Czech Republic Payroll Services

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Czech Republic Payroll Services

Successful international expansion depends on making the right moves from day one. This is essential for foreign companies operating payroll in the Czech Republic – an increasingly attractive market for companies looking to reach out globally.

At Bradford Jacobs, our Employer of Records (EOR) platform provides reliable solutions for companies wishing to establish their presence in the Czech economy. From the first steps of setting up operations to ensuring compliance with the local payroll laws and regulations, we offer dedicated Czechia Payroll solutions that can be personalized to your requirements.

We aim to make business expansion easy. At Bradford Jacobs, we navigate the administration of the Czechia payroll system for you, and we also make the returns and associated payments for income tax and social security contributions directly from our payroll system to the local tax authorities. We do the work, so you do not have to.

When expanding into a new country, you may encounter some challenges regarding payroll, but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for the Czech Republic.

What Czech Payroll Options are available for Companies?

  • Remote payroll - This option allows businesses to operate under a single payroll system, by adding employees in the Czech Republic to your parent company’s payroll. However, these employees must operate under different regulations, which is likely to cause problems.
  • Internal payroll - You may operate payroll for your subsidiary, especially if you are committed to growing your company’s presence in the Czech Republic. However, this does require hiring dedicated HR staff who understand Czech employment and compliance laws.
  • Czech Republic payroll processing company - If you are considering outsourcing, then working with a Czech payroll company will help in processing your payroll – but not when it comes to compliance.
  • Czech Republic payroll outsourcing - However, there is another option available that solves both concerns – by working with Bradford Jacobs. We can handle payroll and compliance for all your employees in the Czech Republic. We take the administrative stress off your shoulders so you can focus on what you do best.

Czech Republic Payroll Services

Companies expanding their operations into the Czech Republic (also known as Czechia) open up a wealth of opportunities for expansion throughout the European Union (EU) and even further east. However, challenges come alongside the potential benefits.

Payroll management is among those challenges, whether your company is considering moving employees abroad or hiring new staff in-country. Employment laws, payroll regulations and income tax regulations are areas where you cannot afford mistakes.

Bradford Jacobs’ Employer of Record (EOR) payroll solutions will navigate around these potential pitfalls effectively and efficiently by putting into action our comprehensive knowledge of tax and payroll regulations.

Running payroll in the Czech Republic demands an in-depth knowledge of employment, payroll, and taxation laws – particularly as taxation laws changed in January 2021. Companies must deal with the General Financial Directorate (GFD) of the Czech Financial Administration for personal and corporate tax filing, the Czech Social Services Administration (CSSA) and remitting withheld contributions based on employees’ salaries.

Outsourcing Czech payroll will streamline your operations, by dealing with the following:

  • Applying to the Ministry of the Interior for an Employee Card, if applicable, for a foreign national planning long-term residence in the Czech Republic
  • Obtaining employees’ Tax Identification Number (TIN)
  • Remitting employees’ withheld deductions to the General Financial Directorate and the Social Services Administration
  • Filing returns for the tax year, which runs from January 1 till December 31. Returns are due by April 1 of the next year, May 1 if filing electronically or July 1 if sent by an accountant or solicitor with their power of attorney if registered before April 1
  • Advising on tax payments in advance for employees not taxed at source by their employer

Additional payroll support includes:

  • Negotiating tax incentives for skilled expats
  • Calculating employees’ monthly salary and sending their pay slips
  • Submitting employees’ and employers’ monthly tax returns
  • Creating and submitting your company’s annual accounts and year-end statements
  • Creating payment schedules for salaries and any insurance contributions (if applicable)
  • Ensuring annual personal income tax returns are filed for you and your employees, where required

The above checklist highlights why the vast majority of foreign companies expanding into the Czech Republic’s strictly regulated business environment hand their payroll to EOR providers such as Bradford Jacobs. 

By outsourcing payroll, your company complies with tax and employment regulations without risking sanctions or financial penalties for late or incomplete filing. You focus on your goals and expansion, free of any concerns over payroll. Questions? We have the answers.

What is required to set up Payroll in the Czech Republic?

Foreign companies planning to set up a legal entity in the Czech Republic to run their own payroll must begin by choosing a unique company name and registering with the Czech Registry Court and the Commercial Register, to obtain a Tax Identification Number (TIN). Other requirements include:

  • Proof of business address and ownership or lease agreement for the office
  • Details of business activities and relevant authorized trade certificates
  • Notarized Memorandum and Articles of Association
  • Proof of capital deposited in bank, if applicable
  • Signatures of shareholders, directors, and manager with extract from Criminal Registry proving clean record for each

Companies running their own payroll must obtain employer social security and tax numbers, register to pay taxes, and register employees with social security authorities. The necessary steps include:

  • Applying to the Ministry of the Interior for an Employee Card, if applicable, for a foreign national planning long-term residence in the Czech Republic
  • Obtaining employees’ Tax Identification Numbers (TIN)
  • Remitting employees’ withheld deductions to the General Financial Directorate and the Social Services Administration
  • Filing returns for the tax year, which runs from January 1 till December 31. Returns are due by April 1 of the next year, May 1 if filing electronically or July 1 if sent by an accountant or solicitor with their power of attorney registered by April 1
  • Advising on tax payments in advance for employees not taxed at source by their employer

What Entitlement and Termination Terms apply to Czech Payroll?

* Although a member of the European Union, the Czech Republic is not in the Eurozone and has the Czech Koruna, CZK, as its currency.

National Minimum Wage: The Czech Republic (or Czechia) has a government-mandated national minimum wage of CZK 15,200 (€592, US$690) per month, applying to employees working the standard 40 hours per week. This was set in January 2021, an increase of CZK 600 (€23, US$27) over the previous rate. The new hourly minimum rate is CZK 90.50 (€3.52, US$4.10).

The national minimum wage brings up the wages for the lowest paid workers, as different minimum wages apply to eight different employment groups as defined by government decree, according to the difficulty, responsibility, and complexity of the role.

The absolute national minimum of CZK 15,200 applies to Group 1. Minimum monthly wages range from CZK 16,800 (€654, US$761) for Group 2 (e.g.: craftsmen and on-site workers) to CZK 30,400 (€1,183, US$1,378) for Group 8 employees such as financial and sales directors.

Working Hours and Breaks: The maximum is 40 hours in a standard five-day working week, normally between 8am and 6pm. A 30-minute break applies after six hours’ continuous work, with a minimum 11 hours’ rest between consecutive working days and 35 hours continuous rest each week.

Hours exceeding the norm are considered overtime, which cannot total more than eight per week or 150 annually.

Health and Social Insurance: Mandatory participation in the Czech healthcare system applies to all Czech nationals; employees of employers based in the country; employees from other European Union countries; employees working for companies based in other EU countries and the self-employed from other EU nations.

Employer / employee social insurance contributions go towards pension, unemployment and sick pay funds, health insurance covers medical care. Employers contribute the equivalent of 24.8% of employee earnings towards social security and 9% for health insurance. Employees contribute 6.5% to social security and 4.5% to the health fund.

Maternity leave: Female employees are paid for 28 weeks (37 for multiple births) with six to eight weeks pre-natal. The minimum permitted term that can be taken is 14 weeks; post-natal leave must last for a minimum of six weeks.

Maternity Benefit: This is 70% of average gross salary of the preceding year, if the employee has paid social security insurance for 270 days before leave begins, capped at CZK 43,470 (€1,700, US$1,961) monthly.

Paternity Leave: Set at 70% of employee’s daily earnings, capped at CZK 8,575 (€334; US$387) for the seven-day leave which can be taken post-natal at any time during first six weeks but as one period.

Parental Leave: This can be granted to both parents until the child is three, starting after completing maternity leave. However, benefit can be taken until the child is four, providing they are not at day care/school, to a limit of CZK 300,000 (€11,785; US$14,280). Although both can share the leave, only one parent, at any one time, can receive benefit which is paid from tax revenue.

Termination, Severance, Redundancy: The Labor Code stipulates dismissal can be only (1) during a trial period, (2) without notice for just cause or (3) with notice, but the last two may be subject to trade union involvement.

Termination with notice is allowed on such grounds as company reorganization, inability to work due to long-term illness, unsatisfactory performance. Immediate dismissal without notice is permitted for criminal or gross misconduct.

Generally, employees cannot be dismissed during sick leave, military, or public office duties, during pregnancy, maternity, or paternity leave. The relevant trade union must agree to the dismissal if the employee is a union representative.

If companies make multiple redundancies for the operational reasons the relevant labor authority must be notified. In this case severance pay is one month’s salary for the first year, two months for the second year and three months for those who have worked more than two years.

Severance pay for individuals is based on length of service:

  • Less than one year – one month’s average earnings
  • One to two years – two months’ average earnings
  • More than two years’ service – three months’ average earnings.

Termination due to occupational illness or injury entitles the individual to 12 times the average monthly salary.

Notice Periods: The statutory notice period is two months for employer and employee; if extended the period must stay the same for both parties. There is no statutory right to pay in lieu of notice, but this can be contractually agreed.

Sick Leave: During the first 14 days of illness the employer pays 60% of the individual’s salary. Under the Sickness Insurance Act, the relevant authority takes over payments from the 15th day.

Public Holidays: Workers receive 13 statutory paid public holidays each year, which are not included in their annual vacation entitlement.

  • New Year’s Day – January 1
  • Good Friday – March / April
  • Easter Monday – March / April
  • Labor Day – May 1
  • Liberation Day – May 8
  • Day of Apostles Cyril and Methodius – July 5
  • Anniversary Martyrdom of Jan Hus – July 6
  • Day Czech Statehood – September 28
  • Independence Day – October 28
  • Freedom and Democracy Day – November 17
  • Christmas Eve – December 24
  • Christmas Day Holiday – December 25-26

Paid Vacations: Full time employees working a 40-hour week receive 160 hours annual leave (four weeks). Those in the public domain are eligible for five weeks and employees in academia eight weeks. Since January 2021 a pro rata formula calculates leave for those who have worked less than a year.

Overtime: Any hours over the daily rate contractually agreed between parties is considered overtime. However, no more than eight per week and 150 hours in a calendar year is allowed without the employee’s agreement.

Overtime is paid at 125% of the average earnings or, if agreed, time off in lieu. Employees working their rest days or Saturday / Sunday should be paid a minimum of 110% of their average wage. Payment for public holidays is double time or a day off in lieu.

Collective agreements may provide higher minimums.

Czech 13th Month Salary

There is no legal requirement for a 13th month salary, but the majority of companies now pay this as a Christmas bonus.

What Czech Taxation Rules exist?

  • Income is taxed at a flat 15% up to monthly earnings of CZK 141,764 (€5,520, US$6,428), with a rate of 23% applying above that
  • Basic tax relief per taxpayer increased to CZK 2,320 (€90, US$105) per month
  • Solidarity tax of 7% was withdrawn in 2021
  • The tax year is from January 1 till December 31. Returns are due April 1 of the following year, May 1 if filed electronically or July 1 if sent by an accountant or solicitor with power of attorney registered by April 1
  • Individuals living in the Czech Republic for 183 days in a calendar year are considered tax residents and generally taxed on their worldwide income, whether it is from employment, rentals, investments, or capital
  • Taxes due, if not withheld by the employer, are paid at the same time as returns are made on April 1, or May 1 if filed electronically or July 1 if filed by a registered adviser or solicitor

Before operating payroll, the General Financial Directorate (GFD) of the Czech Financial Administration for taxation and the Czech Social Services Administration (CSSA) require the following procedures are completed:

  • Applying to the Ministry of the Interior for an Employee Card, if applicable, for a foreign national planning long-term residence in the Czech Republic
  • Obtaining employees’ Tax Identification Number (TIN)
  • Remitting employees’ withheld deductions to the General Financial Directorate and the Social Services Administration
  • Advising on tax payments in advance for employees not taxed at source by their employer

Income Tax: In 2021 tax authorities rescinded the 15% rate calculated from ‘super-gross income’ and reverted to a progressive regime. Individuals are considered tax residents if their permanent home is in the Czech Republic, or they usually reside there.

Individuals who stay in the country for 183 days either continuously or in separate spells in a calendar year are liable for taxes. The tax and immigration authorities share information on individuals’ moving in and out of the country and there are no tax concessions for expats.

Residents must declare worldwide income from full- or part-time employment, rents, investments, and all other remuneration.

Social Insurance Tax: Employers contribute the equivalent of 24.8% of employee earnings towards social security and 9% for health insurance. Employees contribute 6.5% to social security and 4.5% to the health fund.

Rules on other taxes:

Corporate Income Tax (CIT): The rate is 19%. All companies are subject to CIT on their profits, including branches of foreign companies. Resident companies are liable for CIT on their worldwide income, while non-resident companies are taxed on Czech-sourced profits. The 19% also applies to capital gains from selling shares. Resident companies are liable for 15% CIT on dividends from non-resident companies, with 5% CIT applied to some investment funds.

Withholding Tax (WHT): Czech resident companies withhold tax on dividends, interest and royalties paid to foreign entities at varying rates, depending on the country involved.

Capital Gains Tax (CGT): There is no separate capital gains tax.

Value Added Tax (VAT): The general rate is 21% applied to goods and services. Other categories changed in 2020, with a reduced rate of 15% applying to certain foodstuffs, medications, books, and newspapers. Hotel accommodation and entry to sporting and cultural events are among those subject to 10% VAT since July 2020, with this band also applying to such services as catering and hairdressing.

Resident companies must register for VAT with the tax authorities if turnover exceeds CZK one million (€38,900, US$45,330) in a 12-month period, but can register voluntarily whatever their turnover. Non-resident companies have no threshold limit but must register if any of their goods or services are liable for VAT or if they supply from the Czech Republic to another European Union (EU) member.

Customs and Excise Duties: The EU code applies to customs duties, while excise duties apply to such products or imports as tobacco, alcohol, fuel, and mineral oils.

Stress Free Global Expansion

Bradford Jacobs’ Employer of Record (EOR) solutions smooth your route into the Czech Republic and every new territory targeted for worldwide expansion. Registration procedures, tax laws and dealing with relevant authorities are potentially hazardous barriers to your expansion, risking severe fines for non-compliance or late returns. 

Bradford Jacobs is on call every step of the way to ensure your company clears all the hurdles to establishing a successful presence in The Czech Republic.

Contact us today to find out more!