[Czech Republic]Changes for agreement on the performance of work (DPP) in the area of insurance premiums

In an article dated 4 December 2023, we reported on the consolidation package and its impact on payroll and HR. Now we will look a little more closely at the changes to the agreement on the performance of work (DPP) that will take place on 1.7.2024.

As has already been mentioned, the threshold for calculating social insurance for agreement on the performance of work (DPP) will be newly set at 25% of the average wage. For the year 2024, this limit will therefore be CZK 10 500. The insurance will arise at the moment when this amount is reached, which is a change from the current legislation, according to which the insurance arises only at the moment when the limit is exceeded (i.e. from CZK 10 001).

However, the insurance will occur even if the limit of 40% of the average wage is reached collectively for several employers, which is amount CZK 17 500 for the year 2024.

Employers will be required to send a monthly summary of all active agreements on the performance of work (DPP) to the Czech Social Security Office (ČSSZ) including the paid income. On the basis of the reports from all employers, the Czech Social Security Office (ČSSZ) will assess whether such a limit has been reached and, if so, inform separately the employer and the employee. Employers will then have 30 days to pay their social insurance premiums (33.8%). Employees will be asked by the Czech Social Security Office (ČSSZ) to pay their social insurance premium (7.1%) directly into ČSSZ’s bank account.

Employers will also have to send a special insurance premium overview in respect of these “additional insured” agreement on the performance of work (DPP).

Since the above changes are taking place, the conditions for registration of employers and employees are also changing.

Employers who employ only uninsured agreement on the performance of work (DPP) will have to newly register in the Czech Social Security Office (ČSSZ), same as employers who employ insured employees.

If there are already employers employing only uninsured agreement on the performance of work (DPP), they will have to register with the employer registry within 30 days of the law’s effective date.

At the same time, employers will no longer be obliged to register employees for the agreement on the performance of work (DPP) by means of a classic application form. Taking into account all the changes in the consolidation package, it can be assumed that the Czech Social Security Office (ČSSZ) will keep the register of persons employed on an agreement on the performance of work (DPP) on the basis of a monthly notification of persons employed on an agreement on the performance of work (DPP) with their income accounted. The Czech Social Security Office (ČSSZ) will always itself assess whether insurance has been incurred or not and will keep the register accordingly.

The employer will also not be obliged to prepare and send a pension insurance records for those agreement on the performance of work (DPP) who have become insured on the basis of a notification from the Czech Social Security Office (ČSSZ). The employer will prepare  pension insurance records for those agreement on the performance of work (DPP) for which the applicable single-employer threshold has been reached (i.e. CZK 10 500). However, if the employee does not reach this amount, the employer will not issue the pension insurance records, even if the Czech Social Security Office (ČSSZ) subsequently notifies that the limit has been reached for all employers combined (i.e. CZK 17 500) and the agreement on the performance of work (DPP) becomes insured. In such cases, the information on pension periods will be maintained by the Czech Social Security Office (ČSSZ) itself.

The employer will be obliged to keep records of all agreement on the performance of work (DPP) to the same extent as for insured employees.

Employers should pay close attention to the new information obligations they face. The employer will be obliged to notify the employee on an agreement on the performance of work (DPP) at the latest on the day of entry into employment of the possible obligation to pay social insurance premiums if the employee is employed by more than one employer and if the employee’s income exceeds the decisive amount for all employers (40% of the average wage, i.e. CZK 17 500). This is the way it is written in the text of the Act, but it seems to be a wording mistake, because the insurance already arises when the decisive amount is reached, not when it is exceeded. We recommend that employers should have the employee confirm compliance with this information obligation by signing a handwritten statement.

For current employees on agreement on the performance of work (DPP) who will continue after the Act takes effect, the employer must comply this information requirement within 5 days of the date the Act takes effect.

And two notes in conclusion. There is no change in health insurance. The establishment of the health insurance for the agreement on the performance of work (DPP) is connected to the decisive amount for the sickness insurance, so the limit will change from CZK 10 000 to CZK 10 500, however, for the health insurance it is only written about the agreement on the performance of work (DPP) with one employer. The new multi-employer income sum rule, which will apply to social insurance, will not be applicable for health insurance, it seems.

Again, lawmakers did not reconcile insurance limits and tax type determinations for the agreements. Instead, they have removed this alignment even for agreement on the performance of work (DPP). Newly, withholding tax will be applied in the case of unsigned tax declaration for income up to CZK 10 500, but insurance will be paid, as it has been the case for a long time with agreement on work activities. The transition to the advance tax will thus always be CZK 1 later than when the insurance arises.

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