21.10.2021 ZUS

[Czech Republic] Options for improving the social insurance situation

From time to time, payroll accountants come across some opportunities for employees to improve their social security situation. Unfortunately, we won’t be talking about reducing social security payments here, although in a sense it is possible for high-income employees. In the following article, we will present two tools that can be used in social insurance, but their applicability is limited to a small set of employees and cases.

In social insurance, there is a concept of the maximum assessment base. This means that if an employee reaches a certain amount of wage and other incomes (cumulatively) during the year, he or she no longer has to pay social insurance from this income. This limit changes every year and for 2021 it is CZK 1,701,168. Therefore, if someone has a monthly gross salary higher than CZK 141,764 (on average), they will stop paying social insurance during 2021. The higher the salary, the earlier in the year he or she stops paying social insurance. However, there is no information interaction between employers and if an employee changes an employer during the year, the new employer will start applying the CZK 1,701,168 limit from the beginning, whereas the employee may have already used some of the total limit with the previous employer.

This situation is covered by Section 15, Paragraph 3 of Act No. 589/1992 Coll., on Social Security Contributions, according to which an employee may request all his employers to issue a confirmation of the total assessment base for the calendar year. On the basis of these certificates, the employee may apply for a refund of the social security payments deducted from his/her wages in excess of the limit.

The second tool can be used by employees who receive a bonus during a month-long sickness or maternity leave, or who receive additional non-cash income. In general, the pension is calculated based on the income earned during economically active life and the length of being insured. However, since employees usually do not receive income during so-called excused periods (e.g. the aforementioned sickness, maternity leave, and also other periods), the days of excused periods are counted as excluded periods. These excluded periods then reduce the number of days used for calculation of the average income on which the pension is then calculated.

Nonetheless, if the excused periods last for a whole calendar month and some income (even if only CZK 1) is earned in that calendar month, the days for that calendar month may not be considered as the excluded periods, which may adversely affect the amount of the pension. However, the employee may use Section 16, Paragraph 7 of Act No. 155/1995 Coll., on Pension Insurance, and request that the excluded periods be given priority over the earned income. To do this, he or she will need a certificate from the employer, which the payroll accountant will issue on the basis of Section 37, Paragraph 2, letter c) of Act No. 582/1991 Coll., on the Organization and Implementation of Social Security. It only makes sense to make use of this option if the income is less than its usual amount.

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