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Czech Republic – Employer of Record

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Country Introduction – Czech Republic

Capital – Prague
Currency – Czech koruna (CZK)
GDP – 281.8 billion USD (2021)
People/Nationality – Czech
Language – Czech
Major Religion – Christianity
Population – 10,500,102 as of (January 25, 2024)

Introduction to Czech Republic:

Czech Republic, located in Central Europe, has a diverse and open economy that has undergone significant transformation since the fall of communism in 1989. Following the Velvet Revolution in 1989, the Czech Republic shifted from a centrally planned economy to a market-oriented one. This transition involved privatization, liberalization, and integration into global markets.

The Czech Republic has attracted significant foreign investment since the 1990s, particularly from Western European countries. Foreign companies have established manufacturing facilities and service centers in the country, drawn by its skilled workforce, strategic location, and relatively low costs compared to Western Europe.

Czech Republic became a member of the European Union in 2004, which facilitated trade, investment, and economic cooperation with other EU member states. Integration into the EU’s single market has provided Czech businesses with access to a larger consumer base and opportunities for growth.

Living in the Czech Republic offers a blend of historical charm, vibrant culture, and modern amenities. The cost of living in the Czech Republic is generally lower than in Western European countries, especially in cities outside Prague. Overall, living in the Czech Republic offers a rewarding experience with its rich history, cultural heritage, and opportunities for personal and professional growth.

Contract of Employment

In the Czech Republic, employment contracts are created by signing an agreement between the employer and the employee. Any modifications to the agreed terms can only be made through mutual consent between both parties, and such changes must always be documented in writing.

Probation Period

The maximum duration of a probationary period is three months for regular employees and six months for managerial positions.

Termination

The statutory notice periods prescribed by the Czech Labor Code are as follows:

– For employees with less than one year of employment: 2 months.
– For employees with one to two years of employment: 3 months.
– For employees with more than two years of employment: 4 months.

Working Hours

The standard working hours for full-time employees in the Czech Republic are typically 8 hours per day and 40 hours per week.

Overtime

Under Czech law, the maximum limit for overtime work is set at 150 hours per calendar year for each employee. However, certain exceptions and specific industries may have different limits or arrangements.

Overtime pay rates are typically higher than regular pay rates and may vary depending on collective agreements, industry standards, or individual employment contracts.

13^th Month Pay

The concept of a “13th-month pay” or a bonus paid to employees is not a standard practice as it is in some other countries. However, Czech employers may provide various forms of bonuses, incentives, or annual payments to employees as part of their compensation packages.

Annual Leave

Under Czech law, employees are entitled to a minimum annual leave of four weeks (i.e., 20 working days) for each calendar year of employment, irrespective of their length of service.

Annual leave entitlement typically accrues on a pro-rata basis throughout the calendar year. Employees are entitled to take their annual leave in the calendar year following the year in which it accrues, although specific arrangements may be made with the employer.

Sick leave

Sick leave may be granted for a specified period of time, typically up to 14 calendar days, based on the initial medical assessment. If the employee’s illness or injury persists beyond this initial period, the medical certificate may be extended, and sick leave may be granted for a longer duration.

Maternity and Paternity Leave

Maternity leave in the Czech Republic typically begins at least 6 weeks before the expected date of childbirth. However, pregnant employees have the option to extend this period up to 8 weeks before childbirth if recommended by a medical professional.

In the Czech Republic, fathers are entitled to a paternity leave period of 14 calendar days, which can be taken within the first six weeks following the birth of their child.

VAT / GST

the standard VAT rate in the Czech Republic is 21%. This rate applies to most goods and services, including imports.

In addition to the standard rate, there are reduced VAT rates applicable to specific goods and services. As of 2022, the reduced VAT rates in the Czech Republic are 15% and 10%. These reduced rates may apply to certain goods and services deemed essential or socially important, such as food, books, pharmaceuticals, and public transportation.

Income Tax

In the Czech Republic, progressive income taxation is implemented for tax residents in the following manner:

– Annual incomes up to around CZK 1.5 million (computed as 36 times the average monthly salary) are taxed at a rate of 15%.

– Any income exceeding this limit is subject to a 23% tax rate.

Employer / Employee Contributions

Employers and employees participate in social security programs, encompassing pension, sickness, unemployment insurance, and various social benefits. Contributions are a percentage of the employee’s gross salary. As of 2022, the collective social security contribution stands at 34% of the employee’s gross salary, primarily covered by employers.

– Both employers and employees contribute to health insurance schemes, financing healthcare services. The contribution rate, typically 9% of the employee’s gross salary, is shared by employers and employees.

– Employers must contribute to accident insurance programs, insuring against workplace injuries and accidents. The contribution rate varies by industry and workplace risk assessment.

– Contributions made by employers and employees to social security, health insurance, and accident insurance are deductible business expenses. Employees may also enjoy tax deductions related to their contributions to these programs.

Additionally, employers may need to contribute to specialized funds or programs like the National Training Fund or the Labor Office. Employers are tasked with accurately computing and withholding employee contributions from salaries, and must promptly report and remit these contributions to relevant authorities, typically on a monthly or quarterly basis.

Public Holidays

January 1 – New Year’s Day
Good Friday  – Date varies based on the lunar calendar
Easter Monday – Date varies based on the lunar calendar
May 1 – Labor Day
May 8 – Liberation Day
July 5 – Saints Cyril and Methodius Day
July 6 – Jan Hus Day
September 28 – Czech Statehood Day
October 28 – Independent Czechoslovak State Day
November 17 – Struggle for Freedom and Democracy Day
December 25 – Christmas Day
December 26 – St. Stephen’s Day

Severance Pay

In Czech Republic, severance pay is typically not mandated by law in cases of regular termination of employment contracts. However, there are certain situations where severance pay may be required or negotiated:

– Collective Agreements: In some cases, collective agreements negotiated between employers and trade unions may include provisions for severance pay in the event of termination.

– Individual Employment Contracts: Severance pay terms may also be specified in individual employment contracts between employers and employees. These terms can vary depending on the negotiation between the parties.

– Redundancy or Mass Layoffs: When an employer initiates redundancy or mass layoffs, they may be required to provide severance pay or other forms of compensation to affected employees. The specifics of such payments are typically outlined in labor laws and regulations.

– Dismissal for Specific Reasons: In situations where an employee is dismissed for specific reasons deemed unlawful or unjust by the courts, severance pay, or compensation may be awarded as part of legal proceedings.

– Company Policies and Practices: Some companies may have internal policies or practices regarding severance pay, either as a standard practice or as part of an employee retention strategy.

Work and Residence Permits (Expatriates)

Obtaining work and residence permits for expatriates in the Czech Republic involves several steps and requirements.

Work Permit:

– Non-EU citizens generally need a work permit to work in the Czech Republic.

– EU citizens do not need a work permit but may need to register their residence.

– Work permits are typically issued by the Czech Ministry of Labor and Social Affairs. The employer must apply for the work permit on behalf of the employee. The application requires various documents, including proof of employment, a valid passport, and other supporting documents. All work permits are usually granted for a specific job position and employer.

1. Residence Permit:

– Non-EU citizens also need a residence permit to live in the Czech Republic for more than 90 days.

– The residence permit application is submitted to the Czech Ministry of the Interior.

– Applicants must provide proof of accommodation, health insurance, financial means, and a clean criminal record.

– The permit may be issued for employment, family reunification, study, or other purposes.

– EU citizens are generally required to register their residence if they plan to stay in the Czech Republic for more than 30 days.

2. EU Blue Card:

– The EU Blue Card is a special residence and work permit for highly skilled non-EU citizens.

– To qualify for the EU Blue Card, applicants must have a higher education degree, a binding job offer or employment contract with a specified salary threshold and meet other eligibility criteria.

– The EU Blue Card allows holders to live and work in the Czech Republic and other EU member states.

3. Renewal and Extensions:

Work and residence permit typically have a limited duration and may need to be renewed or extended before they expire. Renewal applications must be submitted before the expiration date of the current permit. Additionally, the renewal process may require updated documentation and proof of continued employment or residence.