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Changes to insurance premiums for employees working under a work performance agreement

As of 1 January 2024, changes to the insurance premiums of persons working on the basis of a contract for the performance of work (DPP) are expected to be introduced as part of the so-called consolidation package.

The threshold for insurance premiums for DPP would no longer be fixed (currently CZK 10,000), but would be based on the average wage.

The threshold for contributions would be 25% of the average wage for all jobs performed for one employer on the basis of a PPA. In the case of multiple FTEs with different employers, the threshold would be higher, at 40% of the average wage.

Thus, earnings from a single employer and from other employers should now be added together. This will make it less profitable for some employees to work on the basis of a VPA and will also increase the administrative burden associated with this type of activity.

Employers who will employ employees on the basis of a PPA in a given month will now have to inform the Social Security Administration by the 20th day of the following month using a prescribed form.

In addition to the above, the employer will now be obliged to announce the date of commencement of employment of employees on a DPP and keep a register of employees, which will bring the regime of employment of persons on a DPP much closer to the regime of employment of persons on a main employment relationship.

However, the employee is not spared from the new obligations, as he is obliged to notify all his employers in the case of multi-employer PPAs. The employer must duly inform him of this obligation. If, despite being duly informed by the employer, the employee fails to comply with the reporting obligation, the employee may, as a last resort, become liable for the insurance premiums himself on the basis of a decision of the competent social security administration.

A change in this respect has also been made in the Income Tax Act, where the current limit of income from one employer (CZK 10,000) for the application of withholding tax will be replaced by a reference to the amount decisive for the participation of an employee (working on the basis of a DPP) in sickness insurance with the same employer.  

The consolidation package has passed its first reading in the Chamber of Deputies and its second reading is scheduled for the first half of September.

Finally, we would like to add that the above brief commentary cannot replace a detailed tax assessment of a particular tax situation.

If you have any questions, please contact the authors or the EY tax team with whom you regularly work.

Authors:

Marek Pýcha

Jan Adamec