How to Hire Employees in the Czech Republic: The Employer of Record Solution
Hiring remote workers overseas brings some decisions for a company, including the choice between hiring them as contractors or employees. The advantages of using independent contractors have to be contrasted with a full employment role; in terms of worker commitment, overall cost, available talent, and local regulations.
Due to economic restrictions from the pandemic, you may find there are many skilled recruits looking for formal employment, who are used to working remotely but also want some economic stability.
Your company may be leaning toward hiring one or more remote employees and needs to know how that can be accomplished across borders. You can always attempt to do this yourself if you have an HR department that is experienced with global employment, or you might be better off using an ‘employer of record’ in the Czech Republic to handle all employment administration.
This overview will guide you in the details of hiring employees in the Czech Republic, to remain in compliance with employment rules as well as labor and immigration laws.
What to know when hiring employees in the Czech Republic
If you hire employees in the Czech Republic, then the local employment regulations will apply, not those in your home country. Here are the main areas to be aware of:
Employment in the Czech Republic
Contracts: Employment contracts must be written or translated in Czech, and include the type of work, place of performance, and start date.
Entitlements: Employees are entitled to the following leave amounts:
- Vacation Leave – 20 working days (four weeks)
- Sick Leave – paid at 60% of salary by employer first 14 days, and paid by the social security system after that.
- Maternity – 28 weeks paid (70%)/paternity – 7 days (70%)
Termination: 60 days notice is required for just causes (organizational change, incapacity, poor performance, misconduct). No notice is required for criminal or gross misconduct.
Severance: minimum of one month’s average salary, up to three month’s salary depending on the length of service. Termination due to an occupational accident receives a minimum of 12 months’ salary
Payroll and tax in the Czech Republic
The Czech Republic has a fairly low-income tax rate for your employees, but the employer’s social contributions could be much higher than you are used to, adding to the overall cost of employment.
Income tax rate: 15% flat tax rate, based on ‘super gross salary’ which includes employer social security contributions
Social security and statutory payroll contributions:
Employer contribution rate based on gross income:
- Health insurance: 9%
- Social security: 25%
- Pension: 21.5%
Employee contribution rate based on gross income:
- Health insurance: 4.5%
- Social security: 6.5%
- Pension: 6.5%
Immigration: Residence and work permits in the Czech Republic
If your new employees are not Czech residents, then they will need to meet immigration requirements which will depend on whether they are EU citizens or not.
Requirements for EU citizens: Blue Card
EU citizens do not need a work permit, but for long-term stays, they will need a Blue Card which will be their residence permit. They must also be ‘highly qualified’ to be eligible.
Requirements for Non-EU citizens: Employee Card
Non-EU citizens have a tougher time of it and will need a Schengen work visa with a local corporate sponsor. They can also apply for an Employee Card for their residence permit if they meet the criteria.
Using an employer of record in the Czech Republic
As you review all of the intricate and unusual employment rules in the Czech Republic, you might wonder how you can successfully hire an employee from your home country. One solution, if you don’t want to set up and incorporate your own entity, is to use an employer of record (EOR).
What is a Czech Republic employer of record?
The Czech Republic EOR is a legal entity already in place and ready to hire, onboard, and payroll your local employees. The EOR becomes the legal employer in the Czech Republic, while your company still manages the employee’s work methods, schedule, and duties remotely.
How does employment work with an employer of record?
When you use an EOR solution, they will draft the employment contract to conform to Czech standards and language requirements, while detailing the work role and compensation that your company negotiated with the employee. Then, they will obtain all of the employee data needed to run payroll, withhold taxes and contributions, as well as pay employer contributions on your behalf.
Each month, the EOR will issue a payslip to the employee and deposit their net salary. All your company has to do is remit payment to the EOR based on an invoice reflecting the salary, allowances, and employer contributions. The EOR can also sponsor work permits for non-EU citizens.
Are there alternatives to using an employer of record?
The main alternatives to using an employer of record are to either set up your own entity in the Czech Republic or hire workers as independent contractors. Setting up an entity does give your company control over the entire foreign employment process, but does require time and expense along with local legal and accounting support.
It is really only a practical option if you are hiring multiple employees or to fulfill other business needs in the Czech Republic.
Hiring contractors can be much simpler and less costly than hiring a full-time employee, but you will have no guarantee that you can retain them long-term and might lose their skill set if you cant find a replacement. Still, contractors are a good choice for either part-time or short-term projects, or where your company is unsure of how much work you can offer.
You have to be careful about misclassification as well, where the contractor at some point claims they are actually an employee and wants to receive all benefits and entitlements.
How can Contractor Taxation help you with hiring employees in the Czech Republic?
In addition to our expertise in international contracting, Contractor Taxation also has access to a global network of employers of record, including in the Czech Republic. Our partner can show you how simple it is to hire local employees with an EOR, and then offer ongoing account management for the duration of the engagement.
What this means is that you are never on your own when employing abroad, as your employment relationship is secure, compliant, and flexible if your needs change. Please contact us if you want to learn more about this foreign employment solution.