Employer of Record (EOR) in Czech Republic
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An Employer of Record (EOR) serves as the legal employer for workers in the Czech Republic. This role, often associated with a Global Professional Employer Organization (Global PEO), encompasses managing various aspects of employment. Key responsibilities include ensuring compliance with local labor laws and regulations, overseeing payroll, taxes, legally mandated benefits, and drafting employment contracts.
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.
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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
- 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
- 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.
- 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.
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
- 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.
| Czech Republic | |
|---|---|
| Gross annual salary | CZK 100,000.00 |
| Annual employer costs | CZK 38,603.00 |
| 1) Disability fee | CZK 4,242.70 |
| 2) Health Insurance | CZK 9,000.00 |
| 3) Social Insurance | CZK 24,800.00 |
| 4) Accident Insurance | CZK 560.00 |
| Total annual cost | CZK 138,603.00 |
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.
- 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 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.
- 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 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
Best Employer of Record Czech Republic
Conclusion
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