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How is the minimum wage set and what is it for?

Simply put, the minimum wage is a certain basic amount that every worker should be able to reach. But its meaning is much broader. The concept cuts across different areas of law and can apply to almost anyone. How is it determined and what is the difference between the minimum wage and the guaranteed wage?

Úspory tvořené z minimální mzdy
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Even the simplest and most monotonous work must be paid at least the minimum level set by the government to which any full-time worker is entitled. In 2023, the minimum wage was increased to CZK 17,300 by government decree (the minimum hourly wage was also increased to CZK 103.80). This is the basic amount, which does not include various additional payments for overtime, public holidays or weekend work. However, it is not the amount that the employee will actually see on his or her pay slip. It is the gross salary, less social security and health insurance contributions. The “net” amount depends on how many children the employee has and their living situation.

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The minimum wage is set as the equivalent of a 40-hour week. So if you work part-time and your gross wage is CZK 14,500, then you should not argue with the minimum wage when asking your boss for a raise. However, if you will be on the same wage at full time, then your employer must give you a top-up to the minimum wage.

On the other hand, of course, you should receive at least half of the minimum wage, i.e. at least CZK 8,650, if you work part-time.

Tip: We have covered the legal obligations regarding remuneration and benefits in a separate article.

Minimum wage functions

The minimum wage setting has several different functions. In relation to employees, this is firstly a motivational function, where the wage should be set in such a way as to provide a greater incentive to work and not rely solely on social benefits.

We can also talk about a social protection function. The minimum wage should ensure that the employee can provide for the basic necessities of life (albeit very modestly) and be protected from falling to the social bottom.

Tip: The Nobel Prize in Economics was recently awarded to David Card. His research looked at the relationship between the minimum wage and work. Among other things, he concluded that raising the minimum wage does not necessarily lead to fewer jobs.

The importance of the minimum wage in the legal system

But the minimum wage is interwoven throughout our legal system and is also linked to other amounts, benefits or tax write-offs. For example, in order to qualify for the child tax credit, your income must be at least six times the minimum wage, which for 2021 is CZK 103,800.

The minimum wage also affects the potential earnings of persons registered with the Labour Office but who do not receive unemployment benefits because they are not entitled to them or they have already ceased to be entitled to them. They can earn extra money in so-called non-colluding employment, but their monthly earnings must not exceed half of the minimum wage, which is CZK 8 650 in 2021.

With the increase in the minimum wage, the limit up to which pensions are legally exempt from taxation also increases. In order to be exempt, pensions must not total more than 36 times the minimum wage in a year. This applies to the vast majority of pensions in the Czech Republic.

Tip: How to determine the correct wage, what are the legal obligations regarding remuneration and what you are entitled to as an employee are topics we have discussed in a separate article.

Guaranteed wages in the Czech Republic

The guaranteed wage should be distinguished from the minimum wage. The guaranteed wage is the wage or salary to which the employee is entitled under the Labour Code, wage assessment, contract or salary assessment.

Here, too, the situation is regulated in some way by the State. The government sets by regulation a minimum level of guaranteed wages for those employees whose wages are not fixed by a collective agreement and for employees who receive a salary (employees of the state, municipalities or contributory organisations).

The guaranteed wage is the lowest wage set for work at a particular step of the minimum wage scale. The individual steps take into account the complexity, responsibility and strenuousness of the work performed.

There are eight levels, with the guaranteed wage at the lowest level being the CZK 17 300 already mentioned, rising in each level up to CZK 34 600 at the eighth level.

The individual grades differ according to the difficulty of the work performed. For researchers or securities traders, at least CZK 34 600 per month or CZK 208 per hour should be guaranteed this year.

Skupina Zaručená mzda 2023 - výše
1. skupina 17 300 Kč
2. skupina 17 900 Kč
3. skupina 19 700 Kč
4. skupina 21 800 Kč
5. skupina 24 100 Kč
6. skupina 26 600 Kč
7. skupina 29 400 Kč
8. skupina 34 600 Kč

If the basic amount of wages or salary does not reach the relevant minimum level of guaranteed wages, the employer is also obliged to provide the employee with an additional payment.

The characteristics of the individual groups and the typology of employment falling under them are also laid down in a government regulation. Employees receiving a salary are further divided into 16 grades.

Average wage and median

When statistics refer to the level or trend of wages over a certain period, they often use the terms ‘average wage‘ and ‘median‘. Sometimes the two terms are used interchangeably, but they are not the same.

The average gross monthly wage is calculated from wages, which also include various allowances or salary supplements, bonuses for weekend work and so on. However, they do not include, for example, wage or salary replacements during periods of sick leave.
To know the average wage in a certain area (enterprise, region), it is sufficient to know only the wage costs for a given period and the number of employees. For example, if the monthly costs in a small company with 7 employees are CZK 350 000, then the average wage here will be CZK 50 000.

Themedian, on the other hand, is a statistical concept that represents a mean value. In the case of wages, however, we need more data to find it than to find the average wage.

If we imagine that in the above company the director’s salary is CZK 100 000 and the salary of his closest adviser is CZK 80 000, then it is clear that the salary of these two people alone accounts for more than half of the total wage bill. The salaries of the other colleagues must therefore be significantly lower than the average salary quoted above. For this purpose, it is preferable to work with the median, where all the values (wages) in a given company are ranked and the median is found. If the wages in this example were CZK 100 000, CZK 80 000, CZK 60 000, CZK 35 000, CZK 30 000, CZK 25 000 and CZK 20 000, then the median would be the wage of CZK 35 000.

While the average wage may be distorted by the extremely high salaries of some managers, which raise the average wage of all employees, the median is more indicative of real wage ratios.

Specifically, in Q2 2021, the average wage per headcount in the Czech Republic was CZK 38 275. The highest average wage is in Prague, where it reaches CZK 46 163. The median wage in the Czech Republic was CZK 32,408, with the median wage in Prague in 2020 at CZK 39,233.

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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.

Education
  • 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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