Payroll outsourcing, Czechia, paid leave, sick leave, absence compensations, taxable benefits in kind, tax exempt benefits, employee annual tax return, wage garnishment
Successful payroll implementation in a country like Czechia means above all no unpleasant surprises. One does not need to drown in labour code and payroll specifics that only experts know and can explain. ‘Shallow dive’ such as the below list may be very helpful.
Payroll is calculated on monthly bases – one payroll run for one calendar month. Payrolls are usually processed at the very beginning of the following month (or right before the end of the current month), pay-dates are usually around 10th of the following month. Salary advances and pay-dates in the current month are rare.
2 Paid leave
Employees are entitled to for 4 weeks of annual leave paid by the employer. An additional week of paid leave is very common benefit. Employees of government agencies are entitled to 5 weeks of annual paid leave.
3 Paid leave accruing during absence
Annual leave entitlement keeps accruing during certain absences such as illness or maternity leave. When an employee is on the maternity leave (statutory entitlement is 28 weeks), annual leave accrues as if the employee was working. The employee is entitled to use the annual leave after completing the maternity leave. No restriction to this rule applies for any further maternity (2nd, 3rd or further child). It is very common that a Czech parent stays on parental leave for up to 3 years per child.
4 Sick leave paid by employer
Compensation for the first 14 days of illness is paid by the employer to the employee via payroll and is not reimbursed by the authorities. State sick leave compensation is paid from 15th day of illness by the authorities to the employee directly.
5 Absence compensations paid by authorities
Some absences are paid by the authorities directly to employees such as childcare, maternity leave, paternity leave, parental leave.
6 Absence compensations paid by employer
Other types of absences are paid by employer to employees via payroll:
- absences caused by the employer – e.g. lack of work to do, lack of raw materials etc.,
- absences caused by the employee – doctor appointments, participation on relative’s funeral, participation on own wedding, blood donation appointment.
7 Taxable benefits in kind
A number of employee benefits are taxable as well as subject to social and health insurance charges. These may include – discounts on company’s product & services, using company car for private purposes.
8 Tax exempt benefits
Some benefits are tax exempt if certain criteria are met. These include for example: meal vouchers or meal lumpsum, contribution to private pension and life insurance, contribution for medical care, medical products, sport and cultural activities.
9 Employee annual tax return
Provided certain circumstances are met, the employer is obliged to prepare an annual tax reconciliation for the employee. This is a process equivalent to the annual personal income tax return. During this process the employer may need to take responsibility for tax credits and tax deductions that the employee provides in addition to the tax credits processed in monthly payroll runs. Resulting tax refund is processed via payroll.
10 Wage garnishment
Employer is obliged to administer wage garnishments – deductions based on court and other authority orders. Unfortunately, these statutory procedures are not standardized and not aggregated as in most European countries. Employer’s obligations include reflecting deductions in the payroll, communication with the relevant authorities and disbursement of deducted funds to the authorities. It is especially burdensome for employers with large blue collars populations as low-income employees are often overindebted.