Freelancers beware: Insurance costs set to surge next year

Self-employed people in the Czech Republic will see a significant increase in their mandatory state insurance payments next year, meaning they will pay a record amount. According to a draft government regulation, minimum deposits will rise by over CZK 1,000, marking the highest increase yet. This change will affect the majority of self-employed individuals, who are expected to pay nearly eight thousand crowns per month in the new year.

The government's decision to raise pension contributions for self-employed individuals has been met with mixed reactions from economists and experts. While some argue that it is a necessary step towards equalizing pension contributions between self-employed and employed individuals, others point out that it disproportionately affects those with lower incomes.

Despite this, both experts and entrepreneurs themselves agree that the increase is appropriate and do not expect it to result in significant business closures.

The increase in advance payments for minimum contributions is done every year based on the average salary and the assessment basis, which determines the amount of social insurance. For the year 2025, the assessment basis will be set at 35 percent, increasing gradually over the next few years. Josef Jaroš, chairman of the board of the Association of Small and Medium Enterprises and Entrepreneurs, does not expect significant negative impacts on businesses, but also does not see the increase as a direct support for them.

According to Petr Vilím, an economist from PAQ Research, the state's decision to increase pension contributions for self-employed individuals will partially bridge the gap between them and employed individuals. However, he also notes that the government's motive may also be to improve the state budget.

"This could have been achieved in a way that does not burden low-income individuals," Vilím told Czech media outlet Hospodářské noviny. He also highlighted the regressive nature of the minimum deposit system, where someone earning an average wage pays the same amount as someone earning half of that.

The Chamber of Commerce supports the government's decision, with Lenka Janáková from the Chamber's Department of Legislation, Law and Analysis, stating that it was a part of the consolidation package. However, she also emphasizes the need for the government to balance their efforts by making changes on the expenditure side. She also highlights the risk of low-income self-employed individuals having low pensions in the future, which could result in them relying on state benefits.

In addition to those who have trade as their main activity, the increase in minimum deposits also applies to those who have it as a secondary activity. Self-employed individuals who have been in business for the first two years will also see an increase, but the government has promised to exempt them from compulsory contributions for the first few years. They will have a lower assessment base to begin with – namely, only a quarter of the average wage. They will pay CZK 3,418 in social insurance payments next year. 

The changes aim to balance the state budget, but the impact on low-income self-employed individuals remains a concern.