Payroll Newsletter - Summer 2016
Tax changes, news, practical information
Provisions on Health Insurance Newly Added to the Totalisation Agreement between the Czech Republic and the USA
Starting 1 May 2016, the provisions of the Totalisation Agreement concluded between the Czech Republic and the USA newly also cover the area of health insurance. Employees of American companies working for subsidiaries in the Czech Republic for no more than five years are not insured within the Czech public health insurance system. Therefore, these employees are no longer obliged to make contributions to Czech health insurance. However, over the time of their stay in the Czech Republic they ought to arrange another type of (private) health insurance for immigration purposes.
The extension does not affect freelancers and family members of US employees.
New Obligations of Czech Employers under Employee Assignments to Slovakia
With effect from 18 June 2016, the new Slovak Law is introducing additional obligations upon employee assignments that apply both to Slovak employers and international employers assigning their employees to Slovakia.
Pursuant to the new regulations, the so-called visitor employer has the duty to report to the Slovak National Labour Inspectorate, at the latest on the day on which employees were assigned to Slovakia; under this obligation, information defined by law is to be reported to this body. During the assignment term, employers are obliged to maintain and keep the following documents at the place where work is performed by assigned employees: employment agreement and work attendance records. These documents are to be submitted to the Inspectorate upon its request; such requirements may also arise subsequent to assignment completion. In the event that the obligations set out above are not met, the Slovak Labour Inspectorate may rule on imposing a fine up to EUR 100,000.
Given that the definition of assignment is rather broad, in each particular case it will have to be thoroughly assessed whether the given assignment is qualified as assignment stipulated by the new legislation, ie whether the given Czech employee is obligated to comply with the legal regulations named above.
Post-Natal Care Leave for Fathers
Based on a legal amendment of 11 May 2016, the Czech government approved post-natal care leave for fathers (fraternity leave) with a view of enhancing the bond between newborns and both parents.
Fraternity leave allowances are supposed to be provided as part of illness allowances over a period of one week. Fraternity leave may be used anytime within the first six weeks of a baby’s birth; however, the use of the allowance will not be obligatory. The amount of this social allowance is equal to maternity financial support (ie maternity leave allowance). The amendment is to be approved by the Czech Chamber of Deputies and is expected to come into effect no later than on 1 January 2017.
Change in Children’s Tax Allowance
On 1 May 2016, the Amendment to the Income Taxes Act came into force. Pursuant to the Amendment, the tax allowance for the second and third child and all subsequent children increased. As compared to the prior rates, the tax allowance for the second child increased by CZK 100 to CZK 1,417 per month (ie CZK 17,004 per year), and the tax allowance for the third child and all subsequent children increased by CZK 300 to CZK 1,717 per month (ie CZK 20,604 per year). The tax allowance for the first child remains unchanged, ie CZK 1,117 per month and CZK 13,404 per year).
The increased monthly tax allowance rates for the second and third child and all subsequent children were first applied in payroll processing for May 2016. The child tax allowances for the period from January to April 2016 for which the original rates were applied will be included in the reconciliation for the whole 2016 taxation period, that is, these amounts will be evened up by the difference between the amended child tax allowance amounts either during the annual reconciliation of income tax pre-payments for 2016 or as part of the tax return for 2016.
Use of Outstanding Vacation Days for 2015
The rule according to which the use of vacation days is determined by employers does not have to be adhered to if employers fail to determine the use of outstanding vacation days from the previous year for employees by 30 June of the following year. Given this, in the event that the employer does not rule on the use of outstanding vacation days for 2015 by 30 June 2016, employees may use their right in line with Section 218 (3) of the Labour Code to determine how to use their vacation days on their own. To perform this step, no approval of the employer is required, however, employees are obligated to inform the employer on using the outstanding vacation days minimally 14 days in advance.
Health Insurance Company Changes Effective from 1 July 2016
For employees who applied for a change in their health insurance company between 1 January 2016 and 31 March 2016, the insurance company will be changed with effect from 1 July 2016. We should like to note that all employees are bound by law to report this change to their employer.
The deadline for employees to make changes in their health insurance companies effective from 1 January 2017 starts on 1 July 2016 and ends on 30 September 2016.
When deciding on whether to change one’s health insurer, employees ought to take into account all the positive and negative impacts related to the change (for instance, we recommend making sure one’s General Practitioner has concluded a contract with the employee’s new health insurance company).
Pillar II of the Pension Savings System
We would like to note that pension funds under Pillar II will be dissolved as of 1 July 2016 and will enter in liquidation. The liquidation proceedings shall be completed by the end of 2016. By September 2016, pension savings scheme participants shall inform their respective pension companies whether they wish to have all the relevant funding paid out or whether they wish to have it transferred to a contract under Pillar III - for additional pension insurance or complementary pension savings schemes, if in place. Pension companies shall inform the participants on an opportunity to make additional pension insurance payments in order to avoid being assigned a lower pension calculation rate for the participation time in Pillar II.
The instructions made by scheme participants to their pension companies regarding the subsequent treatment of their funding shall be dealt with by the end of December 2016 (however, this will probably be possible no sooner than in October 2016). All the other funding for which no instructions on the use will be made will be transferred to the insurance administrator’s account by the end of January 2017. Subsequently, such funding will be transferred to the relevant participant’s personal tax account.
Details to Be Displayed on the Payroll List
Since April 2016, the details to be included in a payroll list have included two additional pieces of information related to Czech tax non-residents. Pursuant to the amended regulation, payroll lists shall display the compensation paid to members of legal entity bodies separately from other income taxed with withholding tax. The second obligatory detail is the day on which the employment of a Czech tax non-resident ended in the Czech Republic.