Employees versus contractors in Czechia: Who gets the better deal?

New data has revealed that over 1 million people in Czechia are now employed under a special work agreement—beyond the scope of a classic work contract. This often, but not always, results in lower tax payments for employee and employer. While it increases employee flexibility, it reduces job security. 

However, recent crackdowns and heavy fines on self-employed people in Czechia who are illegally hired by companies under conditions resembling normal employment—known as a “black” (or švarc) system—have raised an important question: is it better to be a contractor or normal worker?

Czechia has three main types of work contracts—an employee’s exact role or hours worked usually determines which, though an employer can also decide on the form of contract to give an employee.

The first, and most common, is the hlavní pracovní poměr (HPP), which is the standard full-time employment agreement between an employer and an employee. This usually entails a 40-hour workweek and includes a probationary period of up to four months (or eight for management).

The contract is usually indefinite, with a standard two-month notice period starting from the first day of the following month, and the employer covers taxes, health insurance, and social security.

A second type of contract is a work performance agreement (dohoda o provedení práce—DPP). This contract is geared for temporary or short-term jobs, allowing up to 300 hours per year with one employer. 

Monthly income below CZK 10,000 is exempt from health and social insurance, while higher earnings require contributions. The notice period is not specified by law, but should be agreed in the contract (usually 15 days). A trial period can be individually agreed upon.

A so-called work agreement (dohoda o pracovní činnosti—DPČ) is the third type. With a DPČ, a person can work up to 20 hours per week for an employer. Unlike a DPP, a DPČ contract allows someone to work for an employer for over 300 hours per year. 

The earnings limit for not paying in any social or health insurance on a DPČ is much lower than a DPP, at around CZK 4,000. It is typically used by students, retirees, or those with multiple jobs.

Both DPP and DPČ workers are referred to as contract workers.

Selecting which contract to work on depends very much on the amount you work and your tax situation.

When it comes to job safety, the HPP is the most reliable option. It offers—as specified contractually and adhering to the country’s Labor Code—employees full labor protections, including, adequate notice periods, sick leave compensation, and severance pay. 

The HPP sets in stone the length of the notice period—typically two months from the date that the notice of employment termination is served. This can be longer for upper-management or C-suite positions

The DPP and DPČ pride themselves on flexibility—though, in return, offer far fewer legal assurances. The default notice period for DPP and DPČ workers is 15 days, unless otherwise specified. This means that, while it is easier to change jobs, you also have far less time to find new work in case you are dismissed. 

The type of contract also largely determines aspects like holidays and sick leave. Once again, in this aspect, the HPP comes out on top.

While recent changes in Czech employment law have granted contractors more rights, such as taking vacation (provided they worked at least 80 hours within a four-week period for the same employee), they still don’t offer a set-in-stone minimum as an HPP would. The HPP offers a minimum of four weeks’ vacation.

Workers under a DPP and DPČ are entitled to sick leave, but must be paying in health insurance. This means that if they earn below a certain amount, there is no guaranteed sick pay, unlike on a HPP. Notably, contractors generally do not have a legal right to severance pay, unless specifically mentioned in the contract.

It’s in this category that DPP and DPČ perform strongly. The HPP comes with less flexibility, (usually) a fixed 40-hour workweek, and a potentially slower process for transitioning to new job opportunities.

Workers under a DPP and DPČ can not only work multiple jobs, but acquire them easily due to shorter notice periods. Contract work allows people to arrange work on an as-needed basis, fitting them around other commitments. 

Additionally, the structure of a DPP contract permits a project-by-project arrangement, enabling workers to select tasks that align with their skills and schedule without being bound to a fixed weekly timetable.

On an HPP, taxes and social contributions are automatically withheld by the employer. These taxes and contributions also mean that a larger portion of a gross salary is allocated to taxes and mandatory fees unlike contact worker roles.

A DPP and DPČ are ideal for people taking on less work and want more control on how they are taxed. Provided they don’t exceed a certain threshold (CZK 10,000), DPP workers don’t need to pay health or social insurance contributions. 

A worker who has additional sources of income beyond a DPP or DPČ—for example, one who also works on a živnostenský list (trade license)—may need to file a tax return. Such workers may also be eligible for further tax deductions, credits, or refunds that were not fully applied through a payroll.

Czechia has a disproportionately high number of contract workers. According to the executive director of the Czech Institute for Democracy and Economic Analysis Filip Pertold: “Half to two-thirds of people are involuntarily in work agreements. We have shifted to a position where we should not be in.” 

According to experts, work agreements are also replacing part-time jobs; Czechia has a below-average amount of part-time work on offer (on an EU level).

The PAQ research agency proposes tax adjustments to motivate more people to use the HPP. This would wean people away from potentially unfair work agreements. "The Czech Republic excessively taxes labor, especially low-income and part-time workers...a reform would motivate up to 50,000 people to switch to a main employment relationship instead of agreements," it said. This would save people from the švarc system, the gray economy, or inactivity.

Aside from lower job security, authorities are now busting the švarc system. Both companies and self-employed individuals now face fines, with companies liable for up to CZK 10 million and individuals up to CZK 100,000. Inspections have become more frequent and stricter, particularly in industries like construction, IT, and hospitality. 

New laws have granted labor inspectors additional powers, including the ability to record inspections covertly. The aim is to combat illegal work and enforce proper employment contracts, with significant consequences for non-compliance. 

Ultimately, whether you choose to enter an HPP, a DPP, or DPČ depends on the line of work you’re doing—and sometimes the preferences of your employer. As a general rule, the HPP brings security, yet rigidity and higher taxation. Contractor agreements offer flexibility, but higher risk.