Understanding Payroll in Czech Republic: What Global Companies Need to Know About the Czech Republic’s Payroll

Jul 25, 2018  | Topic: Country Payroll

Known for its castles, culture, and cosmopolitan lifestyles, the Czech Republic provides a rich, welcoming, and picturesque setting for international businesses in Europe. Prague is one of the best-preserved cities in all of Europe, with residents and tourists surrounded by history everywhere they turn. With a GDP of $192 billion and a population of 10.5 million, Czechs depend on services and manufacturing exports to maintain their economy. For larger businesses, the Czech Republic offers some very appealing tax laws, including a flat 15% income tax.

In 2018, the Czech economy is experiencing a growth spurt and boasts the lowest unemployment rate in the entire EU. Still, there are a few idiosyncratic requirements for businesses based here to be aware of. Payroll regulations in the Czech Republic can be difficult to keep track of because they're known to change relatively quickly. Additionally, records need to be kept for at least 30 years, which can be difficult for companies new to the country.

Business Basics

Businesses need to provide standard records for their directors as evidence that they have no outstanding legal problems (e.g., unpaid debts, etc.). They'll also need notarized statutory declarations and partnership articles before officially registering at the Trade Licensing Office. Within 90 days of establishing the company, businesses will need to apply for a Commercial Register to confirm their registration. Companies also must register with the Social Security Administration and Revenue Authority. Bank accounts are required to open up a business in the Czech Republic. It's not difficult to open a bank account in terms of paperwork, but it may take some time for businesses to get the tools they need to conduct their affairs. Although many banks promise fast service, even well-known establishments can take longer to facilitate new accounts than may be expected by multinational companies.

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Employment Law & Employment Rights

The workweek in the Czech Republic is capped at 40 hours, with anything extra being counted as overtime. Overtime laws vary based on industry and circumstance but are generally at least 10% more than the standard wage. Written employee contracts are required and must include the location, type of work, and the start date of employment. Contracts may also include salary information or probation period specifications, but employers are not obligated to include these details. Probation periods cannot last more than three months for standard employees or six months for management. Collective bargaining is heavily practiced in the Czech Republic, so employers should be ready to handle potentially complex negotiations with workers, depending on their industry.

Compensation & Severance

The minimum wage in the Czech Republic is 12,200 Czech korunas (Kč) per month or 73.2 Kč per hour, which equates to approximately US$550 monthly. Bonuses in the Czech Republic are not required, though many companies will restructure salaries to either dole out wages differently throughout the month or issue a bonus twice a year. It's also a fairly standard practice to supplement employee salary with perks, such as a gym membership or free parking. The specific compensation plan is generally discussed with the employee prior to onboarding. In the case of termination, employers are required to pay employees one month's wages for every year worked for the company, up to three months. The minimum notice for both employees and employers in the Czech Republic is two months.

Tax Requirements & Withholding

The Czech Republic has a standard income tax of 15% and a corporate tax rate of 19%, making it one of the more financially attractive countries to do business in. All taxes are withheld at the source, including 11% for employee social security contribution. Employers are required to give 34% to social security, which includes pension, health, and unemployment insurance. Dividends from non-resident companies are taxed at 15%. While the tax code for the Czech Republic is lower than the majority of the EU, it should be noted that the code tends to change on a fairly regular basis. Using an international payroll solution will help companies keep up with changes and ensure payroll records are always organized and accurate.

Time Off & Unpaid Leave

All Czech workers are entitled to a minimum of 20 paid holidays annually, although collective agreements have been known to raise that number up to 25. Full-time employees typically receive 25 days of vacation time per year and up to 14 sick days. Sick days are paid at full salary for the first three days and at 60% for the remainder. New mothers take up to 28 weeks off for one birth and 37 weeks off for multiple births, generally beginning their leave 6–8 weeks prior to their due date. Maternity leave is compensated at around 70% of the regular salary, depending on how much a worker has contributed to social security. New fathers are allowed to take over leave in place of the mother after the first seven weeks after the birth.

An Economic Advantage

Considering its tax rates and growing economy, the Czech Republic appears to be a haven for big business in Europe. However, the rapid rate of change can be difficult for newcomers to the country to adjust to. Not only can a global payroll provider make it easier to keep track of where the money is going, but they can also help navigate the pace and culture of the Czech Republic. This knowledge can give larger businesses an advantage as they establish themselves in this historic country.