Czech Republic: Building Contractor’s Liability for the Wages of Subcontractor’s Employees

Author: Klára Sleglova

The amendment to the Labour Code, effective 1 January 2024, introduced a mandatory liability of contractors for wage claims of their subcontractor’s employees in the construction industry. Simply put, if a subcontractor’s employee does not receive their wage, they can claim the payment from the contractor.

 

Contractor – Subcontractor

For the purposes of the suretyship, a contractor is a construction businessperson or entity that uses the services or materials provided by a subcontractor while performing consideration for a third party. An employment agency is also considered to be a subcontractor if it supplies employees to the contractor.

 

Satisfaction of wage claims

Should the employee not be duly paid for the work they have performed in the course of performance for the contractor, they may, within 3 months of the end of the pay period, require the contractor in writing to satisfy the wage claims. The contractor is liable for the wages of the subcontractor’s employees to the extent of the contractual performance for the contractor, up to the amount of the minimum wage (CZK 18,900, approx. EUR 746).

If the employee requests payment of the wage from the contractor and the contractor pays the unpaid wages to the employee, the contractor may subsequently seek reimbursement from the non-paying subcontractor.

The contractor is obliged to pay the wage within 10 days of receipt of a written request from the employee and is also obliged to make mandatory deductions from the wage paid, i.e., tax, insurance premiums, etc.

 

Avoidance of liability

The good news is that the contractor may prevent liability if they receive confirmations that the subcontractor has no outstanding social security and health insurance claims and that it has not been imposed a fine of over CZK 100,000 (approx. EUR 4,000) in the past year for breaches of labour law. The issue is that the confirmations must not be older than three months and must be submitted to the contractor upon the commencement of the contractual consideration, not upon the conclusion of the contract between the contractor and the subcontractor.

 

Failure to fulfil the obligation

If the surety fails to comply with its obligation to pay the subcontractor’s employee the past due wages on time, it commits an offence for which it may be fined up to CZK 200,000 (approx. EUR 8,000) by the Labour Inspectorate.

Key Action Points for Human Resources and In-House Counsel

• Building contractors are now liable for the wage claims of their subcontractor’s employees.
• To avoid liability, the supplier must obtain prescribed confirmations from the subcontractor.
• A subcontractor’s employee may claim their past due wage from the contractor within three months from the due pay date.