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Insights Employer of Record in the Czech Republic

Employer of Record in the Czech Republic

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​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​published on 9 April 2024 | reading time approx. 4 minutes


Both the employee and the employer may, for various reasons, have an interest in the employee performing his/her work temporarily or on a long-term basis for an employer other than the legal employer. In that case, the parties to the contract may opt for diverse legal forms of work. In the Czech Republic, two possibilities come into consideration.​​

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Is the concept of Employer of Record (EoR) known in your country? Is the concept of EoR regulated by law in your country?

In the Czech Republic, a distinction is made between two types of hiring-out of employees. The unpaid hiring-out of employees, literally a "temporary assignment of an employee to another employer pursuant to Section 43a of the Labour Code", and the commercial hiring-out of employees, literally an "agency employment". In the Czech Republic, the employer of record is only provided for in these statutory forms. Other forms would be illegal.

Special features of the activity within the framework of the EoR concept or temporary employment

a) Commercial hiring-out of employees 
Commercial hiring-out of employees, known as agency employment, has been enshrined in Czech law since 2004. Although this legal concept has a twenty-year history, the number of employees in the Czech Republic who are employed by a temporary employment agency is far below the international average, at just 0.7 per cent of all employees in the Czech Republic (compared to the international average of 1.6 per cent and the European average of 2.1 per cent in 2018). At this point it should be emphasised that, under Czech legislation, so-called agency employment covers various activities. If a recruitment company is looking for suitable employees for another employer (which, for example, Rödl & Partner also offers in the Czech Republic), if employees are employed by the recruitment company and are leased to hirers, or even if a recruitment company only offers advice and information on employment opportunities, this is so-called agency employment according to Czech terminology. 

There is extensive case law from the Supreme Administrative Court and the Constitutional Court of the Czech Republic in connection with different modalities of so-called agency employment and the principle of equal treatment. 

Temporary employment agencies with domestic owners outnumber foreign temporary employment agencies – three out of four positions are filled by domestic owners. The number of EU, EEA and Swiss nationals hired out by a temporary employment agency to a hirer was over 31 per cent in 2019, and the number of other foreign nationals was almost 22 per cent of all subcontracted workers. The highest proportion of subcontracted workers can be found in manufacturing and construction.

b) Difference between commercial temporary employment (so-called agency employment) and unpaid hiring-out of employees

The legal concept of agency employment has often been confused with unpaid labour leasing and has often been misused by employers, leading to a lack of legal certainty and discrimination against employees. The table below summarises the most important differences: ​ 

​​
​Agency employment
​Hiring-out of employees
Permitted duration
An employee may be assigned to the same hirer for up to 12 months, unless the employee agrees to a longer assignment or is a replacement for an employee who is currently caring for a child.
Not regulated by law, but recommended for up to 12 months. The employee must have been employed by the hirer for at least 6 months in order to be authorised to be leased to a hirer.
Form
In written form
​In written form
Remuneration of the employer
In principle, the temporary employment agency receives payments from the hirer (however, it is prohibited to make wage deductions from an employee of a temporary employment agency).
Exclusively free of charge between the lender and the hirer (excluding costs for the employee's remuneration and travelling expenses).
Permission for the lender
Requirements for the licence holder:
- at least 18 years old;
- full legal capacity;
no criminal record;
- professional competence (completed university degree and two-year internship in the field / completed apprenticeship with A-levels + five-year internship in the field);
- residence in the Czech Republic;
- binding statement from the Ministry of the Interior;
- a security deposit in the amount of CZK 1,000,000.
(in the case of a company, these requirements must be fulfilled by the so-called responsible representative).
​None
Authorisation for the hirer
​None
​None
​The right to issue directives
The employee receives instructions from the hirer (however, the hirer may not carry out legal transactions such as a termination of employment).
​The employee receives instructions from the hirer (however, the hirer may not carry out legal transactions such as a termination of employment).
​Conditions of assignment
​The temporary employee must work under the same conditions as a permanent employee.
​The temporary employee must work under the same conditions as a permanent employee.
​​Termination by​
- expiry of deadline;
- an agreement between the temporary employment agency and the employee;
- a unilateral declaration by the hirer or the employee in accordance with the contract.
​- expiry of deadline;
- an agreement between the temporary employment agency (employer) and the employee;
- termination of the temporary employment contract by the temporary employment agency (employer) or by the employee with 15 days' notice.
​

What are the special tax features of the EoR concept in your country?

In the Czech Republic, the income of employees is considered income from non-independent work. This results in a direct tax liability for the Employer of Record (EoR) that goes far beyond mere payroll disbursement. The EoR is obligated in the Czech Republic to correctly carry out payroll accounting and make advance payments for income tax as well as contributions to social security and health insurance. This comprehensive responsi­bi­li­ty makes the EoR a central player in the employment relationship, ensuring that all tax and social security obligations are met.

An individual assessment is necessary to evaluate the risk of a permanent establishment of the economic employer in the Czech Republic. This is particularly relevant since the presence of an economic employer in the Czech Republic can have tax implications that must be carefully examined to avoid unexpected tax liabilities.

How do you anticipate the concept of EoR evolving in your country from your perspective?

The so-called agency employment suffers from a shortage of skilled labour, as the industry employs very few people. On the other hand, the agency employment is increasingly being used to employ foreigners. There is also some uncertainty as to which working conditions of permanent employees must be observed when employing temporary agency workers. In addition, there is a risk that the employee's work could be categorised as so-called illegal work, for which the employee may be fined up to CZK 100,000. The temporary employment agency may even face a fine of CZK 10,000,000 (but at least CZK 50,000) for providing illegal labour.​​

Insights
Employer of Record
Employer of Record – A country overview of opportunities and limits​

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