Payroll Newsletter - Winter 2024

Average gross wages for Q1 to Q3 2023 for the purposes of meeting the obligatory proportion – and related salary compensation for camp leaders

On 7 December 2023, the Czech Statistical Office announced the average wage for the Q1 to Q3 2023 at CZK 42,427. This amount is used to calculate the values for meeting the obligatory proportion of persons with disabilities for 2023. To compensate one disabled person with a “substitute performance”, products or services need to be consumed in the amount of CZK 296,989 excluding VAT (42,427 x 7). Contribution to the state budget relating to one vacant full-time position that should have been staffed with a disabled person would be CZK 106,067.50 (2.5 times the average wage, i.e. 42,427 x 2.5).This is also linked to the maximum amount of salary compensation for camp leaders – this amount corresponds to CZK 42,427 for 2024.

Average wage for pension insurance purposes

Based on the Government Decree No.290/2022 Coll., the average wage for 2024 is CZK 43,967. This amount subsequently affects withholding tax, the reduction thresholds for sickness insurance, progressive taxation, and the maximum assessment base for social insurance.

Increase in minimum and guaranteed wage levels from 1 January 2024

Since 1 January 2024, the minimum wage has increased by CZK 1,600 to CZK 18,900; the minimum hourly wage has increased to CZK 112.50. The bottom levels of guaranteed wages for individual work groups have also been increased, specifically, however, only for groups 1 to 3 and group 8. The increase in the minimum wage affects, for example, on the limit establishing entitlement to a tax bonus (the annual income amounts to at least six times the minimum wage / at least half of the minimum wage per month, i.e. CZK 9,450); the maximum amount of earnings of a job seeker registered by the Labour Office (half of the minimum wage); the amount of state social support allowances except for allowances reflecting the applicant’s income; increase in the maximum tax relief for the placement of a child in a pre-school facility (in the amount of the minimum wage); increase in the limit to exempt pensions from income tax (up to 36 times the minimum wage, i.e. CZK 680,400 for 2024).

New amount of the minimum assessment base for health insurance in 2024

With respect to the change in the minimum wage since January 2024, there has been an increase in the minimum assessment base for health insurance, and thus the minimum amount of the monthly premium to be paid by individuals with no taxable income. In 2024, the minimum monthly assessment base for health insurance is CZK 18,900 and the monthly premium is CZK 2,552.

Maximum assessment base for social insurance in 2024

The maximum assessment base for social insurance in 2024 increases from CZK 1,935,552 to CZK 2,110,416 (48 times the average wage).

Decrease in the threshold for the application of the 23% rate

The tax base limit for personal income for the application of progressive income tax is newly adjusted. Income of individuals is taxed at a 15% tax rate up to the tax base limit of 36 times the average wage (i.e. in 2024 up to CZK 1,582,812, which corresponds to CZK 131,901 per month). The annual tax base above 36 times the average wage will then be taxed at an increased rate of 23%.

Remote working and the impact on the Income Tax Act (introduction of flat-rate compensation)

Along with the general regulation of remote working, the amendment to the Act also introduced the institution of a flat-rate reimbursement for remote working, which represents one of the options for compensating employees for the costs associated with remote working. As of 1 October 2023, this flat-rate compensation was set at CZK 4.60 for each hour of remote working. From 1 January 2024, this amount will be reduced to CZK 4.50. Another option to compensate for these costs is to reimburse the employees for the costs they actually prove. At the same time, the employer may agree in writing with the employee that the employee is not entitled to reimbursement of costs related to remote working.

Change in the basic rates of meal allowances for trips abroad for 2024

With effect from 1 January 2024, the Ministry of Finance sets new basic rates for meal allowances for trips abroad. More than 20 countries, including EU member states, are changing their meal allowance rates, for example: Hungary, Estonia, Croatia (EUR 45); Iceland, Norway, Sweden (EUR 65); Egypt (EUR 50).

Travel allowances and local meal allowances for 2024

Since 1 January 2024, adjustments have been made to the rates of reimbursement of travel expenses paid to employees on business trips. In relation to the use of a private car for a business trip, employees are entitled to the compensation for car wear as well as compensation for consumed fuel. The compensation for car wear has been increased to CZK 5.60 per km driven in 2024. If employees claim compensation for consumed fuel using the declared prices, they may request compensation of CZK 38.20 per 1 litre of consumed Natural 95, CZK 42.60 per 1 litre of consumed Natural 98, CZK 38.70 per 1 litre of consumed diesel oil and CZK 7.70 per 1 kilowatt hour of consumed electricity. Instead of prices determined by the Decree, employees are naturally entitled to claim compensation based on their actual expenses determined using confirmations of fuel payment.

In 2024, local meal allowance rates will be increased in individual time zones. Employees are now entitled to meal allowance of at least CZK 140 if their business trip takes from 5 to 12 hours; CZK 212 if their business trip takes more than 12 hours but less than 18 hours; and CZK 333 if their business trip exceeds 18 hours. The principle of meal allowance reduction remains the same.

However, the limit for exempt meals provided per shift has changed. The limit is 70% of the upper limit of the meal allowance that can be provided to salaried employees for a business trip taking between 5 and 12 hours. This limit is therefore CZK 166. The provision of monetary meal allowance or meals in kind exceeding the limit of CZK 116.20 (70% of CZK 166) is therefore subject to income tax and levies on the part of the employee.

Change in reduction limits

Since 1 January 2024, the reduction limits for the calculation of salary compensation and sickness benefits have been changed and are presented in the table below:

The threshold for participation in sickness insurance remains unchanged for 2024 at CZK 4,000.

Increase in premium rates for paramedics and professional firefighters – year 2

As the rate of paid pension insurance scheme premiums for employers employing paramedics is gradually increasing, the new rate of social security and state employment policy contributions for 2024  27.8%. This rate applies to the assessment bases of employees who perform the work of a paramedic or a member of a company’s firefighting unit in a calendar month.

Decrease in non-distrainable amount and the threshold for a full wage distraint from January 2024

Compared to the two previous years, the normative cost of housing are reduced to CZK 14,197 from January, and thus the non-distrainable amount per debtor, the amount per dependent and the limit of a fully distrainable amount are reduced as well:

• the non-distrainable amount per debtor drops to CZK 12,704.67;
• the amount per dependent is reduced to CZK 3,176.17;
• the fully distrainable amount, above which it is distrained without limitation, is reduced to CZK 28,585.50.

Modification of communication between bailiff and employers

With effect from 1 January 2024, the amended Decree on Procedures for the Enforcement and Other Activities provides instructions and guidelines on the manner and format of mutual electronic communication between bailiffs and employers. From the employer’s perspective, it defines, for example, an exhaustive list of data to be included in the form of the response to the bailiff’s request for cooperation and the format and structure of the data file of the response to the cooperation.The Decree follows the gradual unification of processes in the performance of enforcement activities within the EU and as of the date of publication of the Payroll Newsletter has not yet been published in the Collection of Laws.

Amendment to the Labour Code

The transposing amendment to the Labour Code, which came into effect as early as 1 October 2023, has brought new requirements and changes that need to be reflected in practice. We have already reported on most of them in detail in the autumn issue of the Payroll Newsletter:

• broader information obligations of the employer towards the employee,
• delivery and digitisation – rules for electronic signing and delivery of employment documents,
• working conditions of protected employees,
• tightening of agreements on work performed outside employment,
• details of the new rules on remote working (home office).

Agreements on work performed outside employment

As of 1 January 2024, employees working under a contract outside employment relationship are entitled to paid holiday under the same conditions as employed staff. In the case of an agreement to perform work, the time spent on holiday is included in the time worked. In the case of an agreement to complete a job, this is not considered as work and is not included in the annual limit of 300 hours. 

Sickness insurance for employees

From January 2024, the employee’s sickness insurance premium will be introduced at 0.6% of the assessment base. Until the end of 2023, only the employer paid sickness insurance on behalf of the employee at the rate of 2.1% of their assessment base. The employee will now pay social security contributions at a rate of 7.1% (instead of the current 6.5%).

Changes to non-monetary employee benefits

Standard non-monetary benefits in the field of culture, education, purchase of services and goods from health care institutions, tours and holidays, etc. will be exempt from 1 January 2024 only up to the limit of half of the average wage for the relevant year (for 2024 the amount of CZK 21,983.50). This means that if the value of the benefits exceeds this limit, these excess benefits will be subject to income tax and compulsory insurance. 

At the same time, the exemption for non-monetary benefits or social assistance provided by the employer from the Fund of Cultural and Social Requirements (FKSP) to the immediate survivors or social assistance at the employer that does not establish a FKSP is abolished. The reason for this is the sub-classification of this benefit under other income of Section 10 of the Income Tax Act as of 1 January 2024. If the taxpayer’s income exceeds CZK 50,000, the income will be subject to taxation.

Furthermore, the exemption for non-monetary gifts to employees up to CZK 2,000 provided under the terms of the FKSP is abolished.

Reduction in the rate of non-monetary income for employee vehicles

As of 1 January 2024, the rate of non-monetary income in the form of the use of a company car for private purposes will be reduced for emission-free vehicles, i.e. those with pure electric or hydrogen propulsion, to 0.25% of the purchase price including VAT of the vehicle. For motor vehicles, the rate remains at 1%.

Changes to income tax benefits

In the 2024 tax year, specific tax reliefs and non-taxable parts of the tax base will be abolished or reduced:

• The deduction from the tax base for membership fees paid to a trade union is abolished.
• The deduction for examinations verifying the results of further education is abolished.
• The conditions for claiming the second spouse discount are to be stricter, with the relief now applying exclusively to those who care for a child up to the age of 3. The second spouse’s income limit of CZK 68,000 remains unchanged.
• The student tax relief is abolished.
• The tax relief for placing a child in a pre-school institution (the so-called “pre-school allowance”) is abolished.

Cancellation of taxpayers’ cash registers

In relation to the implementation of the individualisation of personal income tax from dependent activities project, the institute of taxpayers’ cash registers will be abolished as of 1 January 2024 and their registration will be cancelled. The abolition will result in the obligation to file only one taxpayer’s tax return, which is aimed at streamlining the unnecessary administrative burden and making the control of tax compliance more efficient.

The Income Tax Act, as in force until 31 December 2023, applies to income tax obligations for the taxation period commenced prior to the date of entry into force of this Act, as well as to the rights and obligations related thereto. The rights and obligations of the abolished taxpayers’ cash registers arising from the Income Tax Act will be transferred to the founders on 1 January 2024.

Narrowing of income relating to the obligation to report foreign income

As of 2024, there is a change in the list of income to be reported in the Notification of Income Paid out into a Foreign Country, i.e. income received by a non-resident taxpayer from sources within the Czech Republic that is exempt from tax in the Czech Republic or not subject to taxation in the Czech Republic:

• royalties and profit shares, regardless of their amount;
• interest not exceeding CZK 300,000 in aggregate for any calendar month of the year.

The above can already be applied to the 2023 Notification. Income subject to withholding tax will be reported under the same conditions as before.

Extension of tax measures in relation to Ukraine

The extended scope of deductible contributions for 2023 continues to apply for Ukraine-related donations, whereby it is possible to deduct the value of donation up to 30% of the tax base. The range of purposes of donations and the range of recipients of such donations are also extended, so that these donations made in 2023 can be claimed:

• for the purpose of supporting the defence efforts of Ukraine, provided that the recipient of the donation meets the conditions under which the value of the donation may be deducted from the tax base; or
• for donations to Ukraine, its territorial administrative units and to legal entities or natural persons established or domiciled in the territory of Ukraine, provided that the recipient and the purpose of the donation meet the conditions.

Changes to staff catering

The difference in the taxation of non-monetary and monetary meal allowances from the perspective of the employer and the employee is unified as of 1 January 2024. The employer’s meal allowance as a non-monetary income will be subject to the same regime as monetary income in 2023.

The current limitation on the tax deductibility of the non-monetary meal allowance of a maximum of 55% of the cost of a meal will therefore be abolished – it will be a tax-deductible expense on the employer’s side without a limit. At the same time, the non-monetary and monetary form of employee’s income in the form of a meal allowance provided by the employer on the employee’s side will be exempt only up to the limit of a maximum of 70% of the upper limit of the meal allowance that can be provided to salaried employees during a business trip lasting 5 to 12 hours, i.e. a maximum of CZK 116.20 from 1 January 2024. This will abolish excess meal vouchers.

The provision of small refreshments to employees at the workplace in the form of coffee, drinks, fruit, etc. has been exempt from tax until now. For 2024, the technical interpretation is changing, whereby this type of non-monetary income will not be subject to tax at all.

Changes to unemployment benefits

The consolidation package also brought changes to the conditions for entitlement to unemployment benefits in the event of repeated registration with the Labour Office. The period of pension insurance acquired through employment will be extended for cases of repeated inclusion in the register of jobseekers within a period of two years. The existing condition of three- or six-months’ service will now be extended to six or nine months to qualify for the benefit.

In addition, there will no longer be a delay in the granting of support if the jobseeker has been paid a severance payment, lump sum pay-off or redundancy payment. Thus, if the conditions are met, the support will be paid from day one, regardless of previous financial compensation. Following this amendment, the institute of compensation is also abolished.

Changes to parental allowance from 2024

An amendment by the Ministry of Labour and Social Affairs increased the amount of the parental allowance by CZK 50,000 to a total of CZK 350,000 (CZK 525,000 for multiple children). However, the period of its possible use has been shortened to a maximum of 3 years. The changes will affect children born from 1 January 2024 onwards or children who will be entrusted with permanent care replacing parental care as of that date.

Updating tax return forms

The Ministry of Finance draws the attention of taxpayers of income tax from employment to the updated forms for personal income tax and withholding tax at a special tax rate for the 2023 and 2024 taxation periods of.

Form MFin 25 5457 model No. 27 has been issued for the Income tax return by individuals on employment income, where the student tax relief has been abolished. The form will not be issued in hard copy. The Ministry of Finance also notes that taxpayers can use the older templates of this form for the 2024 tax year.

Changes to Employee Stock Ownership Plans (ESOPs)

The aim of the change from 1 January 2024 is to defer the point at which the acquisition of stocks/shares or options to purchase such stocks/shares under an ESOP will be taxed, ideally until the employee sells the acquired shares and receives cash income on which they can pay the related tax.The legislation applies to situations where an employee acquires stocks or shares in a business corporation that is an employer, a business corporation that is a parent or subsidiary of, or a capital-related entity of that employer, or acquires an option to acquire such stock.

In addition to the time of the sale of the stock/share, the legislation also defines other moments when deferred taxation occurs, such as the moment when the employer or employee ceases to be a tax resident of the Czech Republic, the employee ceases to perform dependent activity for the employer, the option is exercised, or 10 years have passed since the acquisition of the stock or option.Employees will be required to inform the employer of the transfer of the shares or option.

Expanding the range of saving options for retirement

As of 1 January 2024, the long-term investment product (LTIP) is a tool to expand the range of saving options for retirement to include banking and investment-type products, such as a conservative bank deposit, a savings account or collective or individual investment, provided that the relevant conditions are met. The participant will receive the tax benefit if the withdrawal of the saved funds takes place at the earliest after 10 years of saving and the participant reaches at least 60 years of age. Another instrument is the long-term care insurance, which makes the participant or their close relative dependent on the assistance of another person due to a long-term adverse health condition corresponding to dependency level III or IV.

The total limit for all four tax-supported retirement savings (in addition to the above also life insurance) will be CZK 48,000 per year per taxpayer and the current limit of CZK 50,000 per year for employer contributions. The participant can opt to use the tax support for only one type of product or spread the tax benefit over several products.

Amendment to the Employment Act

A new information obligation has been created for employment agencies regarding users and the number of staff assigned to each user. From January, it will also be necessary to report the identification of users to whom agency staff have been temporarily assigned and the number of staff by CZ_ISCO group assigned to each user.

Point of interest:

Case 59 Af 3/2023-60 dealt with entitlement to the dependent child tax benefit and entitlement to the student tax relief for the month in which the student/child was born on the first day. In its conclusion, the court held that the dependent child tax benefit and, similarly, the student tax relief should still be applicable to persons born on the first day of the month in question when they turn 26 years of age.