How to hire employees in the Czech Republic through an Employer of Record (EOR) [2023 Guide]
Apr 27, 2023
Hiring in the Czech Republic, also known as Czechia? Foreign employers keen on tapping into the country’s skilled workforce can start by hiring Czech contractors and sending international payments. But if you want to expand and hire full-time employees, you’ll need to establish a legal entity or hire through an EOR.
Registering a legal entity can take some time. Once established, it requires knowledge of complex Czech and European Union employment laws. Any misstep can incur fines and legal action from the State Labour Inspection Office which enforces the labor code (Act No. 262/2006) of the Czech Republic.
Alternatively, you can use an “Employer of Record” (EOR), which handles Czech payroll, tax, and compliance considerations.
Here’s a step-by-step guide for hiring through an EOR in the Czech Republic.
Step by step: How to hire through an Employer of Record in the Czech Republic
Step #1: Decide between a Czech EOR and a legal entity
Should you hire Czech employees through an EOR, or set up your own entity? This depends on your company’s resources, size, and plans to scale.
- Legal entity in the Czech Republic. Setting up a legal entity from scratch usually requires licensing and registration with local authorities, opening a local bank account, and consulting with local experts to ensure compliance with tax and Czech labor laws (Act No. 262/2006) and benefits (Act No. 187/2006). There are many steps in this process and mistakes can result in delays to get up and running.
- Czech EOR. An EOR is a third-party service that operates as an employer on a company’s behalf—meaning you don’t need to set up your own entity. As well as allowing you to hire full-time Czech employees, employer of record services handle all the legal requirements for complying with Czech laws for payroll, contracts, and benefits. EOR services also include calculating and withholding taxes, onboarding and managing employees, and running payroll.
This covers areas like working hours and the working week, remuneration, working conditions, holidays, time off, annual leave, termination, and more. Familiarity with the Sickness Insurance Act (Act No. 187/2006) is also important as it covers many entitlements including illness, pregnancy care and maternity benefits, paternity leave, and care of family members. In most cases coverage is mandatory, but not all.
Pros and cons of EORs vs. setting up a legal entity
Costs & Implementation
✔ Less time-consuming to set up.
✔ You can start hiring within days instead of months.
✘ Becomes costlier as your headcount increases.
✘ Takes up to six months to set up—and requires registration fees.
✔ More cost-effective.
✔ Quickly set up new hires, often within 1-14 days, depending on the provider.
✔ Supports large-scale expansion in a new market.
✔ Manages all of your compliance work for you, takes on liability, and provides localized employment contracts.
✘ Can’t tailor certain policies, and other HR/legal processes, to the needs of your business.
✔ Can tailor certain policies, and other HR/legal processes, to the needs of your business.
Payroll & Benefits
✔ Quickly pay and insure employees around the world.
✔ Taxes are filed for you.
✘ Must manually keep track of statutory deductions and employee entitlements for every hire.
Step #2: How to choose the best EOR for your business
Before you choose a platform, you should consider the services you will need, and how much you plan to grow your global hiring presence.
- Is the EOR active in the countries in which you need to hire? The first, and perhaps most obvious consideration when choosing an EOR for global expansion.
- Does the EOR own its own entities in the countries it services? If the EOR does not own the entities, it means they are partnering with a local or third-party provider.
- How does the EOR protect your sensitive and confidential information? It is vital that your EOR has the appropriate data protections in place, as well as secure technology that eliminates potential disclosures of private information.
- Does the EOR offer automated solutions? You may want to look for an EOR that automates the busy work like onboarding and employee benefits enrollment and other common HR and IT tasks.
- What is the EOR’s support model? It’s essential that your EOR has support staff that are both easy to contact and experts in the regulations of the countries in which you are hiring.
Get the full checklist in our guide: What is an EOR?
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Step #3: How to hire and onboard your Czech employees
Once you’ve picked an EOR that works in the Czech Republic, you can begin the onboarding process by collecting the following information from your new employees:
- Name (matching the account where you’ll deposit their pay).
- Date of birth and start date.
- Contact information, including their address in the Czech Republic.
- Personal ID number/personal insurance number.
- Bank account information.
- Amount to be paid in Czech koruna (CZK).
- Completed form to register for income tax in the Czech Republic.
- Completed form to confirm employment and income.
- Completed form to calculate employee's income tax liability.
- Completed form to register for health insurance (if required).
- Completed form to register for pension insurance.
- Completed form to register for accident insurance.
- Make sure to collect only the data required for the employment contract.
- Note that EU/EEA citizens can also work in the Czech Republic. Citizens of other countries will require a work permit.
Next, you need to send out an employment agreement that outlines key working conditions such as type of work, location of work, date work starts, and so on. The Czech labor code requires employers to inform new hires about the rights and obligations of both parties (the employment relationship), remuneration, probation period, and any obligations under special legislation relating to the work performed.
An EOR can automatically localize and distribute employment agreements. Every Czech hire will have a legally compliant contract offering statutory requirements for probationary periods, working hours, minimum wage, benefits, and termination policies like severance pay and notice periods.
Step #4: Run payroll
For the A-to-Z on global employment and payroll, read our comprehensive guide to running international payroll for employees in the Czech Republic.
Once you’ve collected a new hire’s information and both parties have signed employment agreements, an EOR will pay your Czech employees in CZK, while withholding legally required taxes from salaries. This includes contributions to:
- Personal income tax from dependent activity
- Social security premiums
- State employment policy
- General healthcare insurance premiums
- Wages and benefits paid that the employee was not entitled to
In the Czech Republic, the employer must issue the employee a document that includes a breakdown of the individual components of the wage or salary and the deductions made.
Frequently asked questions about hiring through an EOR in the Czech Republic
How much does an EOR cost?
EORs typically use one of two pricing structures:
- Fixed monthly fee per employee
- Percentage of payroll plus applicable taxes
Both methods can also come with various administrative fees, onboarding charges, and other costs for supplemental features.
Keep in mind that you don’t need to use an EOR for your entire workforce. If you want to segment its use, you’ll only be charged for the employees you employ through the EOR.
What is the difference between an EOR and PEO?
A Professional Employer Organization (PEO) co-employs a company’s workforce and provides administrative services like paying employees, handling compliance, and filing payroll taxes. The company and PEO are jointly responsible for the workforce. A PEO does not, however, allow you to hire in other countries where you haven’t set up a local entity.
An EOR, on the other hand, is the sole employer of the portion of your workforce you use it for, assuming all the associated liabilities. An EOR allows companies to work with employees in other countries without setting up a legal entity.
Does an EOR protect your sensitive and confidential information?
While outsourcing your payroll management to an EOR can spare you time and compliance risk, sharing your data with companies who use third-party vendors leaves you exposed to data breaches from manual uploads. In the Czech Republic, Article 10 of the Charter of Fundamental Rights and Freedoms states that everyone has the right to be protected from unauthorized gathering, public revelation, or other misuses of their personal data. The penalty for violating data protection laws can be severe, including fines of up to CZK 10,000,000 ($467,500) and compensating affected individuals. In 2021 alone, fines totaling CZK 10,500,000 ( $490,800 ) were imposed by the Czech Data Protection Authority on a number of companies. The EU law on data protection (the General Data Protection Regulation) also applies.
You should seek out EORs that prioritize data protection, including:
- Compliance with industry-standard privacy regulations in different countries.
- Secure infrastructure with around-the-clock maintenance.
- Carefully vetted personnel.
You can also establish a Data Processing Agreement (DPA) with a payroll service that mandates sound privacy practices and provides legal protection.
Thinking of setting up your own business entity? According to the World Bank, it takes an average of 24.5 days to do so in the Czech Republic.
Does an EOR help with Czech tax filings?
An EOR can automatically calculate and file your employer taxes in the Czech Republic. It can also provide employees with official records of their net and gross income, tax deducted, benefits, and other contributions. For businesses, an EOR can submit documentation covering:
- Employment income.
- Taxable benefits.
- Income tax deducted.
- Other required deductions from gross income.
What are the mandatory benefits for Czech employees?
According to the Czech labor code, the following benefits are mandatory in the Czech Republic:
- Pension insurance
- Health insurance
- Unemployment insurance
- Sick leave
- Parental leave (including paternity and maternity leave)
- Paid annual leave
- Public holidays
For more information on mandatory benefits in the Czech Republic, read our complete guide.
What are the employer costs for full-time employees in the Czech Republic?
In addition to taxes, employers are responsible for deducting the following from their full-time employees’ paychecks. These are the employer contributions:
21.5% of the employee's gross salary
1.2% of the employee's gross salary
2.1% of the employee's gross salary
Employers also pay employees for statutory holidays (there are 13) and annual leave.
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Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.