Expanding into new markets is an exciting step for any company, but it often comes with questions about local regulations and unexpected costs. Gaining a solid understanding of these factors is key to making smart investments and ensuring a smooth market entry. The Czech Republic is no exception, and knowing the true cost of employing in the Czech Republic is crucial – just like having a solid foundation before building a house.
The Czech workforce is highly educated, skilled, and multilingual, with a mix of local and international professionals. While wages tend to be lower compared to Western Europe, there’s more to the cost of employment than just salaries. In this blog, we’ll break down the main elements that affect the overall cost of hiring in the Czech Republic, from salary levels and social security contributions to taxes and other hidden expenses employers should be aware of.
Average Salary Levels in the Czech Republic
The cost of employing in the Czech Republic naturally begins with salary. As in most countries, the average gross salary here varies by industry, region and job role. While the average gross monthly salary is around CZK 40,000 (€1,640) and tends to fluctuate slightly each year, it can also differ significantly depending on the sector.
- IT & Technology: CZK 60,000–80,000 (€2,460–3,280)
- Manufacturing: CZK 35,000–50,000 (€1,430–2,050)
- Services & Retail: CZK 25,000–35,000 (€1,025–1,430)
These figures represent gross salaries, meaning they do not include the various social security and tax contributions that both employees and employers must pay.
Social Security Contributions
One of the most significant costs employers face when employing in the Czech Republic is social security contributions. These contributions are mandatory and cover health insurance, pensions, and other social benefits.
- Employer contributions: Employers are required to contribute 33.8% of the employee’s gross salary. This includes:
- 24.8% for pension insurance
- 9% for health insurance
- Employee contributions: Employees contribute 11.6% of their gross salary, which includes:
- 7.1% for pension insurance
- 4.5% for health insurance
For example, if an employee earns a gross monthly salary of CZK 40,000, the employer would need to pay an additional CZK 13,520 (€554) in social security contributions. Employees themselves would contribute CZK 4,640 (€190) from their salary.
Personal Income Tax
In the Czech Republic, employees are subject to personal income tax on their gross salary. Employers are responsible for withholding this tax from the employee’s salary and paying it to the government. The income tax rate is 15% on income up to approximately CZK 1,935,552 (€79,620) annually. For income exceeding this amount (the average salary multiplied by 48), a higher tax rate of 23% applies.
Other Employment Costs
In addition to salaries, social security contributions, and taxes, there are other costs associated with employing workers in the Czech Republic. These include:
- Holiday Pay: Employees are entitled to a minimum of 20 days of paid vacation each year. In some industries or collective agreements, this may be increased to five weeks.
- Sick Leave: Employers are required to pay sick leave for the first 14 days of an employee’s illness, at a rate of 60% of the employee’s average earnings. After this period, the state takes over, and the employer is no longer responsible for payment.
- Severance Pay: When terminating an employee due to redundancy or organizational changes, employers are required to pay severance based on the employee’s length of service. This can range from one to three months’ salary, depending on how long the employee has worked for the company.
Workplace Safety and Insurance
Employers in the Czech Republic are required to provide a safe working environment and follow regulations on occupational health and safety. This may involve costs related to:
- Workplace safety inspections
- Training employees on health and safety practices
- Providing protective equipment where necessary
Employers are also required to have liability insurance for workplace injuries. This insurance covers compensation for employees in case of accidents or occupational diseases.
Benefits and Perks
While not mandatory, many employers in the Czech Republic offer additional benefits to attract and retain talent. These benefits can increase the overall cost of employment but are often considered necessary to stay competitive in the labor market. Common benefits include:
- Meal vouchers or cafeteria systems: Employers often provide employees with meal vouchers as part of their compensation package.
- Private health insurance: Some companies offer supplementary health insurance to provide additional medical coverage.
- Company cars, phones, or laptops: Particularly in management and sales roles, employers may provide company vehicles or equipment for business use.
Total Cost of Employment
To calculate the total cost of employing a worker in the Czech Republic, employers must consider all the elements discussed above. For example, for an employee with a gross salary of CZK 40,000, the total cost to the employer would include:
- Gross salary: CZK 40,000
- Social security contributions (33.8%): CZK 13,520
- Other potential costs (benefits, training, severance, etc.)
This brings the total monthly cost to approximately CZK 53,520 (€2,190) or more, depending on additional perks and benefits.
For more detailed information check out the Ministry of Labour and Social Affairs (MPSV) and the Czech Social Security Administration website.
Conclusion
Employing in the Czech Republic comes with both opportunities and challenges. While wages may be competitive compared to other European countries, high social security contributions and mandatory employment benefits add to the overall cost for businesses. Understanding these costs is important for any company planning to expand into the Czech market.
Just like building a solid foundation before entering a new market is key to success, establishing a strong framework for employment is crucial when hiring staff in the Czech Republic. By navigating local regulations, ensuring compliance, and anticipating costs, businesses can lay the groundwork for sustainable growth.
To manage these complexities, companies often rely on local HR and payroll service providers. Internago, with its expertise in the Czech employment market, can help you build that solid foundation by streamlining payroll and administrative tasks, ensuring compliance, and guiding you through the intricacies of Czech labor laws. With proper planning, you can not only manage your workforce effectively but also seize the opportunities in the Czech Republic’s thriving labor market.
To learn more about employment cost, see our earlier blogs about the cost of employing in the UK, Spain, France and Italy.
Interested in learning more? Please visit Internago or our Payroll Portal. For further inquiries, contact us at info@internago.com