Payroll Newsletter - Winter 2020
Tax changes, news, practical information
An overview of the news from the payroll environment in one place. This is our quarterly payroll newsletter. Scroll through the current release.
The cap on social security payments in 2020 and the increase in the limit of income subject to solidarity surcharge tax
On 1 January 2020, the maximum assessment base for social security payments increased from CZK 1,569,552 to CZK 1,672,080, which coincides with the increase in the limit of income subject to solidarity surcharge tax, which will now be paid on income exceeding the amount of CZK 139,340 per month.
The amount of income determining an employee’s contribution to sickness insurance remains CZK 3,000; in case of contracts for work, the limit remains unchanged – recorded income exceeding CZK 10,000.
An increase in the minimum wage from 1 January 2020
On 1 January 2020, the minimum wage increased by CZK 1,250 to CZK 14,600; the minimum hourly wage increased to CZK 87.30. The lowest limits for wages for the individual groups of jobs also increased, ranging from CZK 14,600 to CZK 29,270 (eight groups based on the complexity, responsibility and strenuousness of the performed job). The increase in the minimum wage influences also the following: the cap for claiming a tax bonus (the annual income amounts to at least six times multiple of the minimum wage/ monthly to at least half of the minimum wage, i.e. CZK 7,300), the maximum amount of income earned by an employee registered with the labour office (half of the minimum wage), the amount of state social support payments excluding payments determined based on the claimant’s income, an increase in the maximum tax relief for child placement in a pre-school facility (corresponding to the amount of the minimum wage), and an increase in the cap for exempting old-age pensions from income tax (increased to a 36 times multiple of the minimum wage CZK – 525,600 for 2020).
New amount of the assessment base for health insurance in 2020
In relation to the increase in the minimum wage, the minimum assessment base for health insurance also changes from January 2020, together with the minimum amount of monthly health insurance contributions that persons with no taxable income are obliged to pay and for whom the insurance contributions are covered by the state (students, retired persons, women on maternity leave, recipients of parental allowance, job applicants registered with the labour office etc.).
The minimum assessment base for health insurance for 2020 amounts to CZK 14,600 and the monthly health insurance contribution amounts to CZK 1,971.
Increase in the unseizable amounts for the calculation of executions
From 1 January 2020, the living minimum increases to CZK 9,912. This amount is the base for the calculation of an unseizable amount for one person (2/3 of the base) amounting to CZK 6,608, and an unseizable amount for a sustained person (1/4 of the unseizable amount for a person) amounting to CZK 1,652.
Electronic sick certificate (“eNeschopenka”)
On 1 January 2020, the system of electronic sick certificates (eNeschopenka) was launched. Temporary incapacity to work (TIW) arising after this date must now be processed electronically. Paper sick certificates are no longer issued, with the exception of Part II of the “Certificate for Incapacity to Work”. Employees are merely obliged to inform their employer immediately about their temporary incapacity to work. All data are now transferred via the ePortal. The employer can now receive notifications via e-mail, databox, or by way of e-filing through the VREP (APEP) channel.
The provision of data is linked to the declaration of commencement of employment. Employers are advised to report a new employee´s commencement of employment without undue delay.
According to the new electronic system, the employer is no longer obliged to submit paper sick certificates to the Czech Social Security Administration (CSSA). Nevertheless, they are still obliged to submit the “Annex to the application for sickness benefits” form and promptly report any facts that could influence the payment of sickness benefits (e.g. the date of the employee’s returning to work). In the form, employers are now obliged to specify the method of salary payment. The forms shall be submitted to the CSSA solely electronically.
Changes in basic rates for meal allowances abroad introduced in 2020
On 1 January 2020, the rates for meal allowances abroad changed for the following countries: Andorra (45 EUR), Bosnia and Hercegovina (40 EUR), Denmark (55 EUR), Ireland (50 EUR), Iceland (60 EUR), Luxembourg (50 EUR), and Malta (50 EUR). This change will also affect non-European countries, such as Australia and Oceania or the USA (60 USD).
Compensation for travel expenses incurred on business trips
On 1 January 2020, there was a change in the rates for compensation of travel expenses provided to employees on business trips. Employees using their private motor vehicles for a business trip are entitled to a compensation for wear-and-tear and for the consumed fuel. For the year 2020, the compensation for wear-and-tear on the vehicle increases to CZK 4.20 per kilometre. If an employee claims compensation for the consumed fuel in 2020 using the standard price stated in the underlying regulation, he is entitled to a compensation amounting to CZK 32.00 per litre of consumed petrol or CZK 31.80 for a litre of consumed diesel oil. Naturally, an employee has the right to choose whether he will utilise compensation based on standard rates stated in the underlying regulation or based on the actual expenses documented by bills for fuel purchase.
The year 2020 will also see an increase in the rates for inland meal allowances for the various length of their duration. Employees are newly entitled to minimum meal allowances of CZK 87 for business trips that take 5 to 12 hours, to CZK 131 if the business trip takes longer than 12 but less than 18 hours, and to CZK 206 if the business trip takes more than 18 hours. The principle for reducing meal allowances remains the same.
Insurance paid abroad and included in an employee’s tax base
Starting from 1 January 2019, for employees who belong to the social security system of another EU member state or an EEA state other than the Czech Republic and the Swiss Confederation due to the fact that they make social security and health insurance contributions in such a country, the base of income tax on dependent activities will be increased by an amount that corresponds to contributions to such compulsory foreign insurance actually made by employers. Thus, in cases like these, rather than the fictitious insurance rate of 34% (from 1 July 2019: 33.8%), employers shall include insurance contributions in the super gross income that were actually made in the country in which the relevant employee is obliged to make insurance contributions under international regulations.
Thus, employers ought to monitor the foreign insurance rates on a monthly basis. Especially in cases in which the foreign insurance contributions exceed the Czech insurance contributions made by employers (for instance Slovakia, Belgium or France), employers should make sure they do not deduct tax from employees’ salaries in a lower amount. In the event that the employer includes the foreign insurance contributions in the super gross salary on an irregular basis and in the event that in the months in which the employer did not have the current rates in place, they applied “incorrect” fictitious insurance rates that correspond to the Czech insurance contributions to be made by employers, the individual contributions already made by the employer shall be recalculated. If, based on the recalculation, an arrear on insurance contributions arises, the employer shall settle the outstanding amount immediately and, at the same time, deduct this amount from the relevant employee’s salary within the deadline for filing the ordinary Tax Reconciliation for 2019. In the event that the foreign insurance contributions were lower than the “incorrectly” applied fictitious Czech insurance rates, the excessive contributions payments shall be refunded to the employee.
When determining the tax base of the tax payers specified above, it is necessary to pay attention to how the taxable income is treated in the country in which employees make their insurance contributions. In the event that insurance contributions are made abroad from the given salary, while no contributions are made in the Czech Republic (for instance, contracts for work of up to CZK 10,000), employers are obliged to include these insurance contributions made abroad in the super gross salary. On the other hand, cases may occur in which the super gross salary is not increased by the insurance contributions made abroad, even if insurance contributions from the given salary are also made in the Czech Republic.
Average gross wage for Q1 to Q3 of 2019
On 4 December 2019, the Czech Statistical Office announced the average wage for Q1 to Q3 of 2019 amounting to CZK 33,429 (previously, the amount was CZK 31,225). This amount will serve as a basis for calculating the values for the compulsory share on employment of disabled persons in 2019. In order to meet the obligation, employers may choose the so-called “alternative performance” whereby the “alternative performance” for the employment of one disabled person corresponds to purchasing products or services amounting to CZK 234,003 net of VAT (33,429 x 7). The levy to be paid to the national budget as an “alternative performance” corresponding to the employment of one disabled person would amount to CZK 83,573 (33,429 x 2.5).
Changes in the compensation for the loss of wage/salary after the end of incapacity to work caused by occupational injury or occupational disease
The compensation for the loss of wage or salary after the end of incapacity to work caused by occupational injury or occupational disease as well as the compensation for the costs of means of subsistence for bereaved persons to which employees or bereaved persons are entitled under the Labour Code or under earlier legal regulations, has been amended in the following way: the average wage or salary that is decisive for the calculation of the compensation for the loss of wage/salary or that is decisive for the calculation of the compensation for the costs of means of subsistence for bereaved persons (potentially increased under the legal regulations) has increased by 5.2%, or alternatively by CZK 151.
In case of entitlements to the compensation for the loss of wage/salary or entitlements to the compensation for the costs of means of subsistence for bereaved persons arising after 31 December 2019, the average wage/salary that is decisive for the calculation of the compensation for the loss of wage/salary or the compensation for the costs of means of subsistence for bereaved persons will not increase in line with the information specified above.
Tax allowance for placing a child in a pre-school facility (kindergarten tax allowance)
The amount of the minimum wage/salary also affects the maximum tax allowance amount for placing a child in a pre-school facility (the so-called kindergarten tax allowance). The tax allowance is equal to the amount of minimum wage/salary. Thus, whereas in the last year, parents with a child placed in a pre-school facility were able to use a tax allowance in the maximum amount of CZK 13,350, this year the tax allowance amounts to CZK 14,600.
News and updates on Brexit
Pursuant to the referendum of 23 June 2016, in which the British people voted for the United Kingdom’s exit from the European Union, in December 2019 the British MPs passed the implementing law related to the Brexit deal agreed between the United Kingdom and the European Union. The final vote as well as the final approval by the European Union are expected to be held in January 2020. Thus, the United Kingdom plans to leave the European Union as of 31 January 2020. After this date, until the end of 2020, a transition period shall follow during which the EU rules so-far effective for the United Kingdom will remain in effect. In line with the Brexit Law, British citizens living in the Czech Republic will be treated as EU citizens during this period.