Types of payroll taxation

Employers in the Czech Republic must consider the specifics of taxation when paying their employees’ salaries. Different tax rates, types of insurance contributions, and reporting obligations apply depending on the form of employment. This article explains the differences between employment forms and their corresponding tax and insurance regimes.

I. Forms of employment and taxation features

1. Employment contract (pracovní smlouva)

The classic taxation scheme applies:
- Personal income tax (advance payment)
- Social insurance (24.8% from the employer + 7.1% from the employee)
- Health insurance (9% from the employer + 4.5% from the employee)
Tax deductions may apply if the employee has signed a “pink declaration” (tzv. růžový formulář)
Differentiated income tax rate: 15% up to CZK 139,671 and 23% on the excess

Important:

If an employee signs a taxpayer declaration (the so-called pink paper) for their employer, they can deduct a tax allowance each month. This can include allowances for themselves (CZK 2,570 per month), children, disability, etc.

If an employee’s monthly income exceeds CZK 139,671, the excess amount is taxed at a higher rate of 23% (rather than 15%).

Tax base for employees

Super-gross wages have been abolished since 2021. The tax base is now directly equal to the gross monthly salary, rounded up to the nearest hundred crowns.

Here is an example of how to calculate taxes and contributions for a salary of CZK 40,000:

Employee’s gross salary: CZK 40,000
Employee contributions:
- Social insurance (7.1%): CZK 2,840
- Health insurance (4.5%): CZK 1,800
- Total: CZK 4,640
Tax base: CZK 40,000 – CZK 4,640 = CZK 35,360
Advance tax (15%): CZK 5,304
Standard tax credit per employee: CZK 2,570
Total tax: CZK 5,304 – CZK 2,570 = CZK 2,734
Net salary: 40,000 – 4,640 – 2,734 = 32,626 CZK
Employer contributions:
- Social insurance (24.8%): 9,920 CZK
- Health insurance (9%): 3,600 CZK
- Total: 13,520 CZK

Thus, the total cost of the employee to the employer is 53,520 CZK, and the employee receives 32,626 CZK in hand.

This is a classic employment arrangement. The employer is obligated to:

Withhold and transfer income tax from the employee’s salary (advance tax)
Calculate:
- Social insurance: 24.8% of the gross salary at the employer’s expense and 7.1% at the employee’s expense
- Health insurance: 9% at the employer’s expense and 4.5% at the employee’s expense
Apply tax deductions if the employee has signed a taxpayer declaration (tzv. růžový formulář)
Apply a progressive income tax rate:
- 15% on income up to CZK 139,671 per month
- 23% on amounts exceeding the specified limit

2. Contract for work (DPP)

A DPP is a type of employment agreement suitable for short-term or occasional work. An employee may work a maximum of 300 hours per year for one employer.

Up to CZK 11,499 per month:
- Not subject to social and health insurance
- A withholding tax of 15% applies (if no tax return is filed)
- No deductions allowed
Over CZK 11,500 per month:
- Classic taxation with insurance contributions applies
- 15% advance tax (or 23% if the limit is exceeded), deductions may apply

3. Work Activity Agreement (DPČ)

This is a type of employment contract that is often used for long-term team work or part-time work. Unlike DPP, the employee can work more than 300 hours per year, but usually less than half of the workday.

Up to CZK 4,499 per month:
- Only withholding tax (15%), no insurance contributions
- No deductions apply
Over CZK 4,500:
- Full tax applies, and social security (SP) and health insurance (ZP) contributions are charged
- Advance tax of 15% (or 23% if the limit is exceeded), deductions are possible

4. Minor employment (ZMR)

Minor employment (ZMR) is a special type of employment in which employees do not have a fixed minimum number of hours, and their earnings are irregular or low.

Up to CZK 4,499 per month:
- No insurance contributions
- 15% withholding tax
Over CZK 4,500:
- Mandatory contributions and advance tax
- Possibility of tax deductions (if a tax return is filed)

II. Types of taxes

1. Advance tax (záloha na daň)

Applies if a tax return has been signed.
Rates: 15% / 23%
Tax deductions may be applied

2. Withholding tax (srážková daň)

Applies in the absence of a signed declaration
Fixed rate – 15%
No deductions are allowed

III. Insurance contributions

Mandatory contributions for:

Social insurance (pensions, sick leave, benefits)
Health insurance (access to the healthcare system)

Employer rates:

SP: 24.8%
ZP: 9%

Employee rates:

SP: 7.1%
ZP: 4.5%

Contributions are paid monthly and accompanied by reports.

IV. Tax deductions and bonuses

Provided upon submission of a signed declaration
Main types:
- For the employee (CZK 2,570/month)
- For a child
- For students, disabled persons, etc.
Possibility of receiving a tax bonus with a low tax base

V. Employer obligations

Registration of employees with CSSA and ZP
- CSSA = Czech Social Security Administration (social insurance)
- ZP = Health insurance company employees
- The employer must report each new employee within eight days of the start of employment.
Monthly reports on taxes and insurance contributions
Withholding and remitting taxes
Annual tax calculation (upon employee request)
Archiving of accounting and reporting documents (up to 10 years). This includes:
- Time sheets
- Pay slips
- CSSA and ZP reports
- Confirmations of tax and contribution payments

Employers can avoid penalties and ensure that personnel and accounting records are kept correctly by properly understanding employment forms, tax rates, and insurance requirements. In case of doubt or unusual situations, it is recommended that you consult an accountant or a legal specialist in labor law.