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The Czech Republic is a small, upper-middle-income nation and a member of the European Union (EU). Its strategic trade location in the heart of Europe and ease of trading across make it a desirable hub for international business growth.
As you build a team in the Czech Republic, you’ll need to become familiar with the country’s labor regulations and employment best practices. Browse the topics below to learn more about Czech labor law and gain tips for building teams in this exciting, history-rich locale.
What to know before hiring in the Czech Republic
Before beginning the hiring process, you’ll need insights into contracts, termination, payroll, work schedules, compensation, benefits, and the country’s overall employment outlook.
1. Contracts and termination
Czech labor law requires companies to develop a written employment contract for each employee. The employee must receive a copy of the employment contract, and the company should retain another copy for its records. The contract must include specific information, including:
- The employee’s job title
- The work location
- The position’s start date
- The length of annual leave
- A schedule of weekly work hours
- Compensation, payment method, and payday schedule
- The currency used for compensation
- Collective bargaining information, if applicable
If the contract does not contain these details, the company must put them in writing within a month of the employee’s start date.
Contracts can be either fixed-term or indefinite agreements. Fixed-term contracts cannot extend for longer than three years.
Czech labor law allows a three-month trial period for most employees and a six-month trial period for managers. During the trial period, the company or the employee can easily terminate the employment.
After the trial period ends, the conditions under which termination is possible become more strictly defined. A company can terminate an employee’s contract if both parties agree to it or if the company provides at least two months’ notice and has grounds for the termination.
An employer can terminate an employee immediately only if the employee has received a prison sentence of at least a year for a criminal offense or is in gross breach of a statutory provision that affects work performance.
2. Payroll and taxes
In the Czech Republic, companies and employees must contribute to social security funds. Employers should contribute 24.8 percent of payroll, which breaks down as follows:
- 2.1 percent for health insurance
- 21.5 percent for pension insurance
- 1.2 percent for the state employment policy
Czech employees must contribute 6.5 percent of their earnings, whereas international employees should contribute 2.1 percent. Employees who choose to contribute to pension insurance should pay 28 percent.
Employees are responsible for paying income taxes, which employers must withhold from their paychecks. In 2021, the Czech Republic abolished its super-gross salary law, which considered an employee’s gross income plus employer-paid social security and health contributions for tax purposes. Now gross salary is the only consideration. At the same time, the country switched from a flat tax to a progressive tax rate of 15 to 23 percent for personal income taxes.
The corporate income tax, including capital gains taxes, is a flat rate of 19 percent. A special 5 percent corporate income tax rate applies to basic investment funds. Payments such as dividends, royalties, and copyright fees are subject to either a 15 percent or 35 percent tax.
3. Working hours and overtime
The standard workweek in the Czech Republic consists of 40 hours. Employees generally work eight hours per day, five days per week. Overtime is permissible, but employees cannot work more than 12 hours per day, and the overtime performed cannot exceed an average of eight hours per week over 26 weeks.
In general, overtime work should not occur except under exceptional circumstances. These include serious operational reasons such as urgent repairs, natural disaster response, cargo unloading or unloading, or essential work in the healthcare industry.
Employees who work overtime should generally receive compensation equaling 125 percent of their usual wages. Some employment contracts stipulate that the employee can perform 150 hours of overtime without extra compensation, but any overtime beyond those hours requires 125 percent compensation.
Waged employees who must work on nights or weekends usually receive 110 percent of their usual pay for those hours. Salaried employees generally receive 120 percent of their average hourly pay for night work and 125 percent for weekend work.
Employees must have at least one day off per week, and the uninterrupted time off must total at least 35 hours. Any employee who works a shift of six hours or more must receive a rest and meal break of at least 30 minutes. Employees must also have at least 12 hours off between the end of one shift and the beginning of the next. A shorter rest period of only eight hours is possible, but the subsequent rest period must be longer to compensate.
4. Leave and benefits
Employees in the Czech Republic must receive four weeks of paid time off per year in addition to public holidays. Some employees are entitled to five weeks, and teachers and academics usually receive eight.
Employees who cannot work because of illness or injury should receive 60 percent of their usual pay from the company. After the 14th day, social security payments to the employee will begin.
Mothers are entitled to paid maternity leave of 28 weeks or 37 weeks for multiple births. One of the parents can also take three years of parental leave to care for the child.
Benefits like premiums and bonuses are common in the Czech Republic. Employees who consistently display excellent performance can often receive bonuses of up to 50 percent of the highest salary in their salary grades. Managerial employees are usually entitled to management bonuses in addition to their salaries.
The Czech Republic has a mandatory universal healthcare system. All employees must pay into the system, and health care is free for them, though they may pay some additional fees for specialized services. Employers generally contribute 13.5 percent of their employees’ pay to state health insurance funds.
Consequently, employers do not need to provide health insurance, though some companies offer supplemental insurance as a benefit.
5. Job market and workforce education
The job market in the Czech Republic currently favors job seekers. The unemployment rate has been below 3 percent since 2017, bottoming out at 2.01 percent in 2019 before rising slightly in response to the Covid-19 pandemic. Lately, the country has experienced labor shortages, so your company may need to invest in extensive outreach to attract candidates to your vacant positions.
The Czech workforce is well-educated. The literacy rate stands at above 99 percent, and the proportion of residents who have completed a secondary or postsecondary degree is one of the highest among Organisation for Economic Co-operation and Development (OECD) and partner countries. Your company will have a high chance of finding candidates with the educational qualifications required for workplace success.
6. Recent amendments and developments
As of January 1, 2021, some aspects of Czech labor law have changed because of a new amendment to the labor code. Most significantly, the amendment changes the method of calculating annual leave. It also creates the possibility of splitting one full-time position between two employees, and it increases compensation for workplace damages and fatalities.
The minimum mandatory amount of time off for employees remains at four weeks. Previously, employers that provided more than that considered employees’ working days when they calculated annual leave. Under the new amendment, companies must consider employees’ working hours instead. The change primarily affects part-time employees and those with irregular hours.
Cost of hiring an employee in the Czech Republic
Your hiring expenses will likely depend on your company’s policies and goals. If your company prioritizes comprehensive compensation packages, benefits, and bonuses to attract and retain talented employees, your expenses will increase. In any case, you will need to consider both direct and indirect hiring costs. These may include:
- Company registration
- Job postings
- Assistance from recruiting agencies, if any
- Applicant-tracking tools
- Preemployment checks
- Travel for interviews
- Payroll taxes
- Direct compensation
- Bonuses, if applicable
Hiring practices in the Czech Republic
When your company is hiring someone in the Czech Republic, you should follow a few critical best practices so you can provide a positive experience for candidates and attract talented new team members. Here are a few tips to help you through the process:
- Comply with anti-discrimination laws: Czech law probits hiring and employment discrimination based on protected characteristics such as race, ethnicity, nationality, gender, age, sexual orientation, religion, disability, and beliefs. Your company must refrain from relying on these characteristics in hiring, and you will want to avoid these topics in interviews to prevent unconscious bias.
- Use the local language: The primary language of the Czech Republic is Czech, and most of the population speaks it as a first language. Small percentages of the population also speak languages like Slovak, Polish, German, Hungarian, and Ukrainian. Many members of the younger generations know English, and many international companies use English. Nevertheless, your company should print official documents like contracts and offer letters in Czech to ensure your employees understand the terms of their employment. Using the local language can also create a more welcoming environment.
- Use the local currency: Even though the Czech Republic is part of the EU, it has not adopted the euro. Czech koruny (CZK) is the official currency. In official documents, your company should outline monetary amounts in Czech koruny.
- Be prudent with personal data collection: Because the Czech Republic is part of the EU, EU regulations governing data privacy will apply to your company. Most notably, the General Data Protection Regulation (GDPR) limits the extent to which you can process your job applicants’ personal data — and “processing” can mean anything from collecting to storing to using or disclosing candidate data. You may want to partner with experts who can help you achieve GDPR compliance.
What does a company need to hire employees in the Czech Republic?
Your company will need a legal way to hire and pay its employees abroad. One of the more common methods of doing so is setting up a subsidiary, a local extension that your parent company would retain control over. You can hire and pay employees through the subsidiary.
However, establishing a subsidiary has its drawbacks. The process can be expensive, lengthy, and labor-intensive, and it makes the steps to hiring in the Czech Republic much more complicated to navigate.
The first step in establishing a subsidiary is determining how your company will incorporate. New companies in the Czech Republic can take a few different forms, including branch offices, limited liability companies (LLCs), and joint-stock companies. The most common option for international companies is to incorporate as an LLC — known in Czech as a společnost s ručením omezeným, or SRO — because of the freedom and familiarity this structure offers.
If you decide to set up an LLC subsidiary, your company will need to complete a list of tasks like these:
- Appointing one or more executive directors
- Drafting and notarizing a founder’s deed or memorandum of association
- Opening a Czech bank account
- Depositing the minimum share capital of CZK 1
- Obtaining a trade license from the relevant trade licensing office
- Appointing a responsible representative, if necessary
- Gathering the relevant documentation and registering with the Commercial Register
- Registering with the Register of Beneficial Owners
To save time and resources, many international companies elect to work with an Employer of Record like Globalization Partners.
As an Employer of Record, we already have an established entity in the Czech Republic. By working with us, you can minimize your registration requirements and expedite your progress toward complete and profitable operations. You can leverage our global employment platform to hire employees, add them to your teams, and pay them from anywhere in the world with just a few clicks.
Hiring remote employees in the Czech Republic
The primary benefit of remote hiring is that it helps you bring teams together from around the world. Remote communications have never been easier. Below are a few tips to help you hire employees in the Czech Republic remotely:
- Coordinate and prepare: While remote interviews can seem more informal than in-person meetings, preparing ahead of time is still a good idea. Figure out the key points you want to touch on throughout the interview, and be clear about when other hiring team members will ask questions or address specific topics.
- Minimize technological challenges: Technical difficulties can crop up even in the best-prepared workplaces. You can minimize their disruption by familiarizing yourself with your remote interviewing platform ahead of time and ensuring external tools like cameras and microphones are working correctly.
- Consider candidates’ needs: Remote hiring is a two-way street. Candidates are assessing your company’s fit for their professional growth just as you’re evaluating their potential to benefit your company. Attending to the details that go into a positive candidate experience — convenient scheduling, a professional camera background, a welcoming tone, and a smooth process — will help you attract talented people.
Simplify international growth with our global employment platform
Globalization Partners is ready to support you as you pursue international growth in the Czech Republic. We make hiring employees worldwide quick and easy.
You can leverage our AI-driven, full-stack global employment platform to start hiring new employees in the Czech Republic right away and get your operations running quickly. With Globalization Partners, you’ll save time and money. Consulting with our tax and labor law experts means you’ll also gain the peace of mind of knowing you’re compliant from day one.
Request a quote today or contact us to learn more about how to hire in the Czech Republic with our technology.