Your employer offers you an employment contract. Is it a good deal for them in particular or can it bring benefits to you too? In our article, we will also look at the possible alternatives and summarise how this type of contract is taxed. The legal regulation of the agreement has seen some changes recently. We will focus on these as well.
The employment agreement is one of the three types of contracts most used in employment law. It is popularly used by employers for various small auxiliary activities, cleaning or manual work, or long-term temporary jobs where the employee does not require leave.
The following is characteristic of a labour agreement:
Tip: We have discussed the different types of employment relationship in detail in our article.
Are you concluding a work agreement?
Sometimes, paradoxically, concluding an employment 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”.
Example: a labour agreement for maintenance and gardening work in the grounds of a monastery has been concluded with Mr Richter from 1 April 2024 to 31 May 2024. The total number of hours worked is set at 160. Mr. Honza worked 60 hours (30 and 30 hours) in the first two weeks, but in the following weeks the work was less and he worked approximately sixteen to seventeen hours each week, therefore on average he met the limits set by law for FTEs.
The employment contract must state:
You can also agree other details with your employer. The condition is that the agreement is in writing.
In general, many provisions of the Labour Code also apply to work on a fixed-term contract, but the Labour Code expressly excludes certain things that are typical of an employment relationship, such as:
Of course, you can agree with your employer on any of the above, but you should take into account that these are not automatic entitlements and may need to be modified in your contract.
Unless a special method of termination of the FTE has been agreed, the agreement can be terminated either by mutual agreement of the parties or by unilateral notice with a 15-day notice period starting from the date of delivery of the notice to the other party. Immediate termination of the FTC may be agreed by the parties only in cases where the employment relationship can be terminated immediately. A written form is also required for termination.
Let’s start by saying that this type of agreement pays off first of all for companies, i.e. employers: they do not have to provide the employee with holidays, they do not have to pay social security and health insurance in case of really low earnings up to CZK 3,999 per month and, unlike a traditional employment contract, they can basically say goodbye to the employee at any time.
In the light of the above, is this agreement at all advantageous for the employee? There are advantages for them too, especially for students (up to the age of 26) and seniors who want to earn extra money for their retirement. The state automatically pays health insurance for both of these groups. If they have earnings from employment, they must pay health insurance, but the minimum assessment base does not have to be met and health insurance is always calculated on the actual assessment base.
For some people, it may also be an advantage to be able to quickly terminate the employment relationship, for example, if they are looking for stable employment and are only temporarily “temping” somewhere.
Tip: An alternative to an employment agreement may be a performance work agreement (PWA) or a traditional employment contract with a part-time arrangement in certain circumstances. In the case of a DPP, you are allowed to work a maximum of 300 hours for one employer per year. In the case of an employment contract, you get a much greater degree of security.
Here you have a choice of several options, which we have outlined above. It depends on whether or not you sign a tax declaration with the employer and also on the amount of earnings. As far as the tax declaration is concerned, the rule is that you can only sign the declaration for one employer in a given month. However, there may be more than one during the year, but it must be specified for which months.
If you don’t sign a tax declaration with your employer and you have an income of less than CZK 4,000, your employer will deduct withholding tax from your income straight away, which solves the tax issue for you. You do not have to declare this income on your tax return at all.
If the gross monthly remuneration is CZK 3,999 or less, then neither social security nor health insurance is deducted from the gross remuneration. However, in the case of multiple agreements, the remuneration is added together for this purpose.
However, if the work arrangement is your only gainful activity, you will still have to pay health insurance . From the point of view of the health insurer, you will be a person with no taxable income who must pay health insurance at the rate of 13.5 per cent of the minimum wage each month.
For remuneration above CZK 4,000, your employer pays the advance tax in the same way as in a normal employment relationship (this applies whether you have signed the declaration or not).
If you sign the tax declaration, only the advance tax is deducted and you then claim all the tax credits you are entitled to on your tax return (classically, tax credits for taxpayers, students and child tax credits). In practice, you may therefore receive a tax bonus if the child tax credit is higher than the income tax calculated.
Tip: The tax bonus is the difference between the calculated income tax and the child tax credit. In other words, if your tax liability is negative because the child tax credit has been claimed, this is a tax bonus. This bonus is then paid to you by the tax office. The limit of the tax bonus is unlimited.
At the end of the year, your employer will give you an income certificate on request so you can file your tax return. If you had income from two employers in any month that was subject to advance tax, you must file a tax return. However, if you pay tax directly by withholding, like employees, then there is no obligation to file a tax return. If you did not have earnings taxed by advance payment from two or more employers at the same time in any month and you do not have to file a tax return for any other reason, you can ask the last employer to settle the tax for you.
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