What Global Companies Need to Know About Payroll in the Czech Republic

Stick a pin in the middle of your map of continental Europe and it might well land within the beautiful country of Czechia (or as it’s still more commonly known, the Czech Republic). It’s now been three decades since the fall of communism and the amicable split from its neighbor Slovakia, and since then the country has blossomed as an excellent place to do business.

It has everything an incoming enterprise is looking for: a well-educated workforce, strong trade links (in no small part due to its accession to the European Union in 2004), and relatively low wages. Indeed, the average wage in the Czech Republic is still less than half that of its larger neighbor Germany.

But just like any other country, there is plenty to get your head around from the perspectives of payroll and employment if you want to make a success of your Czech expansion. Check out all the basics and key facts in this guide.

Getting Started

Most incoming businesses in the Czech Republic are set up as limited liability companies (SROs), which don’t come with any significant minimum start-up capital requirement.

At the start of the registration process, businesses must provide relevant records to demonstrate that they have no outstanding police or tax issues. They’ll also need notarized statutory declarations and partnership articles before officially registering at the Trade Licensing Office (which can be done online). Within 90 days of establishing the company, businesses will need to apply for a Commercial Register to confirm their registration, and companies also must register with the Social Security Administration and Revenue Authority. 

Bank accounts are required to open up a business in the Czech Republic, and while this isn’t a difficult process in paperwork terms, it can take some time. Because of this, all companies, especially larger ones, should expect the overall set-up process to take longer than they may be accustomed to in other countries.

Employment Considerations

Collective bargaining is heavily practiced in the Czech Republic, so employers should be ready to handle potentially complex negotiations with workers, depending on their industry. As in most developed economies, written contracts that detail location, type of work, and employment start dates are mandatory; the inclusion of salary or probation information is common but not a requirement.

Probation periods are generally around three months, although senior management can be put on probation periods of up to six months.

Working weeks in the Czech Republic are capped at 40 hours, generally spread across five eight-hour days, with a one-hour lunch break in each shift. Overtime is limited to a maximum of eight hours per week and 150 hours within a calendar year, and the total length of daily shifts must not exceed 12 hours. Overtime pay must run at a minimum of 125% of the usual rate, or alternatively, employers and employees can agree to give time off in lieu as compensation for overtime worked. Working at weekends should be paid at a minimum of 110% of the usual rate. Any work on public holidays should be paid at double time, or alternatively with a day off in lieu.

Compensation and Severance

The Czech Republic has a national minimum wage structure divided across eight ‘work groups’ of different professions, and some of the rates have been increased by almost 10% for 2024. The lowest group – Group 1 – generally consists of relatively unskilled roles like shop assistants, delivery drivers and cleaners: as of 2024, their minimum rate is 19,500 Kč per month (approx. £690; $880; €790). The highest group is Group 8 and contains the likes of financial and sales directors and brokers: their rate for 2024 is 37,800 Kč per month (approx. £1350; $1700; €1550).

Bonuses in the Czech Republic are not required, though many companies will restructure salaries to either dole out wages differently throughout the month or issue a bonus twice a year. It’s also standard practice to supplement employee salary with perks, such as a gym membership or free parking. The specific compensation plan is generally discussed with the employee prior to onboarding. 

Notice periods for termination are two full calendar months, starting from the first day of the month following that in which the notice is given. Severance pay is one month of salary for those with one full year of service, two months for those with two years, and three months for those with three years of service or more.

Tax and Social Security

The Czech Republic returned to a progressive tax system in 2021, but it’s still one of the simplest to understand anywhere in the world. There are just two bands: the lower band of 15% applies to the first 1,582,812 Kč per year (approx. £55,500; $71,000; €64,000), and the higher band of 23% applies to everything earned above this.

The corporation tax rate was increased from 19% to 21% at the beginning of 2024. VAT also runs at 21%, with some reductions in place for certain goods. Businesses should remain vigilant as to the status of these rates, however, as they are normally subject to change on a regular basis.

Social security contributions are also relatively easy to deal with. The main social contribution is 24.8% by employers, and 6.5% by employees, although the amount of income considered for this is capped at 48 times the national average wage. For 2024, that cap is 2,110,416 Kč per year (approx. £74,500; $95,000; €85,500), and is likely to increase year-on-year. Health insurance contributions are 9% employer and 4.5% employee, with no cap applied. 

All tax and social security contributions are withheld at source by employers.

Holidays and Leave

Employees are entitled to a minimum of 20 days of paid leave per calendar year, and this is normally accrued on a month-by-month basis; some professions such as teachers and public sector workers are entitled to more. Employees are allowed to carry over some unused paid leave into the following year, with the written agreement of their employer.

The Czech Republic has 13 days of public holidays per year, but any that fall on weekends are not normally supplemented by a holiday on the following Monday. Employees who work these days are entitled to at least double their normal rate, or the normal rate plus the same amount of time off in lieu, depending on agreement between employee and employer.

Maternity leave entitlement is 28 weeks (37 weeks for multiple births) and starts six weeks before an expectant mother’s due date. It is a statutory requirement for mothers to use at least 14 weeks of this leave. This is paid at 70% of salary (paid by social security) and employers must keep the mother’s position available for them to return to after the leave has been completed. 

Legal entitlement to paternity leave is a single block of two weeks and taken within the first six weeks post-birth. This is also paid at 70% of salary. However, mothers can now transfer some of their maternity leave to the father from seven weeks post-birth onwards. 

Sick pay must be paid by employers from the fourth to the 14th day of sickness at 60% of salary; the Czech government picks up any sick pay beyond this initial two-week period at 66% of salary, and then 72% after 60 days.

There are also leave entitlements that cover both short and long-term care, weddings, bereavements, jury duty, and military service.

In Summary

As you’ve read in this guide, there’s much to like about doing business in the Czech Republic. Its tax and social security systems are very straightforward, wages are lower than they are in many countries in the eurozone, and the standard of education is very good. However, there’s still a pressing need to keep everything compliant, and to successfully integrate your Czech payroll with those you run in other territories and currencies. This is where the support of a global payroll provider can make all the difference.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.