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Czech Republic: Pay and benefits

Original and updating authors: Jaroslav Škubal, Tereza Erényi and Daniel Vejsada, PRK Partners Prague
Consultant editor: Marie Janšová, Legalité

Summary

  • Wages must be based on the complexity, responsibility and difficulty of the work performed, and must be agreed or otherwise determined before the employee starts work. (See General)
  • Wages must be paid in Czech currency, and in accordance with various rules on the frequency and method of payment. (See Payment of wages)
  • Deductions from wages are permitted only for specified reasons and are subject to limits. (See Deductions)
  • All employees of the same employer are entitled to receive equal pay for equal work or work of equal value. (See Equal pay)
  • There is a statutory minimum wage that applies to all employees, along with "guaranteed" minimum wage rates for employees whose pay is not set by a collective agreement. (See Minimum wages)
  • The pension system consists of two "pillars", which are a mandatory state retirement pension (first pillar) and supplementary private pensions insurance (third pillar). The second pillar that allowed voluntary pension savings by employees (with an employer contribution) was abolished with effect from 1 January 2016. (See Pensions)
  • Income tax on employment income must be withheld by the employer at source. Employers and employees must pay contributions to the state social insurance system and to the public health insurance scheme. (See Income tax and social security)
  • During sickness absence, employees are entitled to sick pay from the employer from the first working day of absence to the 14th calendar day of absence, and to state sickness benefits from the 15th calendar day of absence. (See Pay for employees not at work)

General

Various terms are used in the relevant legislation, but "wages" is used here for simplicity, referring to the monetary and in-kind remuneration provided to an employee for work performed, whatever the frequency of payment (monthly, hourly and so on) or method of calculation, and the nature of the employee's work (blue-collar, white-collar and so on). The material in this section refers to wages in the private sector. Public-sector wages are subject to separate statutory rules in many areas. For example, public-sector employees' wages are based on 16 scales set by government regulation, and they have their own special system of wage supplements and a personal evaluation system.

Statute provides that wages must be based on the complexity, responsibility and difficulty of the work performed, with regard to how arduous the working conditions are, and the employee's efficiency and work results. The specific amount of wages may be set in various ways, as follows:

In all cases, the wages must be agreed or otherwise determined before the employee starts performing the work concerned.

All employees must be paid at least the statutory national minimum wage and, where applicable, the statutory "guaranteed" minimum wage for a particular category of employee (see Minimum wages).

Statute provides for mandatory minimum pay premiums for work in certain circumstances. These apply notably to overtime (see Czech Republic: Employee rights > Hours of work), night work (see Czech Republic: Employee rights > Hours of work), work on Saturdays or Sundays (see Czech Republic: Employee rights > Rest breaks and rest periods) and work on bank holidays (see Czech Republic: Employee rights > Holiday and holiday pay). Further, employees must receive a premium for working in an "arduous" work environment, as defined by a government decree (this applies to environments involving exposure to factors such as noise, vibration, chemicals or dust). The minimum premium for such work is 10% of the rate of the national minimum wage (see Minimum wages).

In addition to basic wages and pay premiums, employees may receive bonuses and other additional payments, usually based on individual performance or the company's economic results. Such bonuses or payments may be granted if certain conditions are met, or be fully discretionary.

Where statute refers to average hourly earnings, for example in terms of calculating sick pay (see Pay for employees not at work) or minimum pay premiums for overtime (see Czech Republic: Employee rights > Hours of work), these are defined as the gross wages (including all premiums, bonuses and other additional payments) paid to the employee for work in the preceding calendar quarter, divided by the number of hours worked during that quarter. If, during the quarter concerned, the employee received a payment such as an annual bonus, this is included only proportionally in calculating the employee's gross wages for the quarter (so, for example, only a quarter of an annual bonus is counted).

Payment of wages

Wages must be paid in Czech currency (that is, Czech koruna), except that the wages of employees whose regular workplace is located abroad may be paid in an agreed foreign currency, provided that an exchange rate for this currency is set by the Czech National Bank.

An employer may provide payment in kind, for example in the form of goods, only with the consent of the employee. In all cases, the employee must receive cash wages at least equal to the statutory national minimum wage or, where applicable, the statutory "guaranteed" minimum wage for the particular category of employee (see Minimum wages). The payment in kind must be given a fair monetary value. In practice, payment in kind is very rare.

Wages must be paid after the employee has performed work, at the latest in the calendar month following the month when the employee's entitlement to the wages arose. The employer must set the regular pay day for employees within this time limit, unless the pay day is fixed by the employment contract or an applicable collective agreement.

Wages must be paid at the place of work during working hours unless some other place or time of payment has been agreed by the employer and employee. Notably, the employer and employee may agree that wages will be paid into the employee's bank account.

In practice, it is the norm that wages are paid on a monthly basis by bank transfer.

The employer is obliged to provide all employees with an itemised payslip with each payment of wages. The payslip must give details of the components of the wages paid and the deductions made. If requested, the employer is obliged to provide an employee with documentation to show how his or her wages were calculated.

At the start of employment, the employer must provide the employee with a written "wage statement", giving details of the manner of remuneration, and the date and the place of payment, unless these are specified in the employment contract, an applicable collective agreement or the employer's internal regulations (see Czech Republic: Employee rights > Internal regulations). If there is any change in the information included in the wage statement, the employer must inform the employee in writing, at the latest on the date when the change takes effect.

Deductions

Employers must deduct from an employee's pay the income tax and mandatory social and health insurance contributions (see Income tax and social security) that the employee is obliged to pay, and pass these on to the relevant bodies.

In addition, employers are permitted to make deductions without the employee's consent to recover:

  • advance payments of wages, if the employee did not subsequently perform the work to earn these wages;
  • advance payments of travel or other employment-related expenses, if the employee did not account for the expenses concerned;
  • holiday pay for periods of annual leave that the employee took but to which he or she had not yet earned entitlement (see Czech Republic: Employee rights > Holiday and holiday pay); and
  • sick pay for periods of sickness absence, if the employee subsequently lost entitlement to such pay because of a breach of the relevant rules, such as going on holiday while sick (see Pay for employees not at work).

Part of an employee's wages may be attached by order of a court or administrative authority to pay debts to third parties, such as child support and maintenance.

The employer may deduct an employee's trade union membership contributions and pass these on to the union concerned, if an applicable collective agreement provides for such deductions and the employee gives consent (see Czech Republic: Industrial relations > Trade unions and recognition).

From 1 January 2014, an employee may conclude an agreement with any third party on deductions from his or her pay, for the third party's benefit (usually to a bank or a loan company). However, such an agreement is subject to the employer's consent. If an employee concludes more than one such agreement, then it is the employee, not the employer, who bears any costs incurred connected with deducting the amount from his or her pay.

Any deductions from an employee's wages other than those listed above require a written agreement between the employer and the employee. Deductions for certain reasons, such as fees to the employer for recruiting the employee, or disciplinary fines, are expressly forbidden.

Total deductions from an employee's wages may not exceed a certain amount, and part of the wages must always be free of deductions and paid to the employee. The specific limits depend on the particular circumstances of the employee concerned.

Equal pay

Discrimination in remuneration, and other employment conditions, is prohibited on grounds of sex, sexual orientation, race or ethnic origin, nationality, citizenship, social origin, family lineage, language, health (including disability), age, religion or belief, political or other opinion (including membership or activities in political parties or political movements, trade unions or employers' organisations), property, and marital and family status or obligations to family (see Czech Republic: Equal opportunities > General).

In addition, statute provides for a general principle of equal pay, which is not limited to the prohibited grounds of discrimination. This principle is that all employees of the same employer are entitled to receive equal pay for equal work or work of equal value.

Equal work or work of equal value is defined as work of the same or comparable complexity, responsibility and difficulty, which is performed in the same or comparable working conditions and which involves equal or comparable efficiency of work performance, and brings equal or comparable work results. In assessing whether or not work is equal or of equal value, the following issues must be taken into consideration:

  • The complexity, responsibility and difficulty of work must be evaluated with regard to: the vocational training and education, practical experience and skills required for the performance of the work; the complexity of the work; the organisational and managerial skills demanded; the degree of liability for damages; the occupational health and safety conditions; and the physical, sensory and mental strain and any negative effects of the work.
  • Working conditions must be evaluated with regard to: the extent to which working time patterns are stressful, as a result of the distribution of working hours, for example in terms of shift work, night work and/or overtime work; any harm or difficulties caused by negative aspects of the working environment; and the degree of risk in the working environment.
  • Work performance must be evaluated with regard to the intensity and quality of the work done, and the employee's work abilities and qualifications/skills.
  • Work results must be evaluated with regard to their quantity and quality.

The application of this principle can cause difficulties where an employer has employees in several regions with differing general wage levels. Legally, geographical differences cannot justify a difference in wages between employees of the same employer in different regions, even if wages are generally higher in one region than another. However, in practice, average pay differs significantly across the regions of the Czech Republic.

Minimum wages

There is a statutory minimum wage that applies to all employees (except some employees with disabilities - see below), irrespective of age or experience. Employees' wages - excluding pay premiums for overtime (see Czech Republic: Employee rights > Hours of work), night work (see Czech Republic: Employee rights > Hours of work), work in arduous working conditions (see General), work on public holidays (see Czech Republic: Employee rights > Holiday and holiday pay), and work on Saturdays and/or Sundays (see Czech Republic: Employee rights > Rest breaks and rest periods) - must not be lower than the statutory minimum wage.

The minimum wage is set by government decree at irregular intervals, taking into account pay and price developments. From 1 January 2019, the rate is CZK 13,350 per month (assuming a 40-hour normal working week) and CZK 79.80 per hour (previously CZK 12,200 per month and 73.20 per hour).

In addition to the national minimum wage, the Government sets (usually at the same time as the minimum wage is uprated) "guaranteed" minimum wage rates that apply to employees whose pay is not set by a collective agreement (see Czech Republic: Industrial relations > Collective bargaining and agreements). There are eight levels of guaranteed wage, depending on the complexity, responsibility and difficulty of the work performed. The lowest of the eight levels is the same as the national minimum wage, while the highest is usually double the national minimum wage.

An employer that fails to pay an employee the national minimum wage, or the applicable statutory guaranteed wage rate, is liable to be fined up to CZK two million by the State Labour Inspection Office.

Pensions

The pension system consists of two "pillars", following a reform that took effect on 1 January 2016.

The first pillar is the mandatory state retirement pension, financed by obligatory employer and employee contributions to the public social insurance scheme, administered by the Czech Social Security Administration (Ceská správa sociálního zabezpecení, CSSZ) (see Income tax and social security). The state pension consists of a basic flat-rate amount, plus an earnings-related element. It is payable when the individual reaches a certain age and has made a minimum number of years of contributions. Retirement ages are being increased gradually, based on the year of birth, and there will be a uniform age of 68 years for both women and men by 2051, while the required contribution history will rise to 35 years.

Employer and employee state pension insurance contributions are calculated as a percentage of an "assessment base" - that is, the employee's total taxable remuneration, up to an annual ceiling (set at CZK 1,569,552 in 2019). The employer pays pension contributions of 21.5% of the assessment base and the employee pays 6.5% (see Income tax and social security).

The second pillar of the pension system that consisted of "pension savings", whereby employees covered by the mandatory first pillar were allowed to voluntarily pay a proportion of their earnings into an individual account with a private pension provider of their choice, was abolished with effect from 1 January 2016. All funds paid will be returned to the participants.

The third pillar of the pension system consists of "supplementary pension savings", whereby employees voluntarily take out private pensions insurance with any provider licensed by the Czech National Bank. The state makes a contribution to the third-pillar savings and the individual concerned receives tax benefits.

Income tax and social security

Income from employment (and other types of taxable personal income) is subject to a flat-rate personal income tax of 15%. An employee's taxable income from employment consists of his or her gross wages, plus the social security and health insurance contributions payable by the employer (currently 34% of the gross wage - see below). Various tax allowances may apply - including a general allowance, dependent spouse allowance, dependent child allowance, disability allowance and student allowance - as may deductions for a number of reasons (such as for mortgage interest, private pension contributions and capital life insurance contributions).

In addition, a "solidarity surcharge" tax of 7% is levied on gross employment income over the maximum assessment base (set at CZK 1,569,552 per year in 2019) for payment of social security contributions (after permitted deductions).

Income tax on employment income must be withheld by the employer at source on a monthly basis in the form of payroll tax advances and paid to the tax authorities.

The worldwide income of Czech tax residents is generally subject to Czech income tax, while only income from Czech sources is taxable in the case of Czech tax non-residents. An individual is a Czech tax resident if he or she has a permanent residence in the Czech Republic and/or is present in the Czech Republic for 183 or more calendar days during a calendar year. If the individual is considered resident in more than one country, the applicable double-taxation treaty should determine his or her tax residency status.

Employers and employees must pay contributions to the state social insurance system, administered by the Czech Social Security Administration (Ceská správa sociálního zabezpecení, CSSZ). This applies in respect of all employees (working in the Czech Republic) of employers based in the Czech Republic, and also employees of foreign employers who are posted to the Czech Republic and covered by Czech social insurance on the basis of an EU Regulation or other international agreement.

Employer and employee social insurance contributions are calculated as a percentage of an "assessment base". This is the employee's total income from the employer subject to personal income tax (see above), up to an annual ceiling (set at CZK 1,569,552 in 2019). The employer must pay social insurance contributions of 25% of the employee's assessment base. Of this total, 21.5% is a contribution to state pension insurance, 2.3% to sickness/maternity insurance and 1.2% to unemployment insurance (and other aspects of public employment policy). The employee must pay contributions of 6.5% of the assessment base to the state pension insurance.

In addition to general social insurance, employers and employees must pay contributions to the public health insurance scheme, which provides medical care. Contributions are calculated on the basis of the employee's total gross taxable income, with no ceiling (unlike that which applies to the social insurance assessment base). The employer's contribution is set at 9% of the employee's gross income, and the employee's contribution is 4.5%.

The employer must deduct employees' social security and public health insurance contributions from pay at source and pass them, along with the employer's own contributions, to the relevant authorities.

Employers must also make contributions to a statutory insurance scheme to cover their liabilities for work-related injuries and illnesses suffered by employees (see Czech Republic: Health and safety > Compensation for occupational injury or illness). Contributions are set as a proportion of the employer's total paybill, with the rate depending on the degree of risk of the employer's activity.

Pay for employees not at work

During the first 14 calendar days of absence due to "temporary incapacity to work" (ie sickness), the employee is entitled to sick pay from the employer for working days on which he or she is absent. Statutory sick pay is set at 60% of a proportion of the employee's average earnings, up to a ceiling. This proportion is calculated according to a complex formula, which results in higher-paid employees being entitled to considerably less than 60% of average earnings. In order to be entitled to sick pay from the employer, an employee must provide a medical certificate to prove the reason for the absence.

From the 15th calendar day of sickness absence, the employee no longer receives sick pay from the employer, but is entitled to state sickness benefits, administered by the Czech Social Security Administration (Ceská správa sociálního zabezpecení, CSSZ). Sickness benefit is payable for up to 380 calendar days, calculated from the first day of sickness (unlike sick pay, it is not payable only on working days), which may be extended by up to 350 days in special cases. The benefit is set at 60% of a proportion of the employee's average daily earnings (calculated in the same way as for sick pay) up to a ceiling. Employees must provide the CSSZ with a medical certificate and any documentation required for calculation of the sickness benefit. Doctors will be required to submit medical certificates electronically direct to employers and the CSSZ under an online system that is expected to be operational from 1 January 2020. When an employee has exhausted entitlement to state sickness benefits, if he or she is not fit to return to work, the employee is deemed to be permanently unfit. An employee may also be medically certified as being permanently unfit for work at any time before this stage, if his or her state of health so requires.

An employee who is temporarily unfit for work owing to illness or injury must not be dismissed (see Czech Republic: Termination of employment > Special dismissal protection). However, an employee may be dismissed if he or she is medically certified as being permanently unfit for work.

If a former employee becomes sick in the seven days after his or her employment terminates, he or she is entitled to state sickness benefits from the 15th calendar day of sickness, though not to sick pay from the ex-employer in the first 14 calendar days of sickness.

Special rules apply to absence owing to an occupational injury or disease (see Czech Republic: Health and safety > Compensation for occupational injury or illness).

During maternity leave (see Czech Republic: Employee rights > Maternity and pregnancy rights), parental leave (see Czech Republic: Employee rights > Parental leave) and carer's leave (see Czech Republic: Employee rights > Carer's leave), employees are not entitled to be paid by the employer but receive a state benefit. Employees are entitled to short periods of paid leave for various personal reasons (see Czech Republic: Employee rights > Other leave).

Sources/references

The main item of legislation dealing with pay in general (including payment of wages, deductions, equal pay, minimum wages and sick pay) is the Labour Code (Act no. 262/2006 Coll., as amended). In addition, the Anti-Discrimination Act (Act no. 198/2009 Coll., as amended) deals with aspects of equal pay, while the national minimum wage and guaranteed wages are also regulated by Government Decree no. 567/2006 Coll., as amended, and the Labour Inspection Act (Act no. 251/2005 Coll., as amended). Pensions and social security, including state sickness benefits, are mainly governed by the Act on Social Security Insurance and Contributions for State Employment Policy (Act no. 589/1992 Coll., as amended), the Act on Sickness Insurance (Act no. 187/2006 Coll., as amended) and the Act on Pension Insurance (Act no. 155/1995 Coll., as amended). Public health insurance is regulated by the Act on Public Health Insurance (Act no. 48/1997 Coll., as amended) and Act on General Health Insurance Contributions (Act no. 592/1992 Coll., as amended).