minimum annual leave and wage, maximum weekly working hours, overtime pay, a notice period before termination, and severance pay. In contrast, independent contractors do not receive these employment benefits and protections since they fall outside the scope of the Labour Code. However, contractors can access pension and social security benefits, such as sick leave and maternity leave, provided they make voluntary contributions.

When it comes to termination, employers must have a valid and fair reason to dismiss an employee, as defined by the Labour Code. Independent contractors, however, do not have similar protections, such as a required notice period or severance pay, unless otherwise specified in their contract. Their agreements can often be terminated with immediate effect for any reason if previously agreed upon. Furthermore, most health and safety regulations and employer liability protections do not extend to independent contractors.

Social Security in Czech Republic

Contributions to Social Security and Health Insurance

In the Czech Republic, social security contributions are mandatory for individuals employed by local companies. Most foreign secondees working for a Czech employer are also required to pay into the Czech social security and health insurance systems, unless an exception is specified by European Union (EU) regulations or a bilateral social security treaty. Given the complexities surrounding participation in these systems, it is crucial to evaluate each secondee’s circumstances on a case-by-case basis.

Social security contributions fund three main areas: pensions, unemployment benefits, and sickness benefits (among other forms of assistance). Entrepreneurs have the option to contribute to the sickness fund.

Health insurance is designed to cover medical care costs. Individuals can select a licensed insurance provider to which they will remit their health insurance contributions.

Mandatory contributions are calculated based on an individual’s gross salary, and any income subject to income tax is generally also subject to social security and health insurance contributions.

The contribution rates based on gross salary are as follows:

• Employer Contributions : 24.8% for social security and 9% for health insurance.
• Employee Contributions : 7.1% for social security and 4.5% for health insurance.

Employers handle the payments for both the employee’s share (deducted from their gross salary) and their own contributions (paid in addition to the gross salary).

For 2024, the maximum annual limit for assessing contributions to the social security system is set at 48 times the average monthly wage, amounting to CZK 2,110,416. This cap applies to both employees and entrepreneurs.

It is important to note that there is no limit on contributions for health insurance.

Payroll in Czech Republic

Government Requirements

Registration Requirements

• Payroll Tax : Employers hiring their first employee must register for payroll tax within eight days . This registration can be completed electronically via the employer’s registered electronic databox or through a tax adviser, with no associated government fees.
• Social Security : Registration with the Czech Social Security Authority is mandatory upon hiring the first employee. Employers must submit the form “Přihláška do registru zaměstnavatelů” within eight days. An ID number is assigned upon registration, which is essential for making contributions and submissions.
• Health Insurance : Employers must register with each of the seven public health insurance companies for every new hire using the form “Přihláška a evidenční list zaměstnavatele.” This registration is also required within eight days of hiring.
• Mandatory Risk Insurance Registration : Employers must register for mandatory risk insurance as soon as they hire their first employee. This is done using the form “Přihláška k pojištění odpovědnosti zaměstnavatele za pracovní úrazy a nemoci z povolání.”

Ongoing Compliance Requirements

Filing and Payment Obligations

• Employers are required to operate a monthly payroll, which includes calculating payroll tax withholdings, social security contributions, health insurance contributions, and mandatory insurance. They must also file related monthly and annual reports.

Payroll Compliance

• Payroll management in the Czech Republic is complex, involving several obligations, such as paying sickness pay, keeping records of employee absences, and calculating the average salary for vacation and overtime compensation. Employers must archive certain payroll documents for extended periods (up to 45 years for specific records).

Monthly Tax Compliance

• As of 2024, there are two income tax rates: 15% on income up to CZK 131,901 and 23% on income exceeding that amount. Payroll taxes must be remitted by the 20th of the following month.

Annual Tax Compliance

• Employers must file an annual payroll tax report by 20 March of the following year. Additionally, they are responsible for conducting annual tax reconciliations for qualifying employees.

Sickness Pay

• Employers must reimburse employees for the first 14 days of sickness. Starting on the 15th day , employees receive sickness pay from the government. Employers must maintain records and submit necessary documentation to the social security authorities.

Social Security Compliance

• Social security contributions are 24.8% for employers and 7.1% for employees, capped at an annual income of CZK 2,110,416 for 2024. Payments are due by the 20th of the following month.

Health Insurance Compliance

• Health insurance contributions are 9% for employers and 4.5% for employees, with no cap on contributions. Payments must also be submitted by the 20th of the following month.

Mandatory Risk Insurance

• Employers must calculate and remit contributions for mandatory risk insurance quarterly, based on previous quarter earnings. Rates vary by industry, ranging from 0.28% to 5.04%.

Pension Requirements

• There are no specific pension registrations or payments required. New hires are automatically registered within the pension scheme as part of the social security process. Employers must submit old age pension sheets by 30 April each year.

Ongoing Compliance Requirements

• Employers are responsible for submitting annual documentation related to pensions to the social security office.

Employment Obligations

• No employment registration is needed for domestic employees. However, start dates for employees from the EU or third countries must be reported to the Labor Office on their first day of work.

Payroll Requirements

• Pay Slips: Employers must provide monthly pay slips to employees, detailing salary components and withholdings, either electronically or in hard copy.
• Wage List: Employers are required to maintain an annual wage list (“mzdový list”), which includes mandatory personal information and year-to-date earnings and tax details for each employee.
• Salary Certificate: Employers must issue an annual salary certificate upon employee request. This document is necessary for personal income tax returns and may also be required for bank loan applications.
• Banking Requirements Related to Payroll: Net salaries are typically wired to employees’ bank accounts, with employers covering all transfer-related costs. Payments can be made from either Czech or foreign bank accounts, but if made from overseas, employers must ensure that all charges are accepted by the remitting bank. Proper assignment of payments to authorities requires inclusion of the employers’ identification numbers.
• Minimum Wages: As of October 2024, the minimum wage in the Czech Republic is CZK 18,900.00 per month. This rate has been in effect since January 1, 2024.

Payroll Cycle

In the Czech Republic, the typical payroll cycle is monthly; however, weekly or bi-weekly payments are also possible. According to the Czech Labour Code, employees must receive their pay by the end of the calendar month following the month in which they performed their work.

Personal Income Tax in Czech Republic

In the Czech Republic, tax residents are subject to a progressive taxation system as follows:

• A 15% tax rate applies to gross annual income up to CZK 1,582,812, which is calculated based on 36 times the average monthly salary.
• Any gross annual income that exceeds this threshold is taxed at a rate of 23%.

These rates apply to all forms of income, with the exception of income that has already been subjected to the final Czech withholding tax (WHT) at the source, such as dividends or interest from bonds issued by Czech companies. Certain types of foreign income included in a separate tax base are also excluded from these rates.

Czech Republic Employee Hiring Cost

When employing an individual in the Czech Republic, it is essential to consider not only the gross salary but also the additional employer costs that contribute to the total annual expense. For instance, if a company offers a gross annual salary of CZK 100,000.00, the employer incurs additional costs amounting to CZK 38,603.00, which includes mandatory contributions for social security, health insurance, and other related expenses. Therefore, the total annual cost of employing this individual would be CZK 138,603.00. This breakdown highlights the importance of understanding the full financial implications of hiring employees in the Czech Republic.

Employee Benefits in Czech Republic

In the Czech Republic, employee benefits are categorized into mandatory and supplementary types, reflecting the country’s commitment to employee welfare. Mandatory employee benefits encompass retirement plans, paid time off, and unemployment insurance, ensuring a fundamental safety net for all workers. Supplementary benefits often enhance the standard offerings and may include retirement plans, flexible benefits, and meal vouchers. Additional perks are also available, such as gym memberships, language courses, salary continuation plans, transportation assistance, and an extra week of vacation.

Mandatory Employee Benefits

• Pension: All employees in the Czech Republic, including self-employed individuals (with the exception of casual and seasonal workers), are required to participate in a compulsory pension system, which is administered by the Czech Administration of Social Security. This defined benefit plan ensures financial support in retirement.
  • Retirement Age: For employees born after 1971, the retirement age is set at 65 years. However, there are exceptions for male employees born before 1971, with a varying retirement age based on their birth year.
  • For Men: The normal retirement age ranges from 60 years for those born before 1936 to 65 years for those born after 1953.
  • For Women: The retirement age is influenced by the number of children raised, with ages ranging from 53 to 65 depending on the year of birth.
• Maternity/Paternity Pay: Maternity leave provides financial support equivalent to 70% of an average gross salary for a duration of 28 weeks (or 37 weeks for multiple births). Eligibility requires at least 270 days of sickness insurance before the leave begins. Paid parental leave, which follows maternity leave, offers up to CZK 350,000 (CZK 525,000 for multiple births) to be utilized within the first three years of the child’s life.
• Unemployment Insurance: Unemployment benefits are available for up to five months, with extensions based on the employee’s age. In the case of termination by the employer, benefits can vary from 45% to 65% of the previous average salary depending on the duration of unemployment.

Supplementary Employee Benefits

• Supplementary Pension Insurance: This voluntary scheme allows employees to contribute to their retirement savings. While it is no longer available to new entrants, existing participants can continue their contributions under defined conditions.
• Healthcare: The Czech public healthcare system covers necessary medical treatments, with limited options for extended healthcare. However, there is an increasing interest in enhanced medical care, especially among foreign companies in the IT and pharmaceutical sectors.
• Group Life and Accident Insurance: Typically offered by multinational companies, this insurance provides coverage for death, accidental death and dismemberment, and total permanent disability, with premiums fully covered by employers.
• Flexible Benefits: Many multinational companies offer flexible benefits plans, allowing employees to allocate a budget towards their preferred benefits, enhancing job satisfaction.
• Workplace Canteens/Meal Vouchers: While larger employers may provide canteen services, most employers opt for meal vouchers or monetary allowances, which are tax-deductible for employers.

Work Permit in Czech Republic

The Czech Republic, situated in Central Europe and bordered by Germany, Austria, Poland, and Slovakia, is a landlocked nation with a population of approximately 10.56 million as of 2016. Its capital, Prague, is not only the largest city but also a cultural and economic hub. Notably, the Czech Republic is recognized as the seventh safest country in the world, making it an attractive destination for expatriates.

In response to a rapidly growing economy and a significant shortage of workers in various sectors—particularly in general labor—the Czech government has implemented a work visa program to attract foreign talent. This initiative aims to fill the gaps in the labor market and support continued economic growth.

Work Permit Overview

A work permit in the Czech Republic is an essential document that grants foreigners the legal right to work in the country. The initial work permit is typically valid for one year, with the option for renewal for an additional two years.

Foreigners residing in the Czech Republic for three months may apply for a Temporary Residence Card (TRC), which facilitates longer stays. The TRC application process is efficient; applicants can generally expect to receive their cards within two months of submitting their documentation.

The work permit system is inclusive, allowing individuals of all nationalities and genders to apply, thereby promoting diversity in the workforce. This approach reflects the country’s commitment to harnessing the skills and talents of a global workforce to address its labor shortages effectively.

EOR Solutions in Czech Republic

• EOR and Recruitment Services: For organizations looking for assistance in talent acquisition, our integrated EOR and recruitment services provide a holistic approach. Leveraging our extensive network and industry insights, we help you identify, onboard, and retain top talent, making your entry into the Czech market as smooth as possible.
• Visa Sponsorship and Global Mobility: Navigating the intricacies of expatriate employment is simplified through our visa sponsorship and global mobility services. We manage the relocation of your international workforce while ensuring compliance with Czech immigration and employment regulations.
• Assistance on Record (AOR) for Contractor Payments: For businesses encountering difficulties with contractor payments, our Assistance on Record (AOR) services are here to help. We handle the complexities associated with contractor payments, guaranteeing accuracy and compliance at every stage of the process.
• Transitioning Freelancers to Employees: Mercans specializes in facilitating the transition of independent contractors to permanent employees in the Czech Republic. Our expertise ensures that this process is efficient and compliant with all legal requirements.
• HCM Integration: Integrate Mercans’ EOR services seamlessly with your Human Capital Management (HCM) system in the Czech Republic. This integration allows for real-time data exchange, enhanced compliance, and improved cost efficiency. Trust our expertise for a unified and effective approach to managing your workforce and payroll operations.

Best Employer of Record Czech Republic

Mercans distinguishes itself as the foremost Employer of Record (EOR) provider in the Czech Republic for several compelling reasons:

• Compliance with Regulatory Authorities: Mercans is dedicated to strict compliance with all legal and regulatory standards established by the Czech Ministry of Labour and Social Affairs. This commitment ensures that all employment practices adhere fully to local laws and regulations.
• Independent Entity: As an independent organization, Mercans operates autonomously, delivering reliable and customized employment solutions tailored to the specific needs of businesses in the Czech Republic.
• Versatile Employment Management: Mercans expertly manages a diverse array of employment types, including full-time employees, freelancers, contractors, and expatriates. This versatility allows us to effectively address various employment requirements.
• Tailored Solutions for Enterprises: Designed specifically for larger organizations, Mercans offers scalable and sophisticated services that adapt to complex organizational structures, ensuring smooth integration with existing processes.
• Multi-Currency Payroll Management: Mercans is skilled in managing payroll in multiple currencies, facilitating efficient financial operations for both local and international businesses.
• Extensive Global Network: With a robust global presence, Mercans excels in multi-country payroll management, ensuring seamless international operations for businesses looking to expand their reach.
• Commitment to Data Protection: Mercans prioritizes data security and compliance with the highest standards, including GDPR certification, along with SOC 1 and SOC 2 compliance, guaranteeing that client data is handled with the utmost care.
• Certified Quality Standards: Holding ISO 20000 and ISO 27001 certifications, Mercans demonstrates its commitment to excellence in IT service management and information security.
• Robust Security Practices: Mercans adheres to OWASP ASVS 3.0 standards, implementing strong security measures throughout application development and management to protect sensitive information.
• Innovative HR Solutions: Mercans HR Blizz is our proprietary global payroll and talent management software suite that streamlines payroll processes while ensuring compliance with local regulations. Supported by a network of over 1,000 in-country specialists, it provides expert insights into labor laws and business practices.
• Advanced Payroll Processing: Our advanced native payroll engine, G2N Nova, offers global gross-to-net payroll processing in over 100 countries. Available as a SaaS or service delivery platform, G2N Nova can function as a standalone solution or seamlessly integrate with leading Human Capital Management (HCM) and Workforce Management systems.
• Compliant with Ministry of Labour and Social Affairs: Mercans is committed to maintaining compliance with the Ministry of Labour and Social Affairs, ensuring that all employment practices are fully aligned with the latest labor laws and regulations in the Czech Republic. This dedication provides peace of mind for businesses seeking to operate in a compliant and efficient manner.