Being an employer in the Czech Republic

Social-security system  

The social-security system represents one of the most important areas of social policy in the Czech Republic. In a modern society it is rightfully expected that social policy will ensure, through its social-security system, the prerequisites, conditions, impetus and motivation to develop each individual and thus the prosperity of the whole society. In the Czech Republic the social-security system is implemented through three main tools, namely social-security insurance, state social benefits and social assistance and services.  

Contributions to social-security insurance are mandatory under the law. By contributing part of their own funds to this financial system, people insure themselves for possible future situations. The basic principle of this system is social solidarity of citizens.

Regarding the time period, social-security insurance can be classified as short-term (sickness benefit, maternity benefit and unemployment benefit) and long-term (pension and disability benefits). In compliance with the international classification, Czech social-security insurance is divided into the following systems: sickness insurance, accident insurance, health insurance and pension insurance. In other words, social-security insurance helps people prepare for possible life situations including, for example, unemployment – citizens of the Czech Republic contribute to the Employment Policy Fund, which is actually an unemployment benefits fund; ill health – citizens contribute to the health-insurance system; short-term disability – citizens pay sickness-insurance contributions; long-term disability – pension-insurance contributions; and work-related accidents – personal-injury insurance. Czech social-security insurance is embedded in several legal regulations, of which the most important are Act No. 589/1992 Coll., on Social Security Premiums; Act No. 155/1995 Coll., on Pension Insurance; Act No. 266/2006 Coll., on Accident Insurance of Employees; Act No. 426/2011 Coll., on Pension Savings; and Act No. 427/2011 Coll., on Supplementary Pension Savings. The Czech Social Security Administration (CSSA) is a state administration body that represents the state in matters involving pension benefits. The function of the CSSA in the Czech social-security system is to regularly collect contributions to the social-security insurance system and the State Employment Policy. The CSSA also pays out retirement and disability pensions, sickness benefits and other benefits should an individual become eligible. Health-insurance contributions fund basic healthcare. All employees and self-employed people as well as individuals without taxable income residing permanently in the Czech Republic are obliged to pay contributions. Part of the insurance is paid by employees themselves and part is paid by their employer. These payments are not sent to the state but rather to health-insurance companies. Health insurance covers medical treatments, medical devices, medication, etc. It does not cover some drugs and services that are not part of basic healthcare. These are paid for by patients. The state pays contributions on behalf of children, fulltime students up to the age of 26 and retired people.  

Insurance, support and assistance are the ingredients of a just social system for everyone. The responsibility of employers, employees and the social-security administration in the case of unemployment, sickness, disability, care or emergencies in the Czech Republic. What costs must be calculated when hiring employees? Computation of wages and elements thereof, benefits and mandatory contributions in the Czech Republic.   

Payroll accounting

Payroll accounting is part of employers’ accounting and it is one of the basic sources of information about the financial situation of a company. Payroll accounting includes HR and payroll data, salary calculations, social-security and health-insurance deductions, taxes, garnishing of wages and other individual salary deductions. HR and payroll administration is essential for mandatory reports and summaries sent to social-security bodies, health-insurance companies, the Tax Office, the body responsible for statutory employer insurance, the Labour Office and other institutions. Payroll and HR administration can be outsourced and in the Czech Republic these services are provided by a great number of companies. Payroll outsourcing involved comprehensive HR and payroll administration in compliance with current legislation and related services.

Salary tax

Since 2021, the gross wage has been used in the calculation of personal income tax. Includes basic salary and other non-cash income of the employee. Net pay is equal to an employee’s gross salary (basic salary, allowances, bonuses and holiday and sickness payments, etc.) for a calendar month minus income tax plus tax credits minus the 11% social-security insurance premium (6.5% of the gross salary) and the health-insurance premium (4.5% of the gross salary).

Employee benefits  

The most common benefit provided by employers is meals, usually in the form of meal vouchers or subsidised meals in the company canteen. The maximum value of meal vouchers is not limited by law. For the employee, the employer’s contribution to meals is a non-taxable non-monetary benefit. The value of the meals or vouchers provided by the employer is not included in the salary used to calculate social-security and health-insurance contributions. However, the cost of the benefit can reduce the company’s tax base by up to 55% of the value of the meal or meal voucher, though this amount may not exceed 70% of the current limit on meal allowances, which is EUR 4 per meal/voucher. Since 2021, this type of benefit has been supplemented by the "Meal flat rate" alternative, where the employer can pay this contribution to employees. Contributions to the employee’s pension fund with a state contribution, supplementary pension insurance and private life assurance are the most common financial benefits. The employer’s contributions are taxfree up to the limit of EUR 1,908 a year. The employer can use these costs to reduce their tax base regardless of the total sum of contributions as long as these contributions are embedded in the company’s collective agreement, internal company directives or in individual employment contracts and agreements. Courses for employees are another very common benefit. These can be profession-related trainings, language courses or other forms of education. For employees such courses and trainings are a great opportunity to gain new knowledge and skills free of charge. The employee is not liable for tax on this benefit, though the employer can use the cost of courses to reduce tax base as long as the provided education relates to the company’s business. Cultural events, sport and holiday contributions can have the form of a Flexi pass, which can be used as a payment method in selected pharmacies, theatres, cinemas, sport facilities, gyms, travel agencies and other businesses. As the name suggests, this pass is a very flexible form of benefit that employees can use as they wish. For the employee, this non-monetary benefit is non-taxable up to the value of EUR 763 per year. Employers pay this benefit from their after-tax income via the Social and Cultural fund, which means that its costs cannot be used as a tax deduction. If the value of the benefit exceeds the limit of EUR 763, the amount over this limit is added to the assessment salary used to calculate social-security and health-insurance contributions. company car is often provided to employees for both work-related and personal use. In such a case, 1% of the cost of the car is considered to be the employee’s income for every commenced month when the employee uses the car. Companies do not have to deduct write-offs, maintenance costs or road tax, but different conditions apply depending on who pays for the fuel. If the employer pays the entire fuel cost, the value per kilometre of personal use of the car is added to the basic salary used to calculate social-security and health-insurance contributions. 

Example of salary calculation

Gross salary

EUR 1,359

 

 

Employee

 Employer

Health insurance

 

 

 

 

Health Insurance (4.5% / 9%)

4.5%

EUR 61

9%

EUR 122

Social insurance

 

 

 

 

Sickness insurance (0% / 2.3%)

0%

EUR 0

2.1%

EUR 29

Pension insurance (6.5% / 21.5%)

6.5%

EUR 88

21.5%

EUR 292

State employment policy (0% / 1.2%)

0%

EUR 0

1.2%

EUR 16

Social insurance total (6.5% / 24.8%)

6.5%

EUR 88

24.8%

EUR 337

Insurance contributions total

 

 

 

 

Insurance contribution (11% / 33.8%)

11%

EUR 149

33.8%

EUR 459

Tax relief

 

 

 

 

Employee relief

 

EUR 88

 

 

Child tax credit

 

 

   

2nd Child tax credit

 

EUR 109

 

 

Income tax

 

 

   

Monthly taxable salary

 

EUR 1,359

 

 

Income tax deposit

15%

EUR 204

 

 

Tax if income exceeds EUR 5,268

23%

EUR 0

 

 

Tax deposit after deduction of tax credits

 

EUR 7

 

 

Net monthly salary

 

EUR 1,113

 

 

Salary cost to the employer

 

 

 

EUR 1,817

Currency: Euro (EUR 1 =CZK 26.5)
Source: Adecco, 2020

Association for Foreign Investment