As international companies grow their footprint and tap into new markets, understanding local hiring laws and employment structures becomes vital to building sustainable operations. In this 17-part series, we guide foreign businesses through the legal and strategic aspects of employment in key global jurisdictions.
This installment brings us to the Czech Republic—a central European hub known for its strong industrial base, skilled workforce, and stable economy. As an EU member state with a legal system grounded in continental law and a competitive business environment, the Czech Republic offers multiple entry points for foreign investors. Whether through traditional employment or flexible alternatives like independent contracting, companies can structure their operations in a way that balances compliance, cost-efficiency, and scalability.
Authored by Magda Stárková
Aliant+ Law Firm in the Czech Republic
1. Are there alternatives to direct employment?
The Czech Legislation stipulates that “dependent work” may only be performed in a relationship governed by the Labour Code, i.e. in an employment relationship based on an employment contract (for an indefinite or also a definite period) or on an agreement to complete a job (“DPP) or on an agreement on work performance (“DPČ”). As a “dependent work” is considered the work that is (i) based on employer superiority and employee subordination, (ii) performed on behalf of the employer, (iii) according to the employer’s instructions, (iv) for salary, (v) at the employer’s expenses and responsibility, and (vi) during working hours at employer’s workplace or at another agreed place.
Only in case when these criteria of a “dependent work” are not met, the company may enter into a service (or another type of) agreement with a self-employed person (freelancer) under the Czech Civile Code. The self-employed person will provide agreed services, and his/her remuneration will be paid by the company based on an invoice. The self-employed person must provide services independently, in his/her own name, on his/her own account and at his/her own expense and responsibility. Also, such self-employed person must dispose with the relevant trade licence and must be registered as an entrepreneur with the Trade Register, tax administration, health insurance and social security administration.
Given that the level of protection of a self-employer person is significantly lower than the protection of an employee under the Labour Code, the Czech controlling authorities (“Czech Labour Inspectorates”) carry out frequent and in-depth control whether the relationship between the company and a self-employed person is not in fact a disguised employment relationship. Such behaviour is thus considered as an illegal employment which is punishable by a fine up to CZK 10 million, but at least of CZK 50,000.
2. Is it necessary to set up a local entity to hire an employee?
No, a legal entity under foreign law may hire employees in the Czech Republic without having its branch or daughter company registered in the Czech Commercial Register. Nevertheless, any foreign employer must notify an employment in the Czech Republic to the tax, health insurance and social security administrations in order to settle the mandatory payroll deductions and tax. Even if a branch is registered in the Czech Commercial Register, the foreign legal entity is always considered as the employer, as its Czech branch has not legal capacity. Please note, that a direct employment by the foreign legal entity (i.e. not through a branch registered in the Czech Republic) could, under specific circumstances, create a permanent establishment for tax purposes with tax imposition in the Czech Republic.
3. Direct employment vs. independent contractor: what about costs?
The cooperation with a self-employed person is much more profitable for the company (except for the risk of being sanctioned by a penalty up to CZK 10 million). The company pays only the agreed “gross” remuneration, and the self-employed person is responsible for any tax, health insurance and social security contribution. Also, the business relationship could be terminated under agreed conditions, and no mandatory legal rules apply. In case of an employment relationship, the employer must pay its part of contributions to the social security system (24,8 % from the gross wage) and to health insurance (9 % from the gross wage), and this over and above the gross salary (from which the parts to be borne by the employee (7,1 % + 4,5 %) are deducted). Also, when determining salaries, the employer must follow the rules on the minimum wage (for 2025 it is CZK 20,800). Further, the employers are limited by rules concerning the termination of an employment relationship such as mandatory legal reason of termination, two-month notice period or severance pay in certain cases.
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