Benefits and payroll deductions

In this article, we will look at how an employer should properly determine wages, what their legal obligations are regarding remuneration, which benefits are beneficial to the employee and employer, and what an employer can deduct from wages.

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Chapters of the article

Wage and salary

Although the amount of pay is the deciding factor for many jobseekers in choosing a job, the law does not require it to be stated as part of the employment contract. For example, the salary may be set out in an internal regulation or a salary assessment. The fundamental difference is that if the wage is set out in the contract, the employee must always agree to a change in the wage, as it will be a change to the contract. If, on the other hand, the wage is set out in a wage assessment, the employer can change the wage unilaterally. However, the situation is different for civil servants, as they are classified in certain grades and steps and their remuneration is fixed by a salary scale approved by the Government.

TheLabour Code stipulates that pay is granted according to the complexity, responsibility and exertion of the work, the difficulty of the working conditions, and the performance and results achieved. It also stipulates that all employees of the employer are entitled to the same remuneration for work of equal value. In practice, compliance with this provision is, of course, difficult to monitor and enforce, but the employer should always endeavour to set pay in such a way as to avoid discrimination.

Whatever the wage set, the employee should always know in advance how much he or she is working for, when the pay date is and how the employer will pay them. At the latest, wages should be paid by the end of the month following the work performed. As regards the method of payment, the law primarily provides for payment in cash at the workplace. However, the employer may of course agree with the employee to send the wages to an account. Along with the payment, the employer must also provide the employee with a written document containing details of the individual components of the wage and the deductions made, called a pay slip.

As regards the amount of the wage, the legislation sets only a minimum limit. The remuneration for the employee’s work may not be lower than the minimum wage set by the state, which as of January 2019 is CZK 13,350 per month (for a full 40-hour workday) or CZK 79.80 per hour. However, not everyone knows that there are other limits – the guaranteed wage. This represents the minimum that an employee whose wage is not agreed in a collective agreement and for employees in public services or state administration will earn. The lowest levels of guaranteed wages are set in eight steps according to the complexity, responsibility and exertion of the work. The first level is equal to the minimum wage and the highest level is twice the minimum wage. As of January 2019, the lowest level of the guaranteed wage ranges from CZK 13,350 to CZK 26,700 per month.

Meals, extra holidays, sick days

While an employer is legally obliged to pay financial remuneration to its employees, other benefits are at the employer’s discretion. Many employers in the business sector provide 5 weeks of holiday, of which one week is provided voluntarily in excess of the law. Sick leave is no longer an exception, where the employer allows employees to lie down at home without requiring a doctor’s certificate.

Probably the most common benefit is meal vouchers or some form of company meals. Certain positions automatically come with the use of a company mobile phone, laptop or vehicle (which the employer may also allow to be used for private purposes).

Before an employer decides on certain benefits, it is advisable to enquire about their tax aspects. The most advantageous benefits are those that are tax deductible (the employer’s income tax base is reduced) and at the same time the employee’s income is tax-free, or at least exempt from paying social security and health insurance.

Among the most tax-advantageous benefits are various courses for the professional development of employees, contributions to health, recreation and culture, or company meals and the provision of drinks at the workplace, which may be completely exempt from tax under certain conditions. On the other hand, in the case of a company car or telephone used for private purposes, the employee will pay both tax and social and health insurance contributions (on 1% of the purchase price of the item).

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What can an employer deduct from wages?

Simply put, an employer may “touch” wages only in cases specified in advance by law, or if the employee agrees to this and concludes an agreement on deductions from wages.

The Labour Code provides that the employer may automatically deduct income tax, social security and health insurance premiums, or unpaid advance payments for travel allowances from wages. In addition, deductions may include claims that the employee is being enforced. The employer is then ordered to make such deductions directly by the court. On the other hand, for compensation for damage caused by the employee to the employer, the employee’s consent is always required. Without an agreement on compensation in the form of deductions from wages, the employer may not deduct the money.

If the employer withholds part of the wages unlawfully, the employee can defend himself against this, either by claiming the amount in court or, alternatively, by bringing the case to the attention of the competent labour inspectorate. In extreme cases, non-payment of part of the wages may also be grounds for immediate termination of the employment relationship by the employee.

Wages owed and unpaid social security

If the employer owes wages or any part of them more than 15 days after they are due, the employee may be terminated immediately. However, as we have already written about, this does not mean that you can give immediate notice if the employer is only a week late. It is not the due date that you have in your employment contract that counts, but the 15 days after the end of the month. e.g. for January 2019, you must be paid by the end of February, then the 15 days runs when the employer has the option to settle the amount. However, if this does not happen by 16 February, you can terminate your employment immediately.

However, even such termination does not relieve the employer of its obligation to pay the employee the wages owed. In addition to the wages owed, the employer must also pay the employee a wage replacement equal to the average earnings for the period of time that would correspond to the notice period, which is usually 2 months.

If the employer does not voluntarily pay the debt, the employee must take legal action in the competent court. The actual filing of the action and the subsequent court proceedings should first be preceded by a written demand for voluntary payment. However, in addition to the wages owed, the employee will also be able to claim statutory default interest on the amount owed (currently 9.75% per annum) and the costs of the legal proceedings, including court fees and, in particular, attorney’s fees if the employee uses a lawyer.

By failing to pay remuneration or wages, the employer also commits an offence or administrative offence. The employer is then liable to a fine of up to CZK 1 million from the Labour Inspectorate for this offence.

The employer may become insolvent. In such a case, the Labour Office can then help, at least partially, by paying three months’ wages owed on the basis of a written request from the employee. Although the maximum amount of compensation provided by the Labour Office is limited, it currently exceeds CZK 130,000. In an unpleasant situation where an employee may be without pay for several months, such assistance is more than welcome.

Another of the employer’s obligations is to pay social and health insurance on behalf of the employee. If the employer fails to pay the insurance premiums properly and on time, he will have to pay both any arrears and late payment penalties. Therefore, if the employer fails to pay the premiums, the employee will not owe anything in respect of social and health insurance. Nor can the employee be refused health care on the grounds of non-payment of insurance premiums. The failure of the employer to pay social security will also not affect the employee’s entitlement to a pension, where both the period of employment and the amount of earnings will be counted, even if social security has not been paid.

However, if you suspect that your employer is not contributing as it should, we recommend that you check with your health insurance company and the Social Security Administration.

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Author of the article

JUDr. Ondřej Preuss, Ph.D.

Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.

  • Law, Ph.D, Pf UK in Prague
  • Law, L’université Nancy-II, Nancy
  • Law, Master’s degree (Mgr.), Pf UK in Prague
  • International Territorial Studies (Bc.), FSV UK in Prague

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