The Czech Republic payroll and benefits guide
What Global Companies Need to Know About Payroll in the Czech Republic
You may think that most European countries these days are highly service-driven economies. But that isn’t always true: in the Czech Republic (also known as Czechia), nearly 40% of its GDP is still generated by industry, including the manufacture of electronics, pharmaceuticals, automobiles and heavy machinery.
This landlocked country in the middle of Europe has benefitted greatly from joining the European Union in 2004, although instead of adopting the euro, it has retained its own currency: the koruna. But the Czech Republic has everything you could want from a potential European business destination: a hard-working and well-educated workforce, and strong trade links with the rest of the continent, without the hefty price tag. While Czech salaries and minimum wage rates continue to increase, the average earnings are still less than half those in neighboring Germany.
There have been a raft of changes to payroll and employment legislation in the Czech Republic for 2025, many of which are focused on giving employees more rights and flexibility. Understanding those changes is essential for running payroll in the Czech Republic successfully—and this guide tells you all you need to know.
Getting Started
Most incoming businesses in the Czech Republic are set up as limited liability companies (SROs), which don’t come with any significant minimum start-up capital requirement.
At the start of the registration process, businesses must provide relevant records to demonstrate that they have no outstanding police or tax issues. They’ll also need notarized statutory declarations and partnership articles before officially registering at the Trade Licensing Office (which can be done online). Within 90 days of establishing the company, businesses will need to apply for a Commercial Register to confirm their registration, and companies also must register with the Social Security Administration and Revenue Authority.
Bank accounts are required to open up a business in the Czech Republic, and while this isn’t a difficult process in paperwork terms, it can take some time. Because of this, all companies, especially larger ones, should expect the overall set-up process to take longer than they may be accustomed to in other countries.
Fees are relatively low through the set-up process. First-time business registrations costs CZK 6,000 (approx. £205; $275; €240); notary fees tend to be no more than CZK 8,000 (approx. £275; $365; €320); and trade license applications are CZK 1,000 (approx. £35; $45; €40).
Employment Considerations
Collective bargaining is heavily practiced in the Czech Republic, so employers should be ready to handle potentially complex negotiations with workers, depending on their industry. As in most developed economies, written contracts that detail location, type of work, and employment start dates are mandatory; the inclusion of salary or probation information is common but not a requirement.
New legislation introduced at the start of 2025 has given employees much more choice and flexibility in how, when and where they work. Employees can now, within reason and with the agreement of their employer, set their own work schedules as long as they fulfill contractual requirements and work their agreed number of hours per week. These arrangements should be agreed in writing, and set out how employees will manage their schedule, where restrictions will apply, and the mechanisms for either party to alter or terminate the agreement.
Rules around notice and probation periods have also recently been changed. Notice periods now begin on the day notice is given, rather than the first day of the following month, and notice periods can now be shortened from the standard two months to one in some health or redundancy-related circumstances. Probation periods have also been extended to four months, and to eight months for managers, and employers now also have the ability to further extend probation periods on an individual basis.
Working hours in the Czech Republic are in line with much of the rest of Europe: 40 hours across five eight-hour shifts. Notably, those eight-hour shifts do not include a lunch break, which is normally one hour long and unpaid.
Overtime is limited to a maximum of eight hours per week and 150 per year; any work over 40 hours a week is considered overtime. Overtime should be paid at a minimum of 125%, rising to 135% at nights and weekends; and 200% plus a day off in lieu on public holidays. These rates can be increased further through collective bargaining.
Compensation and Severance
The Czech Republic has long had a relatively complex approach to the minimum wage, but this has recently been simplified. The official ‘minimum wage’, which has consistently been increased on January 1st each year, is CZK 20,800 per month (approx. £710; $945; €835) for 2025. Expect further increases in the years to come.
The previous ‘guaranteed wage’ system, where there were minimum guaranteed wages across eight different groups depending on profession and type of work, was abolished for the private sector at the end of 2024. The public sector still has a guaranteed salary system in place, with four different tiers depending on level of education.
Bonuses in the Czech Republic are not required, though many companies will restructure salaries to either dole out wages differently throughout the month or issue a bonus twice a year. It’s also standard practice to supplement employee salary with perks, such as a gym membership or free parking. The specific compensation plan is generally discussed with the employee prior to onboarding.
Severance pay is one month of salary for those with one full year of service, two months for those with two years, and three months for those with three years of service or more.
Tax and Social Security
The Czech Republic returned to a progressive tax system in 2021, but it’s still one of the simplest to understand anywhere in the world. There are just two bands: the lower band of 15% applies to the first CZK 1,676,052 per year (approx. £57,200; $76,200; €67,300), and the higher band of 23% applies to everything earned above this. The threshold is calculated at three times the average annual salary, so is likely to change incrementally over time.
The corporation tax rate was increased from 19% to 21% at the beginning of 2024. VAT also runs at 21%, with some reductions in place for certain goods. Businesses should remain vigilant as to the status of these rates, however, as they are normally subject to change on a regular basis.
There are two types of social security contributions in the Czech Republic. The first is health insurance, with employers contributing 9% of salary and employees 4.5%. The other is the ‘main’ social security contribution, with rates of 24.8% by employers and 7.1% by employees: however, this only applies on income up to a maximum of four times the average annual salary. As of 2025, this is CZK 2,234,736 (approx. £76,200; $101,500; €89,700). For any income over and above this figure, only the health insurance contribution has to be made.
All tax and social security contributions are withheld at source by employers.
Holidays and Leave
The standard paid leave entitlement in the Czech Republic is 20 days per year, rising to 25 in certain industries and the public sector, and 40 for teachers. These rates are often increased through contractual negotiation and/or collective bargaining. Employees are allowed to carry over some unused paid leave into the following year, with the written agreement of their employer.
The Czech Republic has 13 days of public holidays per year, but any that fall on weekends are not normally supplemented by a holiday on the following Monday. Employees who work these days are entitled to at least double their normal rate, or the normal rate plus the same amount of time off in lieu, depending on agreement between employee and employer.
Maternity leave entitlement is 28 weeks (37 weeks for multiple births) and starts six weeks before an expectant mother’s due date. It is a statutory requirement for mothers to use at least 14 weeks of this leave. This is paid at 70% of salary (paid by social security) and employers must keep the mother’s position available for them to return to after the leave has been completed.
Legal entitlement to paternity leave is a single block of two weeks and taken within the first six weeks post-birth. This is also paid at 70% of salary. However, mothers can now transfer some of their maternity leave to the father from seven weeks post-birth onwards.
There is also an entitlement to parental allowance which has been increased for children born on or after January 1st 2024. Parents can claim a maximum of CZK 350,000 (approx. £11,900; $15,900; €14,000) with variable monthly payments, up until the child’s third birthday. New legislation also gives employees more flexibility around parental leave: they can choose more flexible arrangements, and are entitled to take their old job back if they return to work before a child turns two. Employers can also hire maternity or parental cover for a maximum of nine years instead of the previous three.
Sick pay must be paid by employers from the fourth to the 14th day of sickness at 60% of salary; the Czech government picks up any sick pay beyond this initial two-week period at 66% of salary, and then 72% after 60 days.
There are also leave entitlements that cover both short and long-term care, weddings, bereavements, jury duty, and military service.
Payroll in the Czech Republic: A summary
While the new Czech employment legislation does make things simpler and more flexible for employees, they may make things a bit more complex for employers when it comes to payroll and compliance. Additionally, it can’t be ruled out that there won’t be further changes in the pipeline; further increases in the minimum wage, for example, are highly likely. Keeping track of everything in the Czech Republic, and all the other countries in which you operate, can be a challenge—but it’s something that a good global payroll partner will be able to help with.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.
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