[Czech Republic] How will the consolidation package affect payroll and HR?

The government’s so-called consolidation package for 2024 has gone through the full legislative process. The package brings many changes in the area of taxes and insurance contributions. Its aims were to increase the collection of state levies and thus increase the revenue side of public budgets. Now we will look at those changes that will be reflected in the processing of wages or in the area of the HR.

Changes in taxes

The amount of taxation of company cars that an employee can use for private purposes is changing. Now the amount entering to the tax base is calculated as 1% of the purchase price of the car or 0.5% in the case of low-emission vehicles.

Three rates will be used for the calculation:

• 0,25 % of the entry price of a zero-emission vehicle, which is a vehicle that uses only electricity or hydrogen as fuel or a vehicle whose operation has no CO₂ emissions
• 0,5 % of the entry price of a low-emission vehicle is retained
• 1 % of the entry price of other vehicles

There has been a realignment of the meal vouchers and the meal voucher lump sum. The exemption on the employee’s side will now also apply to meal vouchers only up to a limit of 70% of the upper limit of the meal allowance that can be granted to salaried employees for a business trip lasting between 5 and 12 hours (for 2023 this is CZK 107.10). At the same time, there is a tightening in the sense that the employee must work at least 3 hours in a shift in order for the amount to be tax exempt on the employee’s side. Employers who contribute a larger amount to the meal voucher will have to decide whether they will reduce their contribution or whether they will tax the amount above the limit and  also pay social and health insurance contribution themselves. The same limit will now also apply if the company provides meals through its own canteen.

There is a limitation on the tax exemption of non-cash income under section 6(9)(d), which includes, for example, the purchase of goods or services of a medical nature, the use of recreational facilities, sports facilities, contributions to cultural and sporting events, etc. This includes, for example, benefits from various Cafeteria schemes, Multisport cards, etc. All such contributions and incomes will be in aggregate exempt only up to half of the average wage, i.e. up to CZK 21 983 per year, which is approximately CZK 1 831 per month.

In to the higher tax rate under tax progression will newly fall employees with incomes corresponding to 36 times the average wage, which is for 2024 the amount of CZK 1 582 812 per year, or CZK 131 901 per month. Until now, 48 times has been applied.

From 2024, the student tax discount and the tax discount on school fees will be abolished. Taxpayers will no longer be able to claim union dues or fees paid for examinations verifying the results of further education as non-taxable parts of the tax base.

The tax discount on spouse will only be applicable to a spouse with whom the taxpayer lives in a jointly managed household and only if a child under 3 years of age lives in the same household. The condition of the spouse’s maximum income of CZK 68 000 per year will remain.

At the same time, the possibility to deduct donations of up to 30% of the tax base has been extended for the 2023 tax year.

Changes in social security contributions

From 1 January 2024, the social insurance for employees increases from 6.5% to 7.1%. A new 0.6% will be paid for sickness insurance.

From 1 July 2024, there will be more significant changes in the case of agreements on the performance of work (DPP). Up to now, from DPP social insurance premiums were paid only if the income exceeded CZK 10 000 at one employer. The new limit will be linked to the average wage, specifically the limit will be 25% of the average wage. For the year 2024, the limit is CZK 10 500.

However, a much more serious change is that social insurance premiums will have to be paid even if the sum of income from different employers exceeds 40% of the average wage – for 2024 the amount is CZK 17 500.

And how will individual employers know that this limit has been reached? Employers will now be obliged to send monthly to the Czech Social Security Office (ČSSZ) the details of all currently runningDPPs, including the accounted income . Based on the birth number, the CSSA will then count the income from all employers and, if the limit is reached, the ČSSZ will inform the employer that a social insurance premium must be paid on theDPP.

Employers will have a total 30 days from the receipt of the notice to pay the premiums on suchDPP. Fortunately, this will only apply to the premiums that the employer is obliged to pay. As far as the premiums for the employees are concerned (i.e. the 7.1%), the ČSSZ itself will also contact the employees in question and demand the premiums directly from them, which is at least a small consolation prize that the legislator has not delegated this obligation to the employer.

More details in our next article.

Change to the Employment Act

Now, if the dismissed employee is entitled to severance pay, the payment of unemployment benefits will be postponed by the number of months equal to the severance pay multiplier. From 1 January 2024 this will no longer apply and unemployment benefit will be paid immediately.

On the other hand, the conditions under which unemployment benefits can be paid to jobseekers are being tightened, as described below.

The jobseeker is on the employment office and is paid unemployment benefits. He then starts a new job without having exhausted the entire support period. He quits his new job. He will have to work at least 6 months in the new job (now 3 months is enough) to get a new full support period. If he has not worked at least 6 months, he will only be entitled to the remainder of the previous unused support time.

If a candidate has used up all of his/her support period, he/she will have to work at least 9 months in the new job to get new support period (now only 6 months is enough).

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