international employment law firm alliance L&E Global
Czech Republic

Starting a business in Czech Republic

1. Introduction

As Czech employment law can, in general, be described as quite protective of the employee, and the employee is considered the weaker party in the relationship, employers should always act in compliance with the Czech Labour Code and other labour laws to avoid any breach of the law.

Thus, when opening up shop in the Czech Republic, the company as an employer should be informed about the fundamental requirements of Czech employment law.

Havel & Partners is the largest law firm in the Czech Republic and Slovakia. Our clients include large international companies, leading Czech and Slovak firms, including strategic state-owned companies and public sector authorities, as well as medium-size businesses, individual entrepreneurs, and investors. We advise approximately 150 of the largest Fortune 500 global companies, almost 50 of the Czech Top 100 companies and 20 of the TOP 100 Slovak companies. Havel & Partners currently provides its services to a total of 2,500 clients.

We are a business-oriented law firm with a pro-active approach and our labour law team has vast experience  advising in a whole range of day-to-day matters in the workplace. We understand how HR teams and the management of our clients work and we know how important it is for companies to stay on top in the ever-changing and constantly evolving HR area. We also have extensive experience in the statutory regulation of employment relations between expatriate employees and domestic employers as well as between Czech employees and foreign employers, including the selection of the appropriate law and jurisdiction to govern the relevant employment relationships and subsequent tax optimisations. Our law firm also provides comprehensive legal support to employers and employees (as well as to their family members) with regards to immigration law. Thanks to our extensive experience with cross-border projects, our highly specialised team is able to efficiently create the most suitable structure of the relocation plan, and assess the social security and tax aspects, as well as the choice of law that is to temporarily govern the contractual relationship.

2. Labour and Employment Law Requirements

a) Employer Policy Requirements

The Czech Labour Code sets the employee’s minimum entitlement which must be provided by the employer:

  • Minimum salary;
  • Maximum shift length;
  • Maximum length of overtime work;
  • The written form with a handwritten signature is generally required for the most important documents;
  • Financial premiums for overtime, work conducted on weekends/public holidays;
  • Annual paid leave (minimum of 4 weeks);
  • Sickness payment (paid partly by the employer and partly by the state);
  • Maternity/parental leave;
  • Leave in certain specific situations (taking care of a sick child, to get married, etc.);
  • Severance payment when terminating employment on the grounds of restructuring or due to occupational injury/disease;
  • Employees are entitled to participate in trade unions and other representative bodies.

b) Employee Training Requirements

The employer is obliged to ensure a safe workplace for its employees. According to the Czech Labour Code, besides other duties, the employer is obliged to provide employees mainly with trainings as follows:

  • Occupational Health and Safety training – at the commencement or if there is any significant change of the employment or workplace conditions, and regularly during the employment.
  • Fire Protection training – would usually be carried out together with the above-mentioned Occupational Health and Safety training.
  • Driver’s training – should the employees drive a car for the purposes of their employment, driver’s training should be provided. The training must be repeated periodically.

Every employer is also obliged to provide a sufficient number of employees to possibly provide first aid, depending on the risks at the workplace. The first aid training should include a theoretical part as well as practical training of the skills that are necessary for laymen to provide first aid. The focus should also be on the prevention of accidents at the given workplace.

Other trainings can be required due to specific activities of the employer.

c) Employment Agreements

Minimum Requirements

A valid employment contract must be concluded in writing and must include:

(a) the type of work (job title) that the employee will perform for the employer;

(b) the place or places of work where the employee will perform the work;

(c) the date of commencement of employment.

Besides the above statutory essentials, the employer is also required to inform employees in writing about:

(i) the specification of the type of work (job description);

(ii) vacation;

(iii) notice period;

(iv) weekly working hours and working schedule;

(v) salary; and

(vi) collective bargaining agreements (if any).

This information is either included directly in the employment contract or provided separately via an internal policy or separate notice.

Besides the above, it is generally up to the parties to negotiate the rest of the contract. It is typical to include provisions relating to the duration of the employment, general obligations of the employee, confidentiality, probationary period and/or regulation of IP rights. Termination provisions are not so typical, since the termination process is specifically stipulated by law.

The contract must be drafted in a language which the employee understands, but it is recommended to draft it in a bilingual version.

The employment contract may be concluded for a definite or indefinite period of time. The duration of a fixed term contract may not exceed three years from the date of commencement of the first employment relationship for a fixed term and may be repeated or extended only twice.

An extension of an employment relationship shall also be considered an agreed recurring employment relationship. After the expiry of a period of three years from the termination of the preceding fixed-term employment relationship between the same contracting parties, the preceding employment relationship shall not be taken into account.

Where notice of termination has been given, the employment relationship will come to an end upon the expiry of the notice period.

The notice period must be the same for both parties and shall be at least two months, the notice period may be longer, but only by agreement between the employer and the employee; this agreement must be in writing.

Under the Czech Labour Code, the notice period shall start to run on the first day of the calendar month following delivery of the notice and come to an end upon the expiry of the last day of the relevant calendar month.

3. Corporate Law Requirements

a) Compliance for Incorporation

Czech law offers several different corporate vehicles for doing business. Those can be divided into three basic groups:

  • branches;
  • unlimited liability companies (namely unlimited liability partnerships and limited liability partnerships);
  • limited liability companies (namely limited liability companies “LLC” and joint stock companies “JSC”).

A competent court or notary office can register a company directly into the Czech Commercial Register, but also ready-made companies (LLC and JSC) are available and allowed.

Mainly following documents are required for registration in the Czech Commercial Register:

  • Proof of business licence (issued by the Trade Office);
  • Articles of Association or Memorandum of Association;
  • Document proving the rights to the real estate in which the company has its registered office;
  • If the company’s founder is married, it is necessary to submit the consent of the spouse to use the property in the joint property;
  • Extracts from the Czech Criminal Register or certificates verifying the lack of criminal records of directors and branch founders;
  • Executive signature samples;
  • Deposit manager statement;
  • Affidavits of executives.

b) Post Incorporation Registrations

After the company is registered in the Czech Commercial Register, the company also has to be registered as follows:

Income corporate tax registration (Tax Office)

Every company must be registered for income corporate tax with the Tax Office.

VAT registration, e-records of sales and control reporting (Tax Office)

If the company’s revenue exceeds CZK 1 million the company must be registered for VAT (subject to other conditions). All sales must be kept in e-records of sales provided by the Tax Office.

Registration for social and health insurance

Within 8 calendar days of hiring the first employee, the employer must be registered with the Social Security Office. Within 8 calendar days of the employee’s commencement, the employee must be registered with the Social Security Office too. With the employment of the first employee, the employer must also be registered with the relevant Health Insurance.

4. Payroll and Benefits Providers

Besides accountants as employees, the employer may use the services of outsourced payroll companies. External payroll providers do not have to complete required trainings and the company does not have the employer’s obligations in relation to externals. The other benefit of payroll providers is their responsibility. Under Czech law, they have to be insured for their activities, thus in the case of damage, the insurance company will provide payment covering such damage (in the scope of concluded conditions). The employer may also use the services of benefit providers. In the Czech Republic, benefit providers usually offer sport/cultural vouchers or meal tickets.

Any questions

Ask our member firm Havel & Partners in Czech Republic