(a) The Labor Code defines "dependent work" as work that is performed in a relationship of superiority of the employer and subordination of the employee, on behalf of the employer, under the employer's instructions and performed by the employee personally for the employer. Dependent work must be performed for wages, salary or remuneration, at the employer's expense and responsibility, during working hours at the employer's place of work or at another agreed location. The Labor Code also established that dependent work must be performed in an employment relationship.
(b) There is no special legislation, the definition of an employee under the Labor Code would apply.
(c) The pension-related law refers to the Income Taxes Act.
(a) No.
(b) No.
(c) No.
From 1 January 2024, the penalty for violation increased significantly.
The EU directive on platform workers, which was adopted by the EU Parliament in early 2024, seeks to improve the working conditions of individuals performing work for a digital labor platform. Broadly, the directive provides that an individual working for a digital labor platform will be presumed to be its employee where facts indicating control and direction are present. For more information, please see our client alert here.
The risk that the Labor Office would open an audit relating to the issue of contingent workers versus employees may be higher in certain industries (gig economy, construction). It is also very likely that an audit will be initiated following a complaint from an individual.
The likelihood of a successful defense would largely depend on the particular situation. If the contingent workers perform dependent work, the risk of a penalty is high.
The Labor Inspectorate can impose a penalty between CZK 50,000 and CZK 10 million . In addition, the Labor Inspectorate can impose a prohibition of business activities for up to two years. A penalty from the Labor Inspectorate may lead to inability to apply for subsidies and complicate sponsorship of visas for expatriate employees.
The following are the main risks from a tax perspective:
- Assessment of tax
- Assessment of 20% penalty
- Assessment of late payment interests
The likelihood that the tax authorities would initiate an audit relating to the issue of contingent workers versus employees is rather low.
However, if the authorities initiate an audit (e.g., if they receive information from the Labor Inspectorate), the likelihood of a successful defense would largely depend on the particular situation.
If the challenge is successful, the amount of the assessed taxes, penalty and late payment interests would be high.
The penalty would amount to 20% of unpaid salary tax. Together with the penalty, a late payment interest (currently 12.75% a year) would be applied.
The following are the main risks from a social security perspective:
- Assessment of social security and health insurance contributions
- Assessment of penalty
The likelihood that the authorities would initiate an audit relating to the issue of contingent workers versus employees is rather low.
However, if the authorities initiate an audit (e.g., if they receive information from the Labor Inspectorate or tax authorities), the likelihood of a successful defense would largely depend on the particular situation.
If the challenge is successful, the amount of the assessed social security and health insurance contributions and penalty would be high.
The penalty currently amounts to 12.75% a year (repo rate of the Czech National Bank as of the first day of a particular half-year increased by 8%) of unpaid contributions.
The following are the main risks from a pensions (or other regulator) perspective:
- Assessment of social security and health insurance contributions
- Assessment of penalty
The likelihood that the authorities would initiate an audit relating to the issue of contingent workers versus employees is rather low.
However, if the authorities initiate an audit (e.g., if they receive information from the Labor Inspectorate or tax authorities), the likelihood of a successful defense would largely depend on the particular situation.
If the challenge is successful, the amount of the assessed contributions and penalty would be high.
The penalty currently amounts to 12.75% a year (repo rate of the Czech National Bank as of the first day of a particular half-year increased by 8%) (pension is part of the social security system).
Yes, there is a risk of criminal liability, though rather theoretical in most cases. On the other hand, if management knew that the contingent workers are employees, i.e., they intentionally did not pay taxes and social payments, the risk would be higher.