Changes regarding payroll from 1st January 2017

13. January 2017

The beginning of the new year hasn’t brought any significant changes to the labour law, wage taxation, or payments of social and health insurance. A conceptual amendment to the Labour Code and others are currently being discussed in the Chamber of Deputies of the Parliament of the Czech Republic, as are also other changes in the labour law area, and it may be expected that they will come into force sometime during 2017 or from the next year.

Therefore, in this article we will focus on changes regarding remuneration of employees in connection to the changes of minimum and guaranteed wage.

Government Decree No. 336/2016 Coll. lays down the minimum monthly salary for a set week of 40 working hours at 11 000 CZK, minimum hourly wage at 66 CZK.

The minimum wage rule must be observed not only with employees in a labour law employment but also with those working on the basis of alternative employment contracts such as agreement to complete a job and agreement to perform work, both specific for the Czech system. If the number of working hours per week is lower than the set amount, the amount of the minimum wage is lowered proportionately.

Example: An employee whose set amount of working hours per week is 30 hours must receive a minimum wage of 11 000 / 40 * 30 = 8 250 CZK.

What minimum monthly income can be expected for an hourly paid employee whose set amount of working hours per week is 40 hours. If we’re counting with an average amount of weeks in a month (4,348), the monthly wage will be 4,348 * 40 * 66 = 11 479 CZK. However, according to §79 Labour Code the set working time per week is in the mentioned cases shorter. In a two-shift operation it amounts to 38,75 hours, for jobs carried out underground or a three-shift operation it is 37,5 hours. In order for all hourly paid employees to have the same chance for a stable income, the minimum hourly wage must be adjusted appropriately.

Example: An employee works in a two-shift operation, his or her weekly working hours amount to 38,75 hours. An average monthly income calculated in the same way as in the case of a 40 hour week would be 4,348 * 38,75 * 66 = 11 120 CZK. Thus an employee in a two-shift operation would make 359 CZK less than an employee working in a single-shift operation, although he or she would have worked all of his or her set working hours. That is why the Government Decree says the hourly wage must be adjusted as follows: 66 CZK * 40 / 38,75 = 68,10 CZK (rounded up to one decimal place). If we try to test it, we can see that the conditions have been made fair for remuneration in different operations (4,348 * 38,75 * 68,10 = 11 474 CZK).

It is actually a very simple rule of three type of math problem, so we can easily calculate what minimum hourly rate will be applied in a three-shift operation (66 CZK * 40 / 37,5 = 70,40 CZK).

Together with the changes to the minimum wage rate, the individual levels of guaranteed wage have been increased. The guaranteed wage takes into consideration the complexity, responsibility and strenuousness of agreed work and based on these criteria divides jobs into eight categories. The characteristics of each category can be found in the annexe to Government Decree No. 567/2006 Coll. § 112 requires the employer to secure at least the guaranteed wage for the employee, unless a collective agreement states different limits.

Table comparing levels of guaranteed wage as of 31st December 2016 and 1st January 2017

Job group

The lowest guaranteed wage as of 31st December 2016

The lowest guaranteed wage as of 1st January 2017

CZK per hour

CZK per month

CZK per hour

CZK per month

1.

58,70

 9 900

66,00

11 000

2.

64,80

10 900

72,90

12 200

3.

71,60

12 100

80,50

13 400

4.

79,00

13 300

88,80

14 800

5.

87,20

14 700

98,10

16 400

6.

96,30

16 200

108,30

18 100

7.

106,30

17 900

119,60

19 900

8.

117,40

19 800

132,00

22 000

 

The changes made to the minimum wage from 1st January 2017 have been so significant that the minimum wage is now higher than the guaranteed wage for category no. 2 as of 31st December 2016. It can be expected that the changes will affect a relatively large group of employees.

The new Government Decree lists no special provisions for selected employee groups (minors, employees under 21 years, employees receiving disability pension). From 1st January 2017 the minimum wage for these groups and also the guaranteed wage stays the same and is set in previous paragraphs as 100%.

Changes of these basic parameters are not the only ones the Government desired. By Decree No. 337/2016 Coll. they provided for changes of conditions for employees in transportation. We will now not concern ourselves with these provisions. However, the Decree contains new general provisions as well. We are talking about a situation when employee’s break is interrupted so that the cumulative length of the break is more than 90 minutes and the employee cannot devote himself or herself to his or her personal affairs and spend the break in a standard environment, or , alternatively, is forced to spend the break in a place where one cannot be sufficiently protected from climatic or other unfavourable influences. In these cases the employee is entitled to an additional remuneration to the basic wage of at least 10 % of the minimum hourly wage (thus min 6,60 CZK per hour of work in a divided shift, set 40 working hours per week). The amount of remuneration is the same as the additional remuneration guaranteed by the Government Decree for work in a difficult environment (for one influence).

The changes of minimum wage have therefore an indirect effect on remuneration. One must check whether the additional remuneration should be higher in cases where minimum wage is used for its calculation, such as additional remuneration for work in a difficult environment.

The raise of minimum wage will influence extra income of employees registered as persons seeking work with the employment services as well. A person seeking work registered with the Ministry of Labour and Social Affairs of the Czech Republic can make extra money with so called non-colliding jobs. The gross salary cannot in this case be higher than half of the minimum wage. Thanks to the raise of minimum wage in 2017, the limit of extra income has changed from 4 950 CZK to 5 500 CZK (brutto).

The amount of minimum wage influences also tax rebates and tax advantages. The use of tax advantage for employees with children is conditioned by income that is not higher than half of the monthly minimum wage. Monthly minimum wage also serves as a basis for calculations of tax rebates for placing children in kindergartens.

Health insurance is, too, indirectly affected as the minimum basis of assessment is leveled with the minimum wage. With respect to health insurance, current legislation does not consider a person employed with agreement to perform work (APW) an employee unless the monthly income is more than 10 000 CZK. Until 31st December 2016 the minimum wage had always been less than 10 000 CZK. A person with APW either was not an employee (with respect to health insurance) or was an employee but at the same time reached the minimum basis of assessment of health insurance. If an employee with APW will as of 1st January 2017 be rewarded with an amount higher than 10 000 CZK and lower than 11 000 CZK, his or her employer must inquire, whether they should make additional calculations and make health insurance payments from the minimum basis of assessment, 11 000 CZK.

Because of all the changes mentioned we recommend you to check your contracts and agreements and wage assessments of all your employees, and also any internal regulations concerning remuneration, to see if they still comply with the current legislation and are optimal for both the employee and employer. We are happy to provide consultation on these issues in case you are interested.

In case of queries, please contact us

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