Being an employer in the Czech Republic

Insurance, support and assistance are the ingredients of a just social system for everyone. They are also the responsibility of employers, employees and the social-security administration in the case of unemployment, sickness, disability, care or emergencies in the Czech Republic. What costs must be calculated when hiring employees? This article outlines the computation of wages and elements thereof, benefits and mandatory contributions in the Czech Republic.

Social-security system

In the Czech Republic the social-security system is implemented through three main tools, namely social insurance, state social benefits and social assistance and services. Contributions to social insurance are mandatory under the law. Czech social insurance is divided into the following systems: sickness insurance, accident insurance, health insurance and pension insurance. In other words, social insurance helps people prepare for possible life situations, for example, unemployment – citizens of the Czech Republic contribute to the Employment Policy Fund, which is actually an unemployment benefit fund; ill health – citizens contribute to the health-insurance system; short-term disability – citizens pay sickness-insurance contributions; long-term disability – pension-insurance contributions; and work-related accidents – personal-injury insurance.

Health insurance contributions fund basic healthcare. All employees and self-employed people as well as individuals without taxable income residing permanently in the Czech Republic are obliged to pay contributions. Part of the insurance is paid by employees themselves and part is paid by their employer. Health insurance covers medical treatments, medical devices, medication, etc. It does not cover some drugs and services that are not part of basic healthcare. These are paid for by patients.

Payroll accounting

Payroll accounting is part of employers’ accounting and it is one of the basic sources of information about the financial situation of a company. Payroll accounting includes HR and payroll data, salary calculations, social and health-insurance deductions, taxes, garnishing of wages and other salary deductions. HR and payroll administration are essential for mandatory reports and summaries sent to social-security bodies, health-insurance companies, the Tax Office, the body responsible for statutory employer insurance, the Labour Office and other institutions. Payroll and HR administration can be outsourced and in the Czech Republic these services are provided by a great number of companies.

Salary tax

Since 2021, the gross wage has been used in the calculation of personal income tax. Includes basic salary and other non-cash income of the employee. The net wage is equal to the gross wage of the employee for the calendar month minus income tax plus tax relief minus social security premiums (7.1% of gross wages) and health insurance premiums (4.5% of gross wages).