In addition to the major amendment to the Labour Code, in its majority effective as of 1 October 2023, which has significantly changed the legal regulation of many areas of labour law and which we covered in our two-part series of brief overviews, which can be found at the links here and here, another autumn guidepost in the field of labour law is the so-called public finances consolidation package.
To the consolidation package
The consolidation package is a comprehensive set of amendments to dozens of laws, which will come into force as early as 1 January 2024, and was adopted with the aim of reducing the state budget deficit, effectively consolidating public finances and setting up austerity measures over the long term, especially in the tax area. A number of these measures will also have a direct impact on labour law.
You can read what specific changes in the area of labour relations the consolidation package has brought and how to prepare for them effectively and in time in the following article.
(Further) tightening of the conditions of the agreements outside the employment relationship
One of the most discussed changes in the area of employment relations is the tightening of the conditions for exemption from payment of insurance premiums for employees working on the basis of an agreement outside the employment relationship. In addition to the changes brought by the amendment to the Labour Code, this is another change binding the use of agreements outside the employment relationship in practice.
So far income from an agreement outside the employment relationship has been exempted from payment of insurance premiums if the remuneration did not exceed CZK 10,000 for a given calendar month. This limit applied to each employer separately. By the end of this year, a person can have an agreement outside the employment relationship with, for example, 5 employers, and as long as he or she always meets the limit of CZK 10,000 per month and 300 hours of work per year with one particular employer, the duty to pay compulsory insurance premiums and contributions does not arise. However, these rules will change from 1 January 2024.
The consolidation package introduces two new limits for compulsory contributions for employees working on the basis of an agreement outside the employment relationship, namely:
- 25% of the average wage for earnings from all agreements outside the employment relationship with one employer, and
- 40% of the average wage for earnings from all agreements outside the employment relationship with more than one employer.
If an employee exceeds one of the limits, the employer will be obliged to pay social security and health insurance contributions for the employee for all employers. The employer will deduct 6.5% of the employee’s insurance contribution from the employee’s remuneration, plus the employer’s own insurance contribution of 24.8%.
In connection with the aforementioned, a central register of all agreements outside the employment relationship and their income will be established at the Czech Social Security Administration (CSSA) as of 1 July 2024.
Employers will thus have to send a form on the entry of such an employee to the CSSA and employers will also have a duty to submit an overview of the income from the agreement outside the employment relationship on a monthly basis to the CSSA.
An important duty will also be the employer’s information duties towards the employee, where employers will also have to inform the employee of their duty to notify the employer of all agreements outside the employment relationship concluded by it with other employers at the time of commencement of work. If the employee fails to do so and this results in an incorrect payment of insurance premiums, the employer may be fined for an infraction by the CSSA.
Employee sickness insurance
Sickness insurance will now be part of social security contributions, which will result in employers paying social security contributions for employees at the rate of 7.1% of gross wages, of which 0.6% will be sickness insurance for employees (previously, only the employer paid sickness insurance for employees as part of the social insurance payment, at the rate of 2.1% of gross wages).
Sickness insurance will be compulsory from 1 January 2024 for employees with a minimum income of CZK 4,000, for an agreement outside the employment relationship with an income of over CZK 10,991 (25% of the average wage for 2024 of CZK 43,967).
Employee benefits
After intensive discussions between the government and trade unions over certain non-monetary employee benefits (usually used under the cafeteria or benefit card system), including, for example, health and medical goods and services, educational services, admission to sports facilities, admission to cultural events, holiday trips, etc., the complete and across-the-board abolition of their tax exemption was finally abandoned.
As a compromise, the tax deductibility was capped at one half of the average wage for the tax year as an aggregate limit. For the year 2024, the amount will be set at CZK 21,983. However, the change will not apply to pension insurance, where the benefit of tax exemption remains the same.
Contributions that exceed the limit will be treated as part of the wage and will therefore be subject to health and social insurance contributions as well as personal income tax on employment income.
Non-monetary benefits provided up to the limit will be a deductible expense for the employer as before, but above the limit will be non-tax deductible for the employer.
Meal vouchers and meal allowance
The change will also not apply to employer contributions for meals, where the conditions for exemption of such contributions are unified, i.e. regardless of their form.
The tax regime for meal vouchers and company meals at the workplace will be unified with the regime for the meal voucher lump-sum, i.e. for the purposes of exempt income on the part of the employee, it will be necessary to observe the limit of CZK 107.10 per shift (until now, employers could deduct a maximum of 55% of the price of the meal voucher from the tax base, but now they will be able to deduct no more than this amount).
An aspect that will be crucial for the correct taxation of benefits in connection to the consolidation package is the moment when the benefit arises, i.e. whether it arises when granting the legal entitlement, e.g. the allocation of points on a benefit card, or when its actually used.
Non-monetary gifts from employers
The consolidation package also completely abolishes the tax exemption for non-monetary gifts from the employer up to CZK 2,000 per year (e.g. provided on the occasion of a work anniversary) and for social assistance to overcome exceptionally difficult circumstances.
For example when an employee receives a gift voucher from their employer to a clothing store on the occasion of their five-year anniversary at work.
The value of the voucher will now be subject to employment income tax and social security and health insurance contributions regardless of its value.
Conclusion
The key changes introduced by the consolidation package coming into force in January 2024 are the tightening of the conditions for the exemption from insurance premiums in the case of the agreements outside the employment contract and the introduction of two limits, the incorporation of sickness insurance in social security contributions and the capping of the tax exemption for non-monetary employee benefits.
Effective adaptation to these changes is crucial for maintaining the legal as well as financial stability of employees and employers, which is why we recommend consulting on any changes to internal procedures – employee claims under contracts, employment law documents or HR company processes – with legal and tax advisors.
Should you have any questions about the consolidation package and its impact on employment law or need assistance with updating your existing employment and related documentation, please do not hesitate to contact us at any time.
Rachel Kouklíková, legal assistant – kouklikova@plegal.cz
Mgr. Zuzana Schindlerová, junior lawyer – schindlerova@plegal.cz
Mgr. Jakub Málek, managing partner – malek@plegal.cz
28. 11. 2023