Below-threshold DPP (up to CZK 10,000 a month) – the employee HAS signed a taxpayer declaration (the “pink form”)

This situation involves the least administration. 

Registration:

 

Payroll processing: 

  • Until 2023, occasional processing was enough, as employees did not have to be reported anywhere monthly. A reporting system for workers on agreements is planned from 1.7.2024 (the proposal has not yet been approved).
  • by 20.3. of the following year, you must submit an annual advance income tax reconciliation, which will be zero when employing DPP workers with signed declarations; the number of employees in each month of the previous year is given for information

 

Monthly payment: 

  • the agreement worker’s pay (gross pay = net pay)
  • CZK 100 to Kooperativa once a quarter (the same amount whether you have 1 or 100 agreement workers)
Below-threshold DPP (up to CZK 10,000 a month) – the employee HAS NOT signed a taxpayer declaration

Registration:

  • Withholding tax (Application for registration of individuals or legal entities; register for personal income tax collected by withholding, because it is collected from an individual – the employee)
  • Statutory employer’s liability insurance  – this is compulsory insurance for employers and can be arranged only with Kooperativa

 

Payroll processing: 

  • ideally monthly; otherwise the business owner must calculate how much to send the following month as pay and how much to remit to the tax office
  • a reporting system for agreement workers is planned from 1.7.2024 (the proposal has not yet been approved)
  • by 1.4. of the following year, you must submit an annual withholding tax reconciliation – it sets out the tax withheld in each month of the previous year and whether you remitted it to the tax office; the balance is usually zero, but incorrect remittances can also result in an overpayment or underpayment

 

Monthly payment: 

  • the agreement worker’s pay (85% of gross pay)
  • withholding tax remitted to the tax office (15% of gross pay)
  • CZK 100 to Kooperativa once a quarter (the same amount whether you have 1 or 100 agreement workers)
Above-threshold DPP (over CZK 10,000 a month)

This is where things start getting more complicated. An employer’s obligations for above-threshold DPP agreements are the same as when employing someone on an above-threshold DPČ agreement or a standard employment contract (HPP).

Registration:

    • Advance income tax
    • Health insurance provider – register as an employer with the employee’s particular insurer; if your employees have different insurers, you must register with each of them (Employer registration application and record sheet)
    • Health insurance provider – register the employee, again with that employee’s particular insurer (Employer’s collective notification)
    • Social insurance – register as an employer (Application for entry in the register of employers)
    • Social insurance – register the employee (Notification of commencement of employment)
    • Statutory employer’s liability insurance – this is compulsory insurance for employers and can be arranged only with Kooperativa

 

Payroll processing: 

  • monthly, with no exceptions here, because monthly statements must be sent to health insurance providers (Statement of insurance contributions paid) and to the Social Security Administration (Statement of insurance contributions due)
  • by 20.3. of the following year, submit the annual advance income tax reconciliation
  • by 30.5. of the following year, send a pension insurance record for every employee for whom social insurance contributions are paid (known as an ELDP)

 

Monthly payment: 

  • the agreement worker’s pay
  • advance income tax according to earnings
  • health insurance for the employer (9%) and employee (4.5%)
  • social insurance for the employer (24.8%) and employee (6.5%, rising to 7.1% from 1.1.2024)
  • CZK 100 to Kooperativa once a quarter (the same amount whether you have 1 or 100 agreement workers)
Standard employment (HPP)

As I wrote above, an employer’s obligations for above-threshold DPP agreements and standard employment do not differ much. Only the employer’s payment to Kooperativa increases; it is calculated as a percentage of employees’ total gross wages for the previous quarter and is paid in advance for the coming quarter. This percentage varies according to the employer’s sector of activity. 

I would also mention the annual reconciliation of advance income tax, which employees on standard employment contracts usually ask their employer to carry out. The employee must request an annual reconciliation by 15.2. of the following year and provide all the necessary supporting documents by that date. The employer must complete the reconciliation no later than the March payroll, paying it out in April.

Agreement to perform work (DPČ)

A DPČ agreement is something of a hybrid between a DPP agreement and standard employment. Up to CZK 4,000 a month, it works like a below-threshold DPP, with all the obligations described above. Again, it depends on whether the employee signs a taxpayer declaration. From CZK 4,000 inclusive, it works like an above-threshold DPP or standard employment.

Complications

The main headaches arise with DPP and DPČ workers whose earnings hover around the thresholds (DPP: CZK 10,000/month; DPČ: CZK 4,000/month). In these cases you need to be very careful, because the first time earnings rise above the threshold, you must register the employee for health and social insurance. In subsequent months you must closely monitor earnings, deregister the employee from health insurance whenever they fall below the threshold, and register them again whenever they rise above it. What a hassle. 🙂 If this happens regularly, constantly checking that you have not forgotten a registration or deregistration can be a nuisance. The relief is that social insurance registration is required only once, with deregistration when the employee leaves or their agreement expires. 

Another complication can arise when different forms of employment run alongside one another. An employee can sign an unlimited number of contracts and agreements with an employer, as long as the work duties differ.

Employees leaving

If an employee’s personal details change during employment – surname or address – you report this to the Social Security Administration. Employees are responsible for reporting these changes to their health insurance provider themselves.

An employer’s obligations do not end when an employee leaves. When employment ends, you must arrange all the relevant deregistrations. If your last employee with a particular health insurer leaves, you also deregister yourself as an employer with that insurer. If your last employee overall leaves, you also deregister as an employer for social insurance and with Kooperativa. For advance and withholding tax, we usually keep the registrations active and submit zero reconciliations. If employment does not resume within about a year, I deregister those taxes too.

Payroll and HR are not straightforward, and I would advise everyone to entrust these matters to an experienced payroll accountant to avoid any problems that could arise. If you are unsure what to do, please get in touch and we can look at it together. 🙂 

If you would also like to know exactly how net pay is calculated, take a look at my earlier article, which demonstrates the calculation using the minimum wage.