[Czech Republic] Payroll changes in 2023

As every year, several parameters in the payroll area change, which affect the calculation of wages. This year there is a lot of them, so let’s take a look at them.

Cancellation of periodic medical examinations

As we reported in our article from 23 September 2022, occupational medical examinations have been changed. Periodic occupational medical examinations are abolished for non-hazardous work as of 1 January 2023. Initial examinations have been retained.

Periodic examinations will be carried out if required by the employee or employer.

Minimum wage, reduction threshold

As of 1 January 2023, the minimum wage increased from CZK 16,200 to CZK 17,300. This also increases the minimum assessment base for health insurance, which is equal to the minimum wage. However, the increase in the minimum wage also affects other wage parameters. For example, the maximum amount of the discount for placing a child in kindergarten, the maximum monthly tax bonus to CZK 8,650 or the minimum premium for work in a difficult working environment (10% of the minimum wage) have been increased.

The reduction limits for sickness insurance, which affect the maximum amount of sickness benefits and indirectly also the maximum amount of wage compensation for sickness paid by the employer for the first 14 days, have increased by 3.6%. New reduction thresholds for 2023 (hourly rate limits for sick pay compensation are shown in brackets):

1. reduction limit is CZK 1,345 (CZK 235.38)

2. reduction limit is CZK 2,017 (CZK 352.98)

3. reduction limit is CZK 4,033 (CZK 705.78).

Maximum assessment base and threshold for the second tax rate

The maximum assessment base in social insurance, from which neither the employee nor the employer pays social insurance, has been increased to CZK 1,935,552 for 2023. The limit for the second tax rate for progressive taxation is linked to this limit. The new rate of 23% will therefore apply to income above CZK 161,296 per month.

Determining income

The determining income, which determines the so-called small-scale employment and thus determines the threshold for the establishment of sickness insurance, has increased from CZK 3,500 to CZK 4,000. Employees with salary less than CZK 4,000 will not be socially insured. This threshold is also linked to the establishment of health insurance for agreement on working activity (DPČ). The new rule is that income below this amount will not be covered by health insurance in a given month. The threshold for withholding tax is also linked to the determining income for all jobs except for the agreement on work performance. Therefore, employees with unsigned tax declarations and income up to CZK 4,000 will now be subject to withholding tax. For income above CZK 4,000, the advance tax will be applied.

Changes in payroll bailiff deductions

There has been a change in the calculation of the non-confiscable amount and the so-called fully confiscable amount that must be applied when calculating wage deductions. Prior to 2023, the basic non-confiscable amount was calculated as three-quarters of the sum of the living wage amount and the amount of the standard cost of living for a flat for a single person in a municipality of between 50,000 and 99,999 inhabitants. As of 1 January 2023, the non-confiscable amount is calculated as two thirds of this sum, with the new standard cost of living for a flat for one or two people in a municipality with a population of at least 70,000.

Also, the non-confiscable amount per dependent is now calculated as one quarter of the basic non-confiscable amount (until 2022 it was one third).

The limit for the amount to be withheld without limitation (fully confiscable amount) is reduced from twice the sum of the living wage amount and the amount of the standard cost of living to one and a half time.

Discount on insurance premiums

As we reported in our article from 29 July 2022, from 1 February 2023 employers will be able to claim a discount if they employ certain groups of people on a part-time basis. You can read the previous article for more details.

Tax changes for 2023

From 1 January 2023, the thresholds for tax returns will also change, but these changes will not really take effect until next year, when the 2023 annual tax reconciliation or tax returns are dealt with. Therefore, persons with income up to CZK 50,000 will no longer have to file a tax return (until 2022 it was CZK 15,000). Also, the limit for other income under section 7-10 of Tax Law is increased from CZK 6,000 to CZK 20,000. Thus, if someone has only income from employment (and other conditions are met) and has other income from sections 7-10 up to CZK 20,000, he or she will not have to file a tax return.