Agreement on work activity

Chapters of the article

• What characterises an employment agreement?
• What are the benefits of a work activity agreement?
• Taxation and levies on a work arrangement
• I don’t have a signed tax declaration
• I have signed a tax declaration

What characterises an employment agreement?

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:

• unlike performance work agreement (PWA), it is not limited to 300 hours per calendar year.
• instead, the limit in the number of hours is determined by half of the fixed weekly working time, which is assessed over the period of its validity, not exceeding 52 weeks. In other words,
• it is not possible to exceed an average of 20 hours per week during this period (for example, if 30 hours are worked one week and 10 hours another, then the condition is met).
• in contrast to the DPP , (as a rule) participation in social security and health insurance is incurred.

Example text of a work agreement?:

The agreement on labour activity for maintenance and auxiliary work on the monastery premises was concluded with Mr. Honza from 1 April 2022 to 31 May 2022. The total number of hours worked is set at 160. Mr Honza worked 60 hours in the first two weeks (30 and 30 hours), but in the following weeks the work was less and he worked approximately sixteen to seventeen hours each week, so on average he met the limits set by law for FTEs.

The employment contract must state:

• the agreed work,
• the agreed scope of the working time,
• the period for which the agreement is concluded.

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:

• transfer to another job and reassignment or temporary assignment,
• severance pay,
• working hours and rest periods, with the proviso that the work must not exceed 12 hours in any consecutive 24-hour period,
• obstacles to work on the part of the employee,
• leave,
• termination of employment,
• remuneration with the exception of the minimum wage,
• travel allowances.

Of course, you can agree with your employer on any of the above, but you should take into account that the above is not an automatic entitlement and may need to be modified in the 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.

What are the benefits of a work agreement?

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 3,499 per month and, unlike a traditional employment contract, they can basically say goodbye to the employee at any time. They also do not have to pay extra payments for working overtime and on public holidays.

In the light of the above, is there any advantage for the employee in this arrangement? There are advantages for them too, especially for students (up to 26 years old) 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.

Taxation and levies on employment contracts

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 it 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.

I don’t have a signed tax declaration

If you don’t sign a tax declaration with your employer and you have an income of less than CZK 3,500, 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 3,499 or less, then neither social security nor health insurance is deducted from the gross remuneration (however, the minimum wage provisions must be complied with). 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 2022, this is specifically 2,187 crowns.

For remuneration above CZK 3,500, the 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).

I have signed the tax declaration

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 (the classic taxpayer’s allowance, the student allowance and the child tax credit). In practice, you may therefore receive a tax bonus if the child tax credit is higher than the income tax calculated.

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.

Example:

The elderly Mrs Božena works for two employers at the same time – in the hospital reception office and sometimes in the afternoon in the theatre dressing room. She uses an employment contract. She only claims her tax declaration and tax credit at the hospital.

Her gross remuneration is CZK 20 000. Her net remuneration is CZK 17 370, income tax is CZK 430 (calculated as 15% of CZK 20 000 minus the taxpayer’s discount of CZK 2 570), she pays CZK 1 300 in social security (6.5% of CZK 20 000) and CZK 900 in health insurance (4.5% of CZK 20 000).

In her second job, Božena’s gross remuneration is CZK 10 000. She has income tax withheld of CZK 1,500 (15% of CZK 10,000). She deducts CZK 650 (6,5 % of CZK 10 000) in social insurance and CZK 450 (4,5 % of CZK 10 000) in health insurance. Her net remuneration from her work in the cloakroom is CZK 7 400.