How to hire and pay independent contractors in the Czech Republic

The Czech Republic has a growing tech sector and a highly skilled workforce — making it an ideal choice for companies who are looking to hire remote workers and grow their business in Europe. The stable political environment, low cost of living, and favorable work-life balance further add to the appeal of hiring contractors in the Czech Republic.

Unfortunately, nuanced labor laws, complicated tax codes, and the dangers of noncompliance deter companies from taking advantage of the largely untapped talent pool in the country. Moreover, you'll also need to find a reliable payroll system to ensure that your contractors in the country are paid accurately and on time.

International hiring is not an easy process, but you don't have to fret. This guide will take you through everything you need to know about hiring in the Czech Republic — from detailed information about Czech law and tax legislation to the risks of misclassification.

Unique considerations of managing contractors in the Czech Republic

Like most countries, there are unique considerations to hiring and managing contractors in the Czech Republic. Before diving into Czech employment and tax laws, here are some things to keep in mind:

Language

The national language in the country is Czech. Although most Czech nationals living in urban areas can speak English, you shouldn't assume they have a knowledge of English.

Currency 

The Czech Republic has been part of the EU since 2004; however, the country has yet to adopt the Euro for various reasons and still uses the Czech Koruna (CZK) as its currency. When paying Czech contractors, HR and team managers must stay updated on exchange rates. Keep in mind that currency fluctuations could affect their payroll operations.

Punctuality

Punctuality should be a given in business culture, but certain European countries can be more relaxed about timekeeping. But to Czech nationals, punctuality is important, and managers looking to hire independent contractors should be aware of this.

Work-life balance

A healthy work-life balance is vital to Czech culture and is one of the reasons many people move to the Czech Republic. Managers should respect this aspect of the culture and expect independent contractors to work only within regular business hours.

How do I pay an independent contractor in the Czech Republic?

After an independent contractor in the Czech Republic submits an invoice for services rendered, companies have several options on how to pay them:

• Paper check or money order 

• Bank transfer or direct deposit

• Digital platforms like PayPal or Wise

Paying independent contractors promptly and accurately can get tricky as you scale your business with more international hires. Payroll managers must often deal with multiple banks, digital platforms, currencies, exchange rates, and country-specific compliance statutes to ensure your team is paid on time. 

With Remote's global payroll service, your HR personnel can have peace of mind knowing that your globally distributed team always gets paid accurately, on time, and in their local currency. Alleviating HR teams of dull administrative duties also helps them become proactive in attracting talent and helping the business grow.

It no longer matters how diverse or remote your global team is. If you've found the perfect candidate in the Czech Republic, or an existing employee decides to move there, our comprehensive contractor management services can make hiring, onboarding, paying, and managing local and international contractors incredibly easy. 

And with Remote's Fair Price Guarantee, there are no hidden fees. You can hire and pay one contractor in the Czech Republic or fifty independent contractors across ten countries. It's all for one flat rate. 

What are the risks of misclassifying Czech independent contractors as employees? 

Like many countries, the Czech Republic treats self-employed contractors and full-time employees differently. There’s a clear distinction between an employee and an independent contractor in the country, and workers must be classified as one or the other.

In general, an employee works under the terms and conditions set by the employer and receives a regular salary from them. The employer pays the employee regular wages and decides their work schedule and location of work. Employees are entitled to a range of benefits and statutory protections under the Czech Labor Code.

In contrast, the contractor is a self-employed individual who has the freedom to choose their working conditions, terms, schedule, and location. They are paid hourly or weekly once they submit an invoice to the employer, and are not on the company's payroll. Contractors are not entitled to employment benefits or rights under the Labor Code.

When the employer assigns the wrong worker status to its worker, i.e., if an independent contractor is wrongly classified as a full employee and vice versa, it can lead to misclassification.

In the past, misclassifications weren't something governments typically looked into or levied fines against, but the rising popularity of remote work in recent years has completely changed that. 

There are several dangers of misclassification including hefty fines, bans, and in some cases, criminal prosecution. There is also the risk of losing valuable intellectual property (IP) through legal loopholes. This could have devastating consequences for some companies, and IP protection becomes paramount in safeguarding against those scenarios.

In the Czech Republic, misclassified contractors or anyone “falsely self-employed” can face fines of up to 100,000 CZK as sanctioned by the State Labor Inspection Office. For companies that misclassify employees, the penalties can range from 250,000 to 10,000,000 CZK.

To further complicate things, Czech law regarding worker classification is murky. That’s why it’s essential to have a team of in-house experts to provide advice, manage risks, and do the compliance legwork so that you can hire in the Czech Republic with confidence. Remote’s contractor management platform is the most effective and scalable way to minimize misclassification risks — our employment and HR advisors can help you classify workers correctly and manage noncompliance risks.

What are the labor laws in the Czech Republic?

Employment contracts in the Czech Republic are regulated by the Czech Labor Code, while the Czech Civil Code handles independent contractor agreements. The Labor Code oversees the various terms of employment including working hours, overtime, wages, holidays, occupational health and safety, and terminations.

Here are some key features of employment law in the country:

• Working hours. The standard workweek is 40 hours, usually distributed over five weekdays. Inclusive of overtime, a shift should not exceed 12 hours.

• Overtime. The employee must not work more than 8 hours of overtime per week, and 150 hours of overtime per year.

• Minimum wages. The minimum wage in the Czech Republic is 17,300 per month as of 2023.

• Statutory leave. Czech employees can receive four weeks of paid leave every year, apart from 13 public holidays. 

• Pregnancy and maternity leave. The mother is entitled to 70% of her gross salary for up to 28 weeks, starting from six to eight weeks before the due date.

• Paternity leave. The father is entitled to 70% of his gross salary for up to 7 days.

• Termination. To terminate an employee, the employer must provide written notice outlining the reasons for termination. Employers must provide up to two months' notice to terminate an employee.

Independent contractors are not protected under the Labor Code and are not entitled to the statutory rights and benefits outlined above.

Tax and compliance practices for hiring independent contractors from the Czech Republic

Both employees and contractors in the Czech Republic must file and pay their own taxes. If you’re a US-based company looking to hire independent contractors in the Czech Republic, you’ll have to submit tax paperwork in compliance with Internal Revenue Service (IRS) regulations.

US companies have to fill out the W-8 BEN Form when they hire contractors. The purpose of W-8 BEN is for remote workers to certify their non-US status and claim a reduced tax rate. Additionally, US employers may also need to fill out the 1096 Form, which is used to report payments made to independent contractors to the IRS.

Remote has introduced a tax compliance feature that makes it easier for US companies to submit relevant tax information. When a contractor is onboarded using Remote’s contractor management platform, they are instructed to fill out and upload the relevant tax forms — making it simple for US companies to handle compliance during tax season.

How do I convert an independent contractor in the Czech Republic to an employee?

At some point, you might consider converting your independent contractor to an employee. The question of when or why to consider converting a contractor to an employee depends on multiple factors, including: 

• Granting a contractor's request.

• Protecting your company's intellectual property.

• Preventing the competition from stealing your talent. 

• Wanting to promote or retain a contractor long term.

• Being out of compliance and at risk of repercussions.

• Deciding to provide benefits and a better experience for your contractor.

The conversion process can be complex. You’ll have to update employment contracts, figure out taxes and payroll deductions, and offer benefits to your new employees. But Remote can make your life easier by helping you seamlessly convert your contractors to employees while ensuring compliance with Czech employment law.

The best way to hire international contractors in Czech Republic

Hiring independent contractors in the Czech Republic can add great value to your team. The country’s strategic location (sharing borders with four EU neighbors), the relative ease of doing business, and the highly educated workforce are all good reasons to expand your team in the Czech Republic.

But, international hiring can be a hassle. You’ll need to understand Czech labor laws, tax legislation, and compliance practices, and make sure you pay your contractors on time in their local currency. If you fail to keep up with employment laws, you can land in serious trouble.

Global hiring doesn’t have to be a headache. You can rely on Remote's contractor management services, to attract, hire, onboard, and pay independent contractors in the Czech Republic quickly and with complete confidence. Remote can handle all your global employment needs so that you can focus on business growth and stay ahead of the competition. 

Ready to expand your team in the Czech Republic and take your company to the next level? Get started with Remote today!