Are you looking for flexible short-term work and wondering what legal form is suitable? An easy way to arrange such short-term work is to enter into one of two types of employment agreements. For example, a work performance agreement. What to look out for when entering into one and what are its advantages?
A work performance agreement (WPA) falls under the so-called agreements on work performed outside the employment relationship. Since its hourly subsidy is legally limited, it is used, for example, for service work, but also for consultancy work, or seasonal work, such as holiday jobs for students, where units, at most low tens of hours per month, or a larger volume of work is expected on a sudden (one-off) basis.
The following is characteristic of a work performance agreement:
The work performance agreement must state:
You can also agree other details with your employer. The condition is that the agreement is in writing.
Are you entering into a work agreement?
Sometimes, paradoxically, concluding a performance agreement can be more complicated than signing an employment contract. As this type of employment relationship is not protected by law in the same way as a traditional employment relationship, there are many more things to look out for in the contract. If you are not sure about the wording of the contract, do not hesitate to consult a lawyer who can prepare comments on the contract or prepare everything “from scratch”.
In general, a number of provisions of the Labour Code also apply to work under a PPA, but the Labour Code (as in the case of an employment agreement) explicitly excludes certain matters typical of an employment relationship, such as:
In 2024, there are significant changes in the agreements that will bring them closer to traditional employment. For example, agreement workers are entitled to holiday pay from the first of January this year.
Mr. Jiří performs work for the Learning Center under a work agreement for 100 hours in calendar year 2024. The work consists of installing, setting up, modifying and updating educational programs and personal accounts for teachers. The agreed hourly rate is 700 CZK. Mr Jiří will thus earn CZK 70 000 per year on the basis of the performance agreement. As this is a regular activity, Mr Jiří invoices himself approximately CZK 5 800 each month. He does not pay social security or health insurance on this remuneration.
As the example above shows, if the monthly remuneration from a DPP is less than CZK 10 000 for one employer, no social security or health insurance is payable. However, this also applies if one employee has several agreements with different employers and the total income from these agreements does not exceed CZK 10,000.
However, if you do not pay health insurance for any other reason (for example, as an employee), you become a person without taxable income from the point of view of the insurance company, in which case you must pay health insurance separately. The amount of this insurance is CZK 2,968 per month for OBZP 2022 and is payable by the eighth day of the following month, for example for March by the eighth day of April. It is calculated as 13.5% of the assessment base, which is the current minimum wage.
However, when the amount exceeds 10,000 per month, premiums are already payable; the health insurance rate is 4.5 per cent and the social insurance rate is 6.5 per cent.
Mr Jiří in the example above also works for other employers under a work arrangement – his clients include a university and a government office in addition to a training centre. He works for the university on the basis of a work performance agreement with a monthly remuneration of CZK 9 000, and for the state office he works on the same agreement with a monthly remuneration of CZK 8 500. In the aforementioned education centre, he receives approximately CZK 5 800 each month. The total monthly income is therefore CZK 23 300. As he does not exceed CZK 10 000 with either employer, he does not have to pay social security or health insurance on this. However, Mr Jiří pays his own health insurance as an OBZP.
The fact that in total Mr Jiří works about 600 hours a year on work performance agreements does not matter at all, because he has not exceeded the legal limit of 300 hours for one employer.
From the first of June 2024, there is a change in social insurance payments. The 10,000 limit is abolished and two new limits will apply. If the contractor exceeds these limits, he will have to pay social security. The first limit is set at 25% of the average wage if the conciliator works for only one employer. And the second limit is set at 40% of the average wage if the contractor has more than one employer.
The decisive threshold for taxation is whether you have signed a pink tax declaration with the employer in question and also the income threshold of CZK 10,000.
If you have not signed a tax declaration and have income up to CZK 10,000, the agreement is subject to a withholding tax of 15%. In this case, you no longer have to file a tax return. However, if you do file, it is possible to recover the tax withheld by claiming tax credits for the tax year in question. Depending on your income for the year, you may be entitled to a tax refund.
If you earn more than 10,000 a month and you don’t have a signed tax return, the DPP is taxed at 15% advance tax. However, you cannot claim any rebate from your employer, but you can claim tax credits as part of your tax return.
However, if you have signed a tax declaration (you can only have one employer sign it), you are liable to pay 15% advance tax. You can claim any discounts that apply to you from that employer. You must file a tax return if you work for more than one employer at the same time during the year.
If social security is deducted from your gross pay (i.e. for monthly earnings of more than CZK 10,000 with one employer), then you are also entitled to sick pay. On the other hand, if your earnings are lower and no contributions are made, you will not be entitled to sick pay.
Termination of a work performance agreement can be either by agreement of the parties or by unilateral termination by one of the parties.
In the case of an agreement, termination takes place on a specific date agreed by both parties. In the event of unilateral termination of the performance agreement, a 15-day notice period shall apply from the date of delivery of the notice to the other party.
Even a self-employed person (self-employed) may have a weaker period within the business, when they may have to do some part-time work in another field. In such a case, there may be overlap between the trade and the work arrangement.
As far as taxation is concerned, the above principles will apply. As a self-employed person, you will in any case file a tax return for the previous year. In this, you may reduce your tax base after applying all tax deductions and allowances and you may incur an overpayment of tax, which will be refunded to you by the state. You will need taxable income certificates from all your employers to complete the form.
If your business is not profitable, it may be worthwhile to find a job on a FTE where your monthly income exceeds CZK 10,000. In this case, your health and social insurance will be deducted, your business will be treated as a secondary activity and you will pay less in compulsory contributions.
Tip: We have discussed how to do business on a trade license in a separate article.
Such a question cannot be answered unequivocally. It depends primarily on the circumstances under which you want to take up a DPP – for example, if you are an employee, student or pensioner and your health and social security contributions are paid by the state or your employer, you may find it worthwhile to work on a DPP earning up to 10,000 a month. However, if you are not in this position and you do not pay social security and health insurance, then working on a DPP is not likely to pay.
If you earn more than 10,000, your income will be reduced by the health insurance, at least at the minimum level (in 2022, 2,968 CZK).
Tip: If you’re thinking about whether you’re better off with an employment agreement or a performance agreement, consider first what your monthly remuneration will be. If you know that it will be less than CZK 10,000, it is better for you to conclude a work performance agreement. We have discussed the employment agreement in our separate article.
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