Payroll Newsletter

Indexation mechanism for calculating the minimum wage

The amendment to the Labour Code introduces a new way of calculating the minimum wage through the so-called indexation mechanism. The aim is to better reflect economic conditions and average wage growth.

The amount of the minimum wage is now set as the product of the forecast of the average monthly nominal wage in the national economy for the following calendar year and the coefficient for calculating the minimum wage. The forecast of the average monthly nominal wage will be determined by the Ministry of Finance by 31 August of the year preceding the calendar year for which the minimum wage is to be set. The value of the coefficient by which the prediction will be multiplied will be determined periodically by a government decree for a period of two years. The minimum wage will thus be announced each year by the Ministry of Labour and Social Affairs for the following year by means of a notice in the Collection of Laws by 30 September.

For the year 2025, the minimum monthly wage is announced at CZK 20,800, while the minimum hourly wage corresponding to a 40-hour weekly working day has increased to CZK 124.40.

It is also worth mentioning that from 2025, guaranteed wages in the commercial sphere will be abolished, while in the public sphere the institution of guaranteed wages is still in force.

Impact of the minimum wage change

• the increase in the minimum wage affects, for example, the amount of the threshold for entitlement to the tax bonus (when the annual income reaches at least six times the minimum wage, i.e. CZK 124,800, and monthly at least half of the minimum wage, i.e. CZK 10,400);
  
  
• the maximum amount of earnings of a jobseeker on the register of the Office for Employment will increase to CZK 10,400 (half of the minimum wage);

• the limit for the exemption of regularly paid pensions from income tax is increased (up to 36 times the minimum wage – CZK 748,800);

• in relation to the change in the minimum wage, the minimum assessment base for health insurance will also increase from January 2025, and therefore the minimum monthly premium that persons without taxable income are obliged to pay. The minimum monthly assessment base for health insurance for 2025 is CZK 20,800 and the monthly premium is therefore CZK 2,808.

Average wage levels for 2025

On the basis of Government Decree No. 282/2024 Coll., the average wage for 2025 is set at CZK 46,557. This amount subsequently influences withholding tax, the reduction thresholds for sickness insurance, progressive taxation and the maximum assessment base for social insurance:

• the threshold for employees to participate in sickness insurance and therefore pension insurance in 2025 is CZK 4,500. This threshold also applies to the agreements to perform work, whereby up to CZK 4,500, if the taxpayer’s declaration is not signed, withholding tax will be applied and no insurance premiums will be paid;
  
• the threshold for applying progressive taxation of income from employment is defined as a 15% prepayment rate up to 36 times the average wage, which for 2025 is CZK 1,676,052 (CZK 139,671 per month);
  
• for the purposes of the social security contribution discount, a limit of no more than 1.5 times the average wage per calendar month for the aggregate of the employee’s assessment bases from all jobs with the same employer applies. For 2025, this 1.5 times the average wage is CZK 69,836;
  
• the maximum assessment base for social insurance in 2025 increases from CZK 2,110,416 to CZK 2,234,736 (48 times the average wage);
  
• change in the level of reduction limits:
  
  • as of 1 January 2025, the reduction limits for the calculation of wage compensation and sickness benefits will be changed, the amounts of which are set out in the following table:

Average gross wages for Q1 to Q3 2024 for the purposes of the obligatory proportion

On 7 December 2024, the Czech Statistical Office announced the average wage for employment purposes for the first to third quarters of 2024 at CZK 45,107. This amount is used to calculate the values for fulfilling the obligatory proportion of persons with disabilities for 2024. To compensate one disabled person with the so-called "substitute performance", it is necessary to purchase products or services in the amount of CZK 315,749 excluding VAT (45,107 x 7). The contribution to the state budget for one person with a disability who is not fulfilled would be CZK 112,767.50 (i.e. 2.5 times the average wage).

Compliance with the obligatory proportion for 2025 – scaling of the amount of the contribution to the state budget

The rules for the obligatory proportion for 2025 are likely to undergo some changes in the area of substitute performance and the contribution to the state budget. The amount of substitute compensation that a supplier can provide to its customers is currently capped, and should be unlimited from 2025. However, it will no longer be possible to purchase goods or services from a person who is a related party under the Income Tax Act.

The calculation of the state budget contribution itself will be adjusted from 2025 to take into account the percentage of disabled persons employed by the employer. The contribution to the state budget will be scaled:

• 1 times the average wage if the employer does not meet the 4% but achieves at least 3%;
• 2 times the average wage if the employer’s share is at least 1%;
• 3.5 times the average wage if the employer’s share is less than 1%.

Change in basic foreign meal allowance rates for 2025

With effect from 1 January 2025, the Ministry of Finance sets new basic rates for foreign meal allowances. For example for Italy or Ireland, the rate will be indexed to EUR 55, and for Croatia, China, Hungary or Poland to EUR 50.

For some countries, the respective currency is changing, with 7 countries switching from the US dollar to the euro: Angola, Botswana, Lesotho, Mauritius, Mozambique, Namibia and Eswatini.

Travel allowances for business travel and local meal allowances for 2025

As of 1 January 2025, the rates of travel allowances paid to employees on business trips were adjusted. In connection with the use of a private motor vehicle on a business trip, the employee is entitled to both compensation for wear and tear on the vehicle and compensation for fuel consumed. The wear-and-tear allowance is increased to CZK 5.80 per kilometre for 2025. If the employee claims compensation for fuel consumed in 2025 using the statutory prices, the employee may claim compensation of CZK 35.80 per litre of Natural 95 petrol consumed, CZK 40.50 per litre of Natural 98 petrol consumed, CZK 34.70 per litre of diesel fuel consumed and CZK 7.70 per kilowatt hour of electricity consumed. Of course, the employee is entitled to claim compensation instead of the statutory prices on the basis of the actual expenditure ascertained from the proof of payment for fuel.

In 2025, there is also an increase in the local meal allowance rates in each time frame. Thus, an employee is now entitled to a meal allowance of at least CZK 148 if the business trip lasts between 5 and 12 hours; CZK 225 if the business trip lasts longer than 12 hours, but no longer than 18 hours; and CZK 353 if the business trip lasts longer than 18 hours. The principle of the reduction of the meal allowance remains unchanged.

However, the amount of the limit for the exemption of meals provided per shift has changed. The limit is 70% of the upper limit of the meal allowance that can be granted to salaried employees for a working trip lasting between 5 and 12 hours. This limit is therefore CZK 177. The provision of a meal allowance or meals in kind in excess of the limit of CZK 123.90 (70% of CZK 177) is therefore subject to income tax and contributions on the employee’s part.

Insurance premium rates for paramedics and professional firefighters

In terms of social security contributions and state employment policy contributions, three different employer contribution rates will apply for 2025:

• 24.8% of the amount of the assessment base corresponding to the aggregate of the assessment bases of its employees who do not perform activities in hazardous employment or activities as a paramedic or member of a fire brigade unit;
• 28.8% of the amount of the assessment base corresponding to the aggregate of the assessment bases of its employees who perform the activities of a paramedic or a member of the fire brigade of the enterprise;
• 26.8% of the amount of the assessment base corresponding to the aggregate of the assessment bases of its employees who perform activities in hazardous employment, increasing gradually: in 2025 the rate will be 26.8% of the assessment base, in 2026 the rate will be 27.8% of the assessment base, in 2027 it will be 28.8% of the assessment base and from 2028 onwards 29.8% of the assessment base.

From the employee’s perspective, the total premium rate remains at 7.1%.

Pension reform

The Chamber of Deputies approved an amendment to the Pension Insurance Act, the so-called pension reform, effective from 1 January 2025. Employees performing long-term hazardous employment, i.e. employees working in workplaces with category 4 risks, will retire earlier. They can shorten their retirement by a maximum of 60 months. 

The increase in the old-age pension for additional paid work while receiving an old-age pension is abolished and replaced by a discount on the employee’s social security contribution. The contribution discount will be 6.5% of the employee’s assessment base per calendar month. The eligibility conditions must be met for the entire calendar month and the contribution discount cannot be applied retrospectively. 

The basic rate of pension is increased by CZK 260 and the percentage rate is increased by 0.6% from January 2025. From January, there will also be an increase in the so-called child-raising allowance, which will be CZK 503 for each child raised.

The retirement age will be adjusted in order to extend the active period on the labour market. The slowdown in the year-on-year increase in new pensions will consist of a gradual reduction in the income credit and a gradual reduction in the percentage of the calculation base credit – these changes will take place between 2026 and 2035.

Digitalisation of sickness insurance benefits from 1 January 2025

In relation to legislative changes concerning the digitalisation of other sickness insurance benefits, the Sickness Insurance Act is being amended with effect from 1 January 2025, resulting in further changes in the obligations of employers.

From 1 January 2025, employers are obliged to accept applications for benefits from their employees, except for sickness benefits, for which the established procedures remain unchanged, i.e. applications for:

• maternity allowance,
• paternity pay,
• nursing care allowance,
• long-term nursing care allowance,
• and compensatory allowance for pregnancy and maternity.

Changes to the method of delivery of the decision or notification by the doctor to the insured:

• if the insured person provides the doctor with a phone number or e-mail address, the identifier will be sent by SMS or e-mail (preferred method);
• if the insured person does not provide contact details, the doctor will hand over a paper document as at present.

The allowance is paid on the basis of an application by the insured person (except for sickness benefit) claiming the allowance and its payment, which is deemed to be the employee’s notification to the employer that the employee has suffered a social event and the benefit claimed, together with the relevant document certifying that the conditions for entitlement to the allowance and its payment have been met and the identifier (decision number or certificate) of the prescribed form issued by the attending doctor or public health authority.

As of 1 January 2025, self-employed persons, foreign employees and persons working on the basis of agreements to perform a job/work should also be entitled to nursing care allowance. However, participation in sickness insurance for at least 3 months prior to the start of treatment is a condition for entitlement to the nursing care allowance.

Crediting the period of study towards the period of insurance for the purposes of maternity allowance

The amendment to the Sickness Insurance Act also regulates the period of participation in sickness insurance, whereby the period of study will be included for the purposes of the maternity allowance, even if the study is interrupted. That is, if the student is employed in a job that entitles her to sickness insurance and the period of such employment is less than 270 days, then the period of study before the interruption can also be counted towards the period of such employment in order to meet the 270 days of participation in sickness insurance for the purpose of entitlement to the maternity allowance.

Unified monthly employer reporting

The new project “Unified Monthly Employer Reporting” (UMER), which is a joint initiative of several key institutions – the Ministry of Labour and Social Security, the Czech Social Insurance Institution, the Ministry of Finance, the Ministry of Finance of the Czech Republic and the Czech Statistical Office - aims to significantly simplify the administration of companies in the area of reporting data from payroll records and more efficient data processing. The single monthly employer report will replace up to 25 different regular monthly reports to several authorities, with a single report being submitted digitally via the portal of the Czech Social Security Administration. This is a major digitalisation project, which is the first stage of the government’s Single Collection Point project.

The UMER also brings benefits to employees. They will benefit, for example, from pre-filled tax returns from the Financial Administration or from the fact that the authorities will have data for their requests (e.g. in the case of unemployment benefits or state social support benefits).

The UMER is expected to be implemented by 1 January 2026; however, the whole project will start to be tested in a pilot phase as early as July 2025.

Increase in normative costs

The basic amount that may not be withheld from the monthly wages of the liable person under the Code of Civil Procedure is equal to the sum of two-thirds of the amount of the individual’s subsistence minimum (according to the Act on the Subsistence Minimum, the individual’s subsistence minimum is CZK 4,860 per month as of 1 January 2025) and the amount of the normative housing costs for one or two persons for an apartment used under a lease agreement in a municipality with at least 70,000 inhabitants according to the Act on State and Social Support. On the basis of a government decree, this amount of the normative housing costs is increased to CZK 14,680. For 2025, the limit of non-seizable amount of the liable person is CZK 13,027.

Change in the option to claim dependents

As of 1 January 2025, there is also a change with regard to dependents for the purposes of enforcement deductions or insolvency: The spouse or partner of the liable person under the Civil Code or the Registered Partnership Act is now not considered a person to whom the liable person is obliged to provide maintenance. The only exception is a spouse or partner who has been granted an old-age pension, a second- or third-degree invalidity pension or an orphan’s pension and duly proves these facts to the wage payer.

Changes to the Labour Code with effect from 1 January 2025

Self-scheduling of working hours

The amendment introduces the possibility for employees to schedule their own working hours in certain cases, not only when working remotely, but also at the employer’s workplace. The employee and the employer may conclude a written agreement whereby the employee will determine their own shifts. At the same time, the conditions for such scheduling must be agreed. Self-scheduling of working time at the workplace will be possible for employees working under agreements, but also for employees with an employment relationship.

Working hours and rest for healthcare workers

Employees such as doctors, dentists, pharmacists or non-medical health professionals can still work up to 24 hours in 26 consecutive hours. The maximum shift length has remained at 12 hours = the length of work could not be achieved in practice by any other means than overtime.

However, it is now possible to schedule shifts of 24 hours for the employees concerned.

Healthcare workers who are subjected to an increased workload resulting from the scheduling of working hours are now entitled to the wage earned for working a shift whose duration has been agreed or fixed by law and to an additional payment for the 13th and each additional hour worked in the same shift for the increased workload of the healthcare worker associated with the extended working hours of at least 20 % of average earnings, with reference to the new provisions of the Labour Code.

Remuneration from agreement to perform a job, agreement to perform work and additional payments

This is the possibility of negotiating remuneration from agreements outside the employment relationship, taking into account additional payments for night work, work in difficult working environments and work on Saturdays and Sundays. However, these must be situations where the shifts in question are agreed in advance. If the employee works beyond the pre-agreed scope of work, they will be entitled to additional payments separately.

Cancellation of holiday planning pursuant to Section 217(1) of the Labour Code

With effect from 1 January, the obligation to plan for the long-term probable use of holiday by the employee is abolished. This means that the employer will no longer be obliged to require employees to plan their holiday in advance. The employee will be required by law to give the employer at least two-week notice unless the parties agree on a shorter period. However, the employer will still have the right to directly order the employee’s holiday so that the employee takes the full amount of the statutory holiday in a given calendar year.

Changes to the limit on employee benefits

In the case of so-called leisure benefits, the limit up to which these benefits can be exempted from personal income tax and also from social and health insurance premiums (subject to the other conditions set out in the Income Tax Act) will be adjusted as of 1 January 2025. Employer contributions for health care will be excluded from the current limit of half of the average wage for tax purposes. In practice, this means the purchase of goods or services of a medical, therapeutic, hygienic or similar nature from health care institutions. A separate exemption limit of the entire average wage for tax purposes is now applied to this category of benefits. Thus, for 2025, tax-exempt health benefits may be provided to employees up to CZK 46,557.

For other leisure benefits (recreation, sport, culture, childcare, education and books), the limit of half of the average wage for tax purposes remains in force. However, as the average wage has increased since the new year, the limit for these benefits has also increased. Currently, for 2025, up to CZK 23,278 can be used for exemption.

Flexible amendment to the Labour Code

Another amendment to the Labour Code is in the legislative process (at the time of the Payroll Newsletter’s deadline before the second reading in the Chamber of Deputies). At the moment, it does not contain the controversial “termination without cause”. However, there are interesting changes in it that could help to make labour relations more flexible. These include a longer probation period, a shorter notice period for some termination grounds and its commencement already by delivery, electronic delivery of wage assessments, payment of wages in foreign currency and many more. Some aspects of the calculation of average earnings are also clarified. These changes offset some of the changes aimed at greater protection of employees (e.g. entitlement to holiday in the event of invalid termination of employment, reassignment to the original post after return from parental leave until the child is two years old, etc.).

Agreements to perform a job

Act No. 163/2024 Coll. originally introduced new rules for the participation of employees working on the basis of an agreement to perform a job in sickness insurance, which were to be effective from 1 January 2025. This amendment was based on the principle of “notified agreement”. However, on the basis of a parliamentary proposal, this change is abolished with effect from 1 January 2025.

Employers will continue to be required to send the Czech Social Security Administration a monthly form "Statement of income from an agreement to perform a job" for individual employees, as introduced from July 2024.

The threshold for participation in sickness insurance for Agreements to perform a job is now set at CZK 11,500. Unlike the previous “more-than” rule, the “on-attainment” threshold now applies. When this amount is reached, the employee will no longer have to pay the insurance premium. For small-scale employment, the threshold increases from CZK 4,000 to CZK 4,500.

Donations – Lex Ukraine and natural disasters (floods)

Donations made for purposes defined by law (including, but not limited to, floods) may be used to reduce the personal or corporate income tax base.

This year, i.e. for the 2024 tax year, it will also be possible to deduct donations up to 30% of the tax base, with this limit applying for the years 2024 to 2026. Other measures, such as the extension of the range of deductible donations to include donations in relation to support for Ukraine, also remain in force.

Donations received in relation to a natural disaster are exempt from both personal and corporate income tax.

This exemption applies to donations received from public collections, but also to direct donations from individuals or legal entities and donations made through an employer.

For a recipient from Ukraine, a monetary gift received as an employee from his or her employer for the purpose of assisting in a difficult life situation in relation to the conflict in Ukraine, i.e. as a gift received for humanitarian or charitable reasons, is also exempt.

Valuation of non-monetary benefits for the use of pre-school childcare facilities

Act No. 163/2024 Coll. introduced changes to the valuation of the non-monetary benefit consisting in the use of pre-school childcare facilities, including kindergarten, under the Education Act, which will apply for the tax year 2024, i.e. from January 2024:

• the usual price at the place and time for the use of a kindergarten established by the government, a region, a municipality or a voluntary association of municipalities; or
• the highest monthly payment for pre-school education according to the decree regulating pre-school education.

The method of valuation will be selected by the employer. This means that the employee can be refunded any overpayment of tax prepayment.

Adjustment of employee stock

In the coming months, it is expected that the currently “mandatory” deferred taxation regime for non-monetary income from employee stock plans will become a voluntary regime. This amendment was originally expected to take effect as early as 1 January 2025; however, the bill only passed its 3rd reading in the Chamber of Deputies on 20 December 2024 and is currently heading to the Senate. The employer will have the option to decide whether to declare the income under the deferred taxation regime (by notifying the tax authorities within a specified period of time) or whether it will be taxable upon acquisition (i.e. without deferral), as was the case until the end of 2023, before the deferred taxation regime was introduced. If the deferred taxation regime is not elected by the employer (in due course), then in the event of a fall in the value of the stock between the time of acquisition and the time of deferred taxation, it will not be possible to take advantage of the lower income tax treatment that was introduced for the deferred taxation regime (subject to the conditions). The bill contains transitional provisions affecting 2024 income, which have been amended on its 3rd reading, whereby 2024 income that will not be brought into the deferred tax regime could be subject to tax probably in March or April 2025.

Update of tax forms

The General Financial Directorate (GFD) draws the attention of payers of income tax on employment income to the updated forms for personal income tax and withholding tax according to the special tax rate for the tax period 2024 and for the tax period 2025.

For the compulsory forms, i.e. those contained in Decree No 525/2020 Coll. on income tax forms (the forms “Statement of personal income tax from employment” and “Statement of withholding tax” including annexes), the older templates cannot be used.

For the optional forms, the information always indicates whether the older templates can also be used for 2025. The tax year will no longer be pre-printed on the forms, which will now be universal and applicable to more than one tax year.

For the registration forms for the registration of payers of employment tax and withholding tax, the new templates distinguish whether the application is made by an individual or a legal entity.

The form Declaration of the taxpayer liable to personal income tax from employment was not issued in paper form in 2024, but will be issued in paper form for 2025. A new form is being issued for the Annual account of prepayments and tax benefits - Form No. 25 5457/B, Form No. 4 - and the GFD does not recommend using the older form due to its extensive changes. For 2025, universal templates of some forms have also been issued: Certificate of Taxable Income from Employment, Withheld Tax Prepayments and Tax Benefit + Certificate of Taxable Income from Employment and Withheld Tax at Special Tax Rate (the older templates of both certificates cannot be used for the 2025 tax year), Calculation of Tax and Tax Benefit for Personal Income Tax on Employment.

Integration social enterprise

The Act on Integration Social Enterprise, which comes into force on 1 January 2025, and some of its provisions on 1 July 2025, is a completely new instrument. The aim of the Act is to integrate disadvantaged people into the labour market in various ways, including their integration into society. To this end, the Act establishes the definition of an integration social enterprise and defines the target group of persons with specific needs who may be disadvantaged both medically and socially. Only such an entity that complies with the set rules will receive support from the state. An integration social enterprise will have to employ at least 30% of people with specific needs out of its total number of employees. The main forms of support for the integration social enterprise include the introduction of two new contributions: a contribution to the costs of employing people with specific needs, which amounts to CZK 1,000 per month and CZK 2,500 per month for the most socially disadvantaged, and an incentive contribution. The amount of the incentive allowance will depend on the income the integrated person achieves with the new employer. However, it must amount to at least 120% of the average monthly wage in the national economy for a calendar year. Another form of support is the inclusion among the entities entitled to provide so-called substitute performance and, last but not least, advantages in public procurement.

Employment – combating illegal work

From January 2025, the Employment Act will allow the labour inspection authorities to impose an administrative penalty in the form of a decision on the offence of facilitating illegal work and disguised employment mediation on the official board of the State Labour Inspection Office for a period of 1 year. When carrying out an inspection or as part of the actions preceding the inspection, the labour inspector will also be newly authorised to make audio, visual and audio-visual recordings, if the purpose of the inspection cannot be achieved otherwise. However, the right of individuals to protection of their private and personal life is not affected.

Indexation of compensation for occupational injuries and diseases

The government has issued a new regulation effective from 1 January 2025, according to which the average earnings for the purposes of compensation for loss of earnings after incapacity for work, which is decisive for the calculation of compensation, will increase by 0.6% and CZK 260. This is therefore not just a percentage increase compared to previous indexations, but a fixed amount.

Increase in pain point value

For 2025, the value of one point for the assessment of pain compensation is increased to CZK 451.07, which corresponds to 1% of the average wage in the national economy.

Increase in flat-rate compensation for remote working

Decree No. 474/2024 sets the flat-rate amount of compensation for remote working at CZK 4.80 for each hour of work for 2025.

New app for analysing the sheltered market and employment of people with disabilities

The Ministry of Labour and Social Affairs has introduced a new interactive tool for analysing the sheltered market, which aims to enable professionals and the general public to better understand the operation and funding of the sheltered labour market. The application allows users to view the number of employees and employers, clearly broken down by disability level or by sector of economic activity. It also provides, for example, a detailed overview of employers’ compliance with the obligation to employ disabled persons.