Payroll Newsletter - Spring 2024

Amendment to the Employment Act

On the basis of this amendment, the labour market test for employment cards is cancelled from 1 July 2024: an employer who wants to employ a foreigner does not have to wait for the previously defined 10-30 days if it is not possible to employ a Czech citizen, but only has to announce a vacancy for a foreigner.

Obligation to register and notify work performance agreements

Assuming the legislative proposal properly goes through the legislative process, from July 2024 there will be an obligation to register all work performance agreements and the income from these agreements. This also applies to employers who have not yet been obliged to register in the register of employers because they do not have any insured employees. The obligation to register applies even if no payment from these agreements reaches the limit for participation in sickness insurance. Employers will thus have to report all work performance agreements for a calendar month via a summary form to the Czech Social Security Administration (CSSA).

Amendment to the Labour Code

In March, the government approved an amendment to the Labour Code the final form of which has yet to be discussed by the Chamber of Deputies and the Senate. However, the changes contained in the government’s proposal are specified below:

• Regular indexation of the minimum salary

The government has approved regular indexation of the minimum salary not only for the purposes of better predictability for companies and employees. By amending the Labour Code, it established clear rules for calculating and updating the minimum salary, with the Ministry of Labour and Social Affairs (MLSA) announcing the minimum salary for each calendar year by 30 September of the previous year. As a result, the minimum salary will be set by law, not by a government decision. The calculation will be based on the product of the coefficient set by the government and the forecast of the average salary in the national economy.

• Cancellation of guaranteed salary

The approved legislative proposal of amendment to the Labour Code provides for the cancellation of the guaranteed salary concept in the private sector. Only the “guaranteed salary” for employees in public services and administration will remain in place, where four groups of work will be established according to the qualification requirements. The individual groups will be further defined in a government regulation.

Growth in the recruitment subsidy for people with disabilities

The government regulation defines the maximum amount of the recruitement subsidy to support the employment of persons with disabilities provided to an employer with whom the Labour Office has entered into a written agreement on their recognition as an employer on the protected labour market, which amounts to CZK 15,700 (previously CZK 14,200). For the first time, this regulation is used to determine the subsidy for the first calendear quarter of 2024.

Employment of foreigners and computerisation of information obligation

On the basis of amendments to the Employment Act, we can look forward to the computerisation of the information obligation of an employer in the field of employment of foreigners in the Czech Republic as of 1 July 2024. In cases of the information obligation, only the data box of the employer or their authorised representative will be used; completing the web form of the MLSA after logging in to the data box or integrating the employer into the web interface of the CSSA/MLSA. Therefore, it will no longer be possible to send notifications and information regarding the commencement, change, or termination of employment in electronic or paper version on the required form. The new format for sending will be the mandatory extension “.xml”, which will be used to transmit all information to the labour office. If the employer wishes to authorise another person to fulfil this information obligation on their behalf, the employer will have to register their representative in the CSSA’s ePortal Management of Powers of Attorney system or register the power of attorney with the Labour Office. In summary, the current set-up will be available until 30 June 2024, and from 1 July 2024 the electronic version will be the only possible manner to meet the information obligation.

Tax and insurance payments for employee option plans

On 29 December 2023, Act No. 462/2023 Coll., was promulgated in the Collection of Laws, amending certain acts in connection with the development of the financial market and the promotion of old-age reinsurance. It also included an amendment to the Income Tax Act effective from 1 January 2024 introducing the deferral of taxation of non-cash income from the acquisition of shares in a business corporation by an employee at a preferential price until the first of a number of defined events (e.g. sale of shares, employee leaving the company, or expiry of 10 years from the acquisition of shares), which we informed you about in our winter newsletter. However, subsequent analyses, confirmed by information published by the Ministry of Finance, showed that the legislators probably did not initiate a subsequent amendment to the regulations governing the assessment bases for social security and health insurance contributions. Therefore, according to the prevailing conservative interpretation of the current wording of the Act, the acquisition of shares by employees at a preferential price results in a different time of taxation of personal income and the time of social security and health insurance contributions. If employers are in the position of payers of employment income in respect of such income and include income from shares acquired by employees in their payroll records, they should be obliged to pay social security and health insurance payments already when the shares are acquired by the employee (as for income received until 31 December 2023), but would only pay tax at the time of deferred taxation (e.g. when the shares are sold). The necessary amendment to the regulations governing insurance payments is already in the legislative process. However, the current wording does not contain any transitional provision that would ensure that the deferral of the obligation to pay insurance payments as of 1 January 2024 would be retroactive.There are other proposed changes in the legislative process, which we are monitoring, and we will keep you informed in this regard.

Meals for old-age or disabled pensioners

Legislators decided to respond to demand form employers who, as part of a collective bargaining agreement or other benefit programme, allow former employees who have retired or are retired on disability to receive meals at a company catering facility. Since these former employees are no longer working for the employer, they are not entitled under the current legislation to an income exemption in the form of meals provided or to discounts on the purchase of meals on preferential terms. Following the amendment, the same exemption should also apply to these former employees on a retirement or disability pension as to active employees. Non-monetary income in the form of a meal or a discount will be exempt up to 70% of the upper limit of the meal allowance that can be granted to salaried employees during a business trip lasting between 5 and 12 hours, i.e. CZK 116.20 in 2024. It will be a tax expense for the employer. The current wording of the amendment expects retroactive effect from 1 January 2024.

New methodology for corporate preschools as a benefit

In the context of the consolidated package, which brought a limitation on the amount up to which non-cash benefits can be drawn under the tax exemption, the Ministry of Finance has prepared an explanatory methodology according to which the use of a company preschool will be relevantly included in the drawing of non-cash benefits, according to the tuition fees in state preschools in the relevant location. The tax regime was then defined by the tax administration in general terms: “If the usual price of a municipal preschool in the relevant location and time is CZK 1,500 per month and the employee pays CZK 500, CZK 1,000 will be included in the limit for the exemption of benefits. If the employee pays CZK 1,500 or more, nothing counts towards the limit.”

Increase in pain point value

Compensation for pain under the point system is set out in a government regulation. In 2024, the value of one point is increased to CZK 424.27, where the value of the point represents 1% of the average salary in the national economy as determined on the basis of data from the Czech Statistical Office for the first to third quarters of the calendar year preceding the calendar year in which the obligation to assess pain and impairment of social mobility arose.

New developments in equal pay for women and men

From June 2027, companies with more than 150 employees (or, from 2031, companies with 100-149 employees) will be required to report the data required by the new EU Pay Transparency Directive. 

What obligations will companies have?
Companies will be required to share information on salaries paid and take remedial measures if the gender pay gap exceeds the 5% threshold. They will also be obliged to inform candidates of the starting salary or pay range for the position. Employees, on the other hand, will have the right to request information on the average level of payment for categories of employees performing the same or equivalent work. Information on the gender pay gap will be provided to the relevant public authority on annual (companies with more than 250 employees) or triennial basis (100-249 employees). 

We advise to companies to start preparing for this directive as soon as practicable. By identifying any pay gaps early, remedial measures can be adopted gradually, and the maximum 5% limit can be reached in time.

Average Gross Annual Salary for the Purposes of Issuing Blue Cards

In addition to applying for a Blue Card, the foreigner must also provide an employment contract for a position requiring a high level of qualification, specifying a gross monthly or annual salary equivalent to at least 1.5 times the average gross annual salary. For the issuance of Blue Cards in 2023, this equates to CZK 43,341, aligning with the average gross annual salary in the Czech Republic of CZK 520,092 as of 1 May 2024.

For the issuance of Blue Cards, the Ministry of Labour and Social Affairs publishes the average gross annual salary in the Czech Republic in the Collection of Laws, effective as of 1 May of each calendar year, covering a 12-month period.