Independent Contractors & Employment Guidelines in the Czech Republic
Contractor length allowance
No limitations as long as the worker is a genuine contractor and not a disguised employment relationship.
Fixed-term contract limitation
Fixed-term employment contracts can neither exceed three years nor be repeated more than twice for a maximum of nine years combined.
What makes someone an employee
In the Czech Republic, workers fall under two different categories: (1) permanent employees of a company and (2) self-employed or independent contractors. Employees sign employment contracts (or, in limited circumstances, an agreement to complete a job or perform work), while independent contractors sign civil law contracts. Distinguishing the two categories can be a legally difficult task, which often involves analysing the subtle details of the relationship between a worker and a company. The Czech Supreme Court looks at the following characteristics of an employment relationship, which are enshrined in the Labour Code:
- The working relationship involves the employer as a superior and the employee as a subordinate (subordination)
- The work is performed in the employer’s name
- The employer gives instructions on how the work should be performed
- The employee cannot engage with a different person to do the work and must perform it themselves
As a consequence of the points above, the following characteristics also become part of dependent work, as work is performed:
- for a salary or remuneration
- at the employer’s expense and responsibility
- during working hours at the employer’s workplace or at another agreed place
On the other hand, genuine independent contractors are characterized by the following:
- providing services to multiple clients and not having an exclusive relationship with just one
- providing services to a client at different amounts weekly or monthly
- controlling where work is carried out (not being assigned a workplace by a customer)
- performing activities beyond the scope of employment law relationships
- receiving remuneration for the service performed, with the possibility of fluctuations based on an output
- being responsible for the expenses arising from the activity, including owning their own tools for work
- not presenting themselves under the company’s name, not wearing clothes with the company’s logo, not having business cards or an email address that mentions the company
- stipulating their own hours of work
- not being an integral part of an organisational chart of the client
- bearing the burden and risk of the work performance
- being able to outsource the work to someone else (e.g., a subcontractor or a third party)
Employee vs contractor
Employees and independent contractors are treated differently in various regards (e.g., benefits entitlement, tax contributions, leaves, and protection against termination). Employees are entitled to all the statutory benefits and rights covered under the Labour Code, including but not limited to the right to trade unions, the minimum statutory annual leave and wage, maximum working hours weekly, overtime, notice period before termination, and severance payment. Independent contractors, on the other hand, are not entitled to such employment benefits and rights, as they are not covered by the Labour Code. Pension and social security benefits (such as sick and maternity leave) are available to contractors as long as they make voluntarily contributions to them.
Regarding termination, companies need to have a valid and fair reason (which corresponds to a reason explicitly stipulated in the Labour Code) to terminate an employee. But contractors aren’t entitled to any increased protection such as a notice period or severance pay (unless agreed otherwise). Contracts could technically be terminated overnight for any cause if agreed in advance. Most health and safety regulations and employer’s liability are not extended to contractors.
Penalties for Misclassification in the Czech Republic
Companies found guilty of misclassification can be fined between CZK 50,000 and CZK 10,000,000 for the offence, plus be liable for employment income tax, health insurance, and social security contributions for the employee, including a duty of payment of overhead surcharges, related interests, and sanctions.