Earning while studying – what kind of contract to conclude?

Quick overview

• If you only want to earn money occasionally while studying, most students find a contract for work (DPP) most worthwhile, as you don’t pay social security or health insurance up to the legal limit.
• For more regular work, a DPT is usually more suitable, while a business (self-employed) is more suitable for freelancing or long-term self-employment.
• The choice of contract affects not only your net earnings, but also your entitlement to sick pay, administration or tax obligations.

Don’t know how to set up a contract or deductions correctly? We will be happy to help you with everything.

The rules for student temporary jobs are governed mainly by the Labour Code, the Income Tax Act and the Social Security and Health Insurance Act. For agreements, it is also important to keep track of legislative changes in recent years that have tightened up labour registration and some reporting obligations for employers.

Work and study

The choice of the appropriate legal form of employment for a student depends on many factors. The typical choice is either a contract for the performance of work (CLA) or a contract for the performance of work(CWC). However, a traditional employment relationship is also available. Each of these forms has its advantages and disadvantages.

Let’s start by recapitulating a few basic terms that we will use in the text:

• Gross wage: This is the amount you earn before taxes and other deductions.
• Social security: This provides you with support in the event of sickness, old age or loss of employment. Your employer pays an amount for you that is determined by law. Self-employed workers must also pay social security.
• Health insurance: This amount goes to pay for your health care. As a student, you have certain advantages, for example, if your income does not exceed certain limits (e.g. CZK 10,000 for a DPP), you do not pay the health insurance yourself, but the state pays it for you. However, health insurance means (usually) free treatment in the event of illness or injury, but not the payment of a certain benefit for the duration of your illness. This in turn falls under the category of sickness insurance.
• Income tax: This is a payment to the public purse that is deducted from your income. It can take two forms.
• Withholding tax: If you are working on a contract of employment (FTE) and your monthly income is up to CZK 10,000, your employer will deduct 15% income tax. You do not have to report this tax anywhere.
• Advance tax: If your income exceeds certain limits or if you have more than one job, you may be subject to advance tax. Employees pay advance income tax on their wages each month. This advance is deducted directly by the employer from their gross wages and paid to the tax office. An annual tax settlement is made at the end of the year. The employee files a tax return or the employer makes an annual tax settlement. The tax settlement determines whether the tax paid during the year corresponds to the actual amount of income tax paid for the year. In this case, you may be able to claim various tax credits allowed by law. The tax return may result in an underpayment or overpayment.
• Atax declaration – also known as a “pink declaration”, is a document that an employee submits to his or her employer to claim tax credits and deductions when calculating the monthly advance personal income tax. This document is used to enable the employer to correctly calculate and pay the tax on the employee’s wages. The employee can claim various tax deductions through the tax declaration, such as basic taxpayer’s allowance, spouse’s allowance, child’s allowance, student’s allowance, disability allowance, etc. The tax declaration is only ever signed with one employer, thus avoiding the employee being taxed twice.
• Net pay: This is the amount you receive in your account after all taxes and deductions have been taken out. Net pay is therefore your actual remuneration for your work.

Example:

If you work on a FTE and earn CZK 8,000 per month:

• 15% withholding tax is deducted from this amount, i.e. CZK 1 200.
• If you had a signed tax declaration, a taxpayer’s rebate could be applied and you would receive the full amount of CZK 8,000 without withholding tax.

If you work on a part-time basis and your monthly income is CZK 4,000:

• Social security and health insurance will be deducted from this amount if your income exceeds CZK 3,499. The social insurance is 6.5% and the health insurance 4.5%.
• So on CZK 4 000, CZK 260 would be deducted for social insurance and CZK 180 for health insurance, for a total of CZK 440.

Traditional employment relationship

The traditional employment relationship is the most common form of employment. It brings stability and protection to the employee, including holiday entitlement, sickness insurance and other social benefits. However, this type of employment may not always be ideal for a student.

The employee has to pay health and social insurance, which can be avoided to some extent in other types of contracts, and thus earn more money. However, you are subject to the same rules as any other employee, including all health and social security contributions and income tax payments.

For this reason, students tend to choose a traditional employment contract less often. Until 2023, students had the added benefit of a student discount of up to 4020 crowns, but this was abolished this year. According to the Ministry of Finance, it did not fulfil its purpose because it was not used by the low-income earners it was aimed at.

When does student employment make sense:

• if you are working long-term,
• if you want employee benefits,
• if you need a stable income,
• if you want holiday and sick pay.

A contract of employment (CBA)

A work performance agreement is often chosen by students for its flexibility. A DPP can be concluded for work not exceeding 300 hours per year with one employer. The main advantage is that no social security or health insurance is paid up to an income of CZK 10,000 per month, which means a higher net income for the student.

If you don’t sign a tax declaration, a withholding tax of 15% of gross pay is deducted and does not need to be included in the tax return, but if the student claims a tax credit (e.g. basic rate tax credit), the tax burden can be minimal or zero. DPP is therefore ideal for short-term and less regular work.

In practice, we often see students signing DPPs with multiple employers at the same time and not addressing how the income will show up in their annual tax return. Another common mistake is not signing the tax declaration, which causes the student to lose part of their net income unnecessarily.

Your employer offers you a part-time job but you’re not sure if the contract is set up correctly? Our lawyer can check the terms and conditions of both the FTE and DPT before signing and alert you to any unfavourable terms or missing elements.

Employment contract (FTE)

An employment contract is suitable for longer and more regular employment that does not exceed half the normal weekly working hours (i.e. a maximum of 20 hours per week). With an income of up to CZK 4,000 per month, no health or social insurance is payable, which is advantageous for students with lower incomes. Higher incomes require the payment of insurance premiums, which reduces the net income but entitles the student to sickness benefits and other social benefits. The FTE is therefore suitable for students who are looking for a more stable and regular job but do not want to be burdened with full contributions.

Entrepreneurship (self-employed)

Entrepreneurship as a self-employed person is suitable for students who want to work freelance or have their own business. If the business is a sideline (which is common for students) you pay lower minimum contributions to health and national insurance. In addition, you can take advantage of flat-rate expenses and other tax breaks.

The disadvantages can be the extra administration involved in setting up a business, having to keep track of your income (and possibly expenses) and keeping an eye on deadlines for filing tax returns and income and expense reports for health and social insurance.

Students often believe that they have almost no administrative obligations when they are running a secondary trade. However, the biggest problems arise precisely because of late filing of reports for the health insurance and social security administration.

What to watch out for when running a business while studying:

• tax return deadlines,
• the deadlines for tax returns to the Social Security and Health Insurance Institutions,
• correct setting up of deposits,
• contracts with clients,
• keeping records of income.

Are you transitioning from a part-time job to a business or combining studies with freelancing? We can help you set up your business, contracts and tax obligations correctly to avoid unnecessary penalties.

Casual earnings without a contract

For students, so-called casual work is a rather elegant option. You can earn up to CZK 50,000 a year “with impunity”. In practice, this means that as long as you do not exceed this amount, you do not have to pay tax or declare this income. It is important, however, that it is truly an occasional activity.

Working while studying not only provides students with financial income, but also valuable experience and skills. It is important to choose the right form of employment that best suits your needs and allows you to take advantage of the financial benefits available.

The assessment of whether it is still a casual income is not always straightforward. If the activity is regular or long-term, the tax authorities may conclude that it is already a business with standard tax obligations.

Each form of earnings has different tax and levy implications. If you are not sure what is most beneficial for you, we can assess your situation individually and recommend the safest solution.

Summary

Students can work on a DPP, a FTE, in a traditional employment relationship or as a self-employed entrepreneur. Each option has different limits, levies and tax implications. For short-term jobs, the DPP is usually the most advantageous, as you do not pay social security or health insurance up to the legal limit. DPP is suitable for more regular work, employment for long-term employment and self-employment especially for freelancing or self-employment. When choosing, it is important to look not only at the net income, but also at administration, benefit entitlement or future tax obligations.