[Czech Republic] Payroll changes in 2025

Each year, changes in the basic parameters affecting wage calculations occur. This article examines important changes involving not only parametric adjustments but also systemic ones.

Minimum Wage

From January 1, 2025, the minimum wage has increased from CZK 18,900 to CZK 20,800 per month, or from CZK 112.50/hour to CZK 124.40/hour. Consequently, the minimum assessment base for health insurance, equal to the minimum wage, has also increased. This increase in the minimum wage affects other wage parameters.

For example, the minimum income an employee must earn to qualify for a tax bonus (negative tax) has risen to CZK 10,400 (half of the minimum wage). The minimum surcharge for work in difficult working environments has also increased to 10% of the minimum wage.

The institute of guaranteed wages had already been abolished, as mentioned in an article from September 16, 2024. Only guaranteed salaries in the public sector remain in place.

Reduction thresholds

The reduction thresholds for sickness insurance, which affect the maximum amount of sickness benefits and indirectly the maximum wage compensation for sickness paid by employers for the first 14 days, have increased by 5.9%.

The new reduction limits for 2025 (with hourly rates for wage compensation for sickness in brackets) are:

1. Reduction limit: CZK 1,552 (CZK 271.60/hour)
2. Reduction limit: CZK 2,328 (CZK 407.40/hour)
3. Reduction limit: CZK 4,656 (CZK 814.80/hour).

Determining income

The determining income threshold for social insurance has increased from CZK 4,000 to CZK 4,500. If the agreed monthly income is less than CZK 4,500, it will be considered so-called small-scale employment, and social insurance will only be deducted if this threshold is exceeded.

For health insurance, the threshold is tied to the determining income for DPČ (agreement on work activity), regardless of whether it is small-scale employment. In other words, for health insurance, the amount of agreed monthly income is irrelevant. Insurance will be deducted only when the income reaches CZK 4,500.

(Non-)Changes to Agreements on Work Performance (DPP)

The legislation governing agreements on work performance (DPP) underwent significant changes last year, reminiscent of the Czech fairy tale The Proud Princess (Pyšná princezna), which features the well-known phrase: “I rescind what I rescinded, I promise what I promised.”

For a long time, the rule for DPPs was that social and health insurance contributions were only paid on earnings exceeding CZK 10,000 at an employer. If an employee had DPPs with multiple employers, this limit was assessed separately for each employer. As a result, an employee could earn, for example, CZK 40,000 gross per month by having four DPPs with four different employers without paying any insurance contributions. However, legislators aimed to change this.

At the end of 2023, a law was passed stipulating that, starting July 1, 2024, earnings from all DPPs across all employers would be aggregated, and if they exceeded a certain threshold, insurance contributions would be retroactively calculated. Additionally, employers were given a new obligation to report the monthly earnings of all active DPPs for each employee.

Later, however, the law was amended. As of July 1, 2024, only the reporting of earnings remained in effect. The aggregation of earnings across multiple employers was abolished and replaced by a new system called the “notified agreement regime.” Under this regime, the preferential treatment—where earnings up to CZK 10,000 are exempt from insurance contributions—could only be applied by one employer, specifically the first one to register. Other employers would have to treat DPPs as any other standard employment relationship. Additionally, the effective date of this registered agreement regime was postponed from July 1, 2024, to January 1, 2025.

However, at the end of 2024, a new law was passed that abolished the notified agreement regime altogether. We thus continue as we have since July 1, 2024: monthly reporting of earnings for all employees with active DPPs is mandatory, but there is no aggregation of earnings or preferential treatment limited to a single employer. Given that the explanatory memorandum to the law abolishing the notified agreement regime cited the absence of significant insurance evasion from DPPs as one of the reasons for its repeal, it is unlikely that similar proposals restricting DPPs will emerge in the near future.

Nevertheless, one change to DPPs did come into effect on January 1, 2025. From this date onward, insurance contributions will only be payable on earnings starting at CZK 11,500, not CZK 10,001 as had been the case for many years until the end of 2024. Furthermore, this threshold will be regularly updated based on the development of the average wage. The threshold is set at 25% of the average wage, rounded down to the nearest CZK 500. The Ministry of Labor and Social Affairs will announce the threshold each year.

Increase in tax-exemption limits for meal vouchers and meal vouchers lump sum

The Ministry of Labor and Social Affairs increased the meal allowance amounts for business trips. Since the exemption limit for meal vouchers and meal vouchers lump sum is linked to the maximum meal allowance for employees remunerated on business trips lasting 5 to 12 hours, this limit also changes. The new upper limit is CZK 177. The exemption limit is set at 70% of this amount, resulting in a new exemption limit of CZK 123.90.

Maximum Assessment Base for Social Insurance

With the increase in the average wage for 2025, the annual maximum assessment base for social insurance has also risen. Once an employee reaches this limit during the year, neither the employee nor the employer pays social insurance. For 2025, this limit is CZK 2,234,736.

Threshold for progressive taxation

The threshold for progressive taxation is also tied to the average wage. This threshold is set at 36 times the average wage (or three times for a monthly period). The annual threshold for progressive taxation is thus CZK 1,676,052, and the monthly threshold is CZK 139,671.

Increase in flat-rate compensation for remote work

A decree increased the flat-rate compensation for remote work specified in Section 190a, Paragraph 4 of the Labor Code No. 262/2006 Coll.

The new flat-rate amount for each hour commenced is CZK 4.80, a 6.7% increase.

It is worth noting that for remote work (outside the employer’s premises), employees are entitled to compensation for expenses incurred (electricity, heating, internet connection, etc.). These costs may be reimbursed by the employer based on actual proven expenses or as a flat-rate amount, whose amount is determined by a decree of the Ministry of Labor and Social Affairs. Employers and employees may also agree that compensation or part thereof will not be provided.

Changes in wage garnishments

From January 1, 2025, a spouse or registered partner is no longer considered a dependent for wage garnishment purposes. In other words, employees subject to garnishments for executions/insolvencies or other deductions can no longer apply the non-confiscable amount for their spouse/partner. An exception will apply to married or registered partners where at least one partner receives an old-age, orphan, or disability pension (second or third degree) and provides proof of this to their employer.

The normative housing costs, which along with the living wage affect the non-confiscable amount, have also increased.

The new non- confiscable amount per individual is CZK 13,026.67 (an increase of CZK 322). For a dependent, it is CZK 3,256.67 (an increase of CZK 80.50). However, as stated above, the non- confiscable amount can no longer be applied for a spouse.

The amount above which the remainder of the net wage is garnished without limitation is CZK 29,310.

Threshold for withholding tax

The monthly threshold for withholding tax has changed to CZK 11,499 for agreements on the performance of work (DPP) and CZK 4,499 for other types of employment (mainly full-time employment and agreements on work activity, DPČ). For income within these thresholds and in the absence of a signed tax declaration, withholding tax will apply. For higher income, advance tax will be applied.

Digitization of remaining sickness insurance benefits

As announced on December 4, 2024, from January 1, 2025, the remaining sickness insurance benefits have been digitized. Benefits such as nursing allowance, paternity leave, maternity benefits, and others will now be available only in electronic form, similar to sick leave notifications, which have been fully digital for four years.

New rate of social insurance for risky work

From January 1, 2025, a new rate of social insurance applies to risky jobs. Risky employment, for this purpose, includes work classified as category 4 under public health protection law.

The insurance rate for these employees is 26.8%, representing the portion paid by the employer. The standard rate remains 24.8%.

Social insurance discount for working pensioners

From January 1, 2025, employees receiving a full old-age pension will be eligible for a discount on social insurance of 6.5% of the assessment base. This refers to the portion of social insurance associated with pension insurance. On the other hand, pensioners will no longer be entitled to an adjustment of their old-age pension for additional time worked.

To claim this discount, employees must prove to their employer that they are receiving a full old-age pension (ideally with a certificate issued by the pension provider, including the date of entitlement). Additionally, the employee must have reached retirement age.

The discount can be applied no earlier than the calendar month in which the employee provides proof of full old-age pension to the employer. It cannot be applied retroactively and can only be claimed for months where the conditions were met for the entire calendar month. An exception applies in the month of the employee’s death, provided the conditions were met from the start of the month until the date of death. For instance, if an employee is granted a full old-age pension on March 2, the discount can first be applied in April.

New limit for health-related benefits

Last year, a limit was introduced for non-monetary benefits related to health, sports, recreation, culture, etc. (section 6, paragraph 9, letter (d) of the Income Tax Act No. 586/1992 Coll.), capping such benefits at half the average wage for calendar year. For 2024, this limit was CZK 21,983.50. Non-monetary income was tax-exempt only up to this limit. Beyond this threshold, such income became taxable, and health and social insurance contributions applied.

From January 1, 2025, these benefits have been divided into health-related and other benefits. Health-related benefits now have a separate limit equivalent to the average wage, set at CZK 46,557 for 2025. Other benefits retain the previous limit of half the average wage, thus CZK 23,278.50. Health-related benefits must involve the purchase of goods or services of a medical, therapeutic, hygienic, or similar nature from medical facilities or the purchase of medical devices prescribed by a doctor.