Introduction to Payroll in Czech Republic
As one of the world’s most thriving and dynamic economies in transition, the Czech Republic continues to attract businesses and investors from all over the globe. These new, foreign actors can enjoy the country’s skilled and well-educated workforce, strategic European location, growing infrastructure, and advantageous labor taxes and costs.
If your company, too, is interested in expanding to the Czech Republic, you need to consider one fundamental aspect: payroll management. Managing payroll in the Czech Republic is not a quick and easy process. Joining forces with an experienced and reputable payroll management provider like Skuad can help.
Payroll Process in Czech Republic
Typically, payroll processes are composed of three phases: pre-payroll, payroll, and post-payroll. Each of these, in turn, includes several different stages. This is often enough to make foreign companies feel confused, which is why a trusted partner like Skuad is a great asset to have on board.
In order for your entire payroll and post-payroll stages to run smoothly, you need to pay particular attention to the pre-payroll phase.
Setting up the Organization
Ensuring that your payroll process is in full compliance with local labor laws requires setting up your organization in the country.
The first thing you need to do is set up a business profile in the Czech Republic. Failing to do so means not being able to comply with all the rules and regulations around labor and employment law in the country.
Remember to clarify where exactly your Czech business will be operating from, as different parts of the country may follow different laws.
Creating a set of policies around employees’ leave and vacation is paramount, as is communicating the policies clearly to your entire workforce.
Define what standard work attendance amounts to in terms of hours or day, and establish what counts as full-time and what counts as part-time. Again, communicating these decisions promptly and clearly with your employees is essential.
Laws around labor and employment in the Czech Republic are regulated mostly by Act No. 262/2006 Coll. – The Labor Code.
The elements that define your employees' salaries must include calculations for the correct earnings as well as deductions, allowances, and other benefits.
As a rule of thumb, employees in the Czech Republic receive their wages once a month. Generally, employers choose a specific day of the month, and they must make these payments on that day, every month.
Like other European countries, the Czech Republic also offers a so-called “13 salary” to its workforce. This end-of-year bonus or extra payment given in December is not mandatory, though a lot of employers choose to do so.
Finally, to work out how much each of your employees should get paid, you need to collect information about their individual working hours, sick leave, benefits, and more.
Payroll Calculation Phase
After your pre-payroll phase has been completed correctly, you can proceed with payroll calculation. This is the phase when a company calculates exactly how much wages each of its employees is due.
Paying out salaries is not only one of the biggest expenses for a company, but it is also one of the most complicated and lengthy aspects of regular admin work.
Making sure that your internal accounting team keeps track of all the salaries that you pay out is vital.
Payroll Reporting and Compliance
Sending invoices, submitting tax returns, and liaising with local Czech authorities is another important yet complex part of payroll in the Czech Republic.
If handling all this yourself sounds like a daunting task, then fear not — the team at Skuad is here to help.
Payroll Processing in Czech Republic
Understanding, remembering, and keeping abreast of all the tax laws for both employers and employees in the Czech Republic can quickly become daunting, which is why it’s often a good idea to work with a global payroll provider that does all the hard work for you.
Payroll Processing Company in Czech Republic
A partner like Skuad can do all the heavy lifting on your company’s behalf and ensure that all parts of payroll services in the Czech Republic are handled with expertise, security, and in full compliance.
Payroll Management in Czech Republic
Many companies expanding to the Czech Republic opt for payroll outsourcing, as it helps them navigate an often complex legal environment with ease and peace of mind.
However, there are other options when it comes to payroll management, such as:
- Internal payroll: This lets you pay your Czech employees via a local subsidiary. Internal payroll is a rather expensive option, as it requires hiring specialized HR staff in-house.
- Remote payroll: By choosing this approach, you can manage payroll in the Czech Republic via your parent company. This is generally cheaper compared to managing payroll internally, however it also forces you to stay constantly up-to-date with local and national employment laws.
- A Czech payroll processing company: If you select this method, you will need to search the Czech market for a reliable, professional, local agency that can manage payroll services in the Czech Republic on your behalf.
Payroll Compliance in Czech Republic
Ensuring statutory compliance for your payroll in Czech Republic is of the utmost importance. This refers to all the laws and regulations around payroll, as established by central or local governmental bodies.
Payroll Components in Czech Republic
In the Czech Republic, standard payroll includes base pay, deductions (such as taxes), and additions (such as bonuses and benefits).
At present, the country’s minimum wage is set to 16,200 CZK per month, around USD 695.
Employees in the Czech Republic generally work 40 hours per week, with a maximum of nine hours per day.
Overtime work in the Czech Republic is managed and regulated by either employment contracts or collective agreements. In general, employees in the country are not allowed to work more than eight hours a week, or 150 hours a year.
If you do business in the Czech Republic, you are mandated to pay social security taxes. As an employer, you are expected to contribute 24.8% for social security, and an additional 9% for health insurance.
In the Czech Republic, employees are allowed up to 14 days of sickness leave per year, which are paid at 60% by their employer. If an employee needs more sick leave after the 14th day, it will be paid for by the Czech government.
Complicating matters further, all employers are mandated to gather and retain medical certificates confirming their employees’ illnesses, as well as to keep all the records and liaise with all the relevant social security authorities.
Women are entitled to receive 28 weeks of maternity leave, or 37 in case of multiple births. Of these weeks, 14 are mandatory and can begin at least eight weeks before the baby’s due date or, in any case, no later than six.
Maternity leave is paid for by the country’s social security authority, and it corresponds to 70% of the employee’s base salary.
Fathers and partners can also receive paid paternity leave. This includes one week of leave, paid at 70% of the employee’s base pay. This leave can start up to six weeks following the birth of the child or children, but only with written consent from the mother in which she states that the father will be looking after the baby (or babies) during that period.
Parental leave is also available, in the Czech Republic, and is recognized by the country’s Labor Code. Parental leave starts when maternity leave ends. The Labor Office pays families a parental allowance of 300,000 CZK, or 450,000 for multiple births.
Here is a list of the country’s public holidays:
- 1 Jan: New Year's Day
- 15 Apr: Good Friday
- 18 Apr: Easter Monday
- 1 May: May Day
- 8 May: Liberation Day
- 5 Jul: St Cyril and St Methodius Day
- 6 Jul: Jan Hus Day
- 28 Sep: Statehood Day
- 28 Oct: Independence Day
- 17 Nov: Freedom and Democracy Day
- 24 Dec: Christmas Eve
- 25 Dec: Christmas Day
- 26 Dec: 2 Day of Christmas
Companies operating in the Czech Republic must withhold tax on payments of:
Paid Time Off
Annual leave in the Czech Republic is of 20 days per year for full-time employees. However, some employers decide to up this figure to 25 days, and employees working in the teaching sector actually get an annual allowance of eight weeks.
Paid time off becomes available only after an employee has worked for the same employer for at least 60 days. Requests for paid leave may be accepted or denied at the employer’s discretion, and based on the requirements of the company at any given time.
In the Czech Republic, employees can get terminated with adequate notice. In the case of an employee being dismissed for misconduct or criminal offenses, no notice is required.
When an employee is dismissed, they usually are entitled to receive severance pay. The amount of this payment depends on how long the employee has worked for the company. As a rule of thumb, every year worked corresponds to one month of gross salary for the employee’s severance pay.
Keeping track of all these different areas can rapidly turn payroll in Czech Republic into a lengthy, complicated task. Choose to simplify the way you navigate payroll, by partnering with Skuad.
Start Building Your Czech Dream Team Today
Ensuring that your company manages payroll in the Czech Republic in the most efficient, seamless, and compliant fashion is essential if you want to succeed as a business in this country. Different laws, currency, and language all pose hurdles and challenges to foreign companies looking to expand to the Czech Republic.
Instead of attempting to navigate this new and overwhelming landscape on your own, why not team up with an expert global payroll provider like Skuad? If you would like to see our platform in action, request a free demo, and contact us if you have any questions or need any more information.