Running Payroll in the Czech Republic

Setting up and managing payroll in the Czech Republic is relatively straightforward compared to other European jurisdictions; however, companies must navigate specific regulatory and compliance requirements. Before processing any payroll, businesses must complete several mandatory registrations and ensure full adherence to local employment and tax regulations.

Although the Czech Republic applies only two personal income tax rates, the payroll process is nuanced by the range of tax credits and allowances available to employees. Employers must be thoroughly familiar with these provisions to ensure accurate withholding and avoid potential penalties for non-compliance.

Foreign companies intending to process payroll in the Czech Republic must undertake several mandatory registrations, including:

• Registration for Payroll Tax: Employers are required to register for payroll tax with the Financial Administration of the Czech Republic within 8 days following the commencement of their first employee's work.

• Registration for Social Security: Employers must register with the Czech Social Security Administration (ČSSZ) within 8 days after the first employee starts working. Upon registration, employers receive a unique identification number necessary for all social security-related transactions.

• Registration with Health Insurance Companies: Employers are obligated to register each employee with their respective health insurance provider within 8 days of the employee's start date. As employees may be insured with different health insurance companies, employers might need to register with multiple providers. Both electronic and paper form registrations are accepted.

• Registration for Occupational Accident Insurance: Employers must arrange insurance coverage against occupational accidents and diseases. This is a mandatory requirement to ensure protection for employees in case of work-related injuries or illnesses.

New hires must be reported to both the relevant health insurance company and the Czech Social Security Administration within 8 days of their employment start date. Companies establishing a legal entity in the Czech Republic are granted access to a government-operated digital mailbox (Data Box), which is used for official electronic communication with public authorities.

There is no legal requirement to open a local bank account for payroll purposes. Payments to local authorities can be made from foreign accounts, provided that transactions are executed in accordance with Czech regulations.

The income tax and social security system in the Czech Republic is structured around mandatory contributions from both employees and employers, alongside a progressive income tax framework. Employers are responsible for withholding and remitting the correct amounts, making familiarity with current rates, thresholds, and available tax reliefs critical for accurate payroll processing.

Tax considerations

The Czech income tax system operates with two tax rates:​ a 15% basic rate which applies to annual income lower than CZK 1,676,052, and a higher rate of 23% which applies to annual income exceeding this threshold (rates and thresholds valid for 2025).

An employee's taxable income includes their basic salary or wages, as well as any additional payments such as bonuses or benefits in kind. Certain cash allowances may be exempt. While employment expenses are generally not deductible from taxable income, employees can deduct supplementary pension contributions and life insurance premiums, up to a combined annual limit of CZK 48,000. Several tax credits are available, including an annual basic tax relief of CZK 30,840 and allowances for dependent children.​

Czech tax residents are taxed on their worldwide income, with certain exceptions for work conducted abroad. Non-residents are taxed only on income earned within the Czech Republic. Tax residency is determined by either having a permanent home in the Czech Republic or spending at least 183 days in the country within a calendar year.​

A special provision applies to non-resident employees temporarily working in the Czech Republic (i.e., not exceeding 183 days per calendar year) for a foreign employer. In such cases, the income is exempt from Czech income tax unless the employee is working for a local permanent establishment of the foreign company.​ 

Tax Withholding and Reporting

Under Czech law, employers are responsible for withholding income tax from their employees' salaries and wages. These withheld amounts must be remitted to the Financial Administration of the Czech Republic by the 20th day of the month following the payment. For example, taxes withheld in April 2025 are due by 20 May 2025.

Currently, there is no requirement for employers to submit monthly payroll reports. Instead, employers must prepare and file an annual tax reconciliation, detailing the total income tax withheld and paid on behalf of all employees during the tax year. This annual report is due by 20 March of the year following the tax period to which it relates.

Employees are generally required to file an individual tax return, with the deadline set for 1 April of the year following the tax period. If the tax return is filed electronically, the deadline is extended to 1 May. In cases where the tax return is prepared and submitted by a certified tax advisor, the deadline is further extended to 1 July, provided that a power of attorney is filed by this date.

For the purpose of filing their tax returns, employees may request their employer to provide them with an annual income certificate. The tax year in the Czech Republic aligns with the calendar year.

Social Security Contributions

In the Czech Republic, both employees and employers are required to contribute to the social security system, which includes health insurance, pension insurance, sickness insurance, and unemployment insurance. These contributions are calculated as part of the monthly payroll process.

For 2025, employees contribute a total of 11.6% of their gross salary: 6.5% to pension insurance, 4.5% to health insurance, and 0.6% to sickness insurance. Employers contribute 33.8% of the gross salary: 21.5% to pension insurance, 9% to health insurance, 2.1% to sickness insurance, and 1.2% to unemployment insurance.

While health insurance contributions are not capped, social security contributions are subject to a maximum annual assessment base of CZK 2,234,736 (valid for 2025). Income exceeding this threshold is exempt from further social security contributions.

Employers are responsible for calculating both their own and the employee’s social security contributions during the monthly payroll process. Payments must be made to the Czech Social Security Administration (ČSSZ) by the 20th day of the month following the pay period. A separate social security declaration must also be filed monthly.​

Health insurance contributions, while paid to the respective health insurance company chosen by the employee, must also be calculated as part of the payroll process. These payments are due by the same deadline as social security contributions, and monthly reports must be filed with each health insurance fund covering the company's employees.

Employers are mandated to pay insurance premiums covering occupational accidents and diseases on a quarterly basis. Payments are due on the last day of the month following the respective quarter (e.g., payments for the first quarter are due by 30 April). The contribution rates vary depending on the sector and the specific occupational risks associated with the employee's role.

Employees in the Czech Republic are entitled to various benefits. These include:

• Annual leave and public holidays: Employees are entitled to a minimum of four weeks (20 working days) of paid annual leave per calendar year. Additionally, there are 13 public holidays recognized nationwide.

• Maternity leave: Female employees are entitled to 28 weeks of maternity leave, which extends to 37 weeks in the case of multiple births. This leave is compensated by the Czech Social Security Administration (ČSSZ).

• Paternity leave: Fathers are entitled to 14 days of paternity leave, which is also compensated by the ČSSZ.

• Parental leave: Parental leave can be taken until the child reaches the age of three. Parental benefits are funded from general taxation.

• Sick leave: Employees are entitled to sick leave, with the employer paying compensation for the first 14 calendar days. From the 15th day onward, the employee receives sickness benefits from the ČSSZ.

For more information on employee benefits and other employment requirements in the Czech Republic (including severance pay and termination procedures), check out our Global Hiring Guide.

As of 1 January 2025, the national minimum wage in the Czech Republic has been increased to CZK 20,800 per month, up from CZK 18,900 in 2024. Overtime work is compensated at a rate of at least 125% of the employee’s average earnings. The Labour Code stipulates that ordered overtime must not exceed 8 hours per week and 150 hours per calendar year, unless otherwise agreed through a collective agreement. There is no legal requirement in the Czech Republic to offer a 13th-month salary or bonus to employees.

In the Czech Republic, payroll must be processed at least once a month. Bank transfer remains the most common method for disbursing employee salaries. Employers are required to provide employees with a payslip for each pay period, detailing the components of their salary as well as the tax and social security deductions made on their behalf. Both digital and paper payslips are accepted.

Employers are required to maintain an annual wage list, which records the wage details and tax deductions for each employee. This document is essential for tax reporting and compliance purposes.​ Regarding record-keeping, Czech legislation mandates varying retention periods depending on the type of document. For instance, employee payroll sheets and accounting records on data needed for pension insurance purposes must be retained for a period of 45 years.