Since autumn last year, there has been concern among employers and employees about the future of Performance Work Agreements (PWAs). Various options have been discussed, a cap of 25% or 40 % of average wages, and it was not clear who would pay the statutory insurance and when the changes would come into force. The Ministry of Labour and Social Affairs has proposed a new law that addresses the insurance contributions for PPAs and we will briefly introduce this proposal.
The current proposal introduces two regimes of work performance agreements, although in practical terms the payment of insurance premiums is a FTE "as we know it" and then ordinary employment. These are the notification agreement scheme and the basic scheme, with the type of scheme determining the thresholds for premium payments.
The notified agreement scheme applies to FTAs that are registered by the employer with the Czech Social Security Administration (CSSA). Under the notified agreement scheme, there is a higher limit for participation in statutory insurance, which is 25% of the average wage (CZK 10,500 for 2024). Insurance premiums will be paid only in those months when the income from a DPP with a notified agreement exceeds the decisive amount. This scheme can only be used with one employer in one calendar month. In the notified agreement scheme, the PPA is the first one registered with the CSSA. According to the rationale of the law, the employer should have a register to check whether the notified agreement scheme is no longer applied by another employer to a particular worker. The CSSA should also notify the employer that it cannot approve the employer's request to register for the notified agreement scheme because it already has the scheme registered with another employer.
Agreements not registered in the notified agreement regime are then in the basic regime. In the basic scheme, FTEs will be treated as regular or small-scale employment for insurance purposes, depending on the actual income in each month. Small-scale employment and therefore participation in the insurance premium is determined by the limit for 2024 of CZK 4,000. If the income exceeds CZK 4 000, it will be a standard employment scheme subject to insurance contributions.
The proposed rules can be summarised as meaning that the previously favourable regime for DPP, as we have been used to in the Czech Republic, is possible with just one employer. The employer has to be quick and be the first to register its contractual employee under the notified agreement regime with the CSSA. The DPP with all other employers will then follow the usual rules for compulsory contributions and, unless it is a small-scale employment, the income will be subject to insurance contributions.
Unfortunately, it is still a draft law and its adoption and specific wording is not yet certain. The originally proposed effective date of 1 July 2024 seems very optimistic and delays can be expected, but it all depends on the speed of the approval process.
The current proposal introduces two regimes of work performance agreements, although in practical terms the payment of insurance premiums is a FTE "as we know it" and then ordinary employment. These are the notification agreement scheme and the basic scheme, with the type of scheme determining the thresholds for premium payments.
The notified agreement scheme applies to FTAs that are registered by the employer with the Czech Social Security Administration (CSSA). Under the notified agreement scheme, there is a higher limit for participation in statutory insurance, which is 25% of the average wage (CZK 10,500 for 2024). Insurance premiums will be paid only in those months when the income from a DPP with a notified agreement exceeds the decisive amount. This scheme can only be used with one employer in one calendar month. In the notified agreement scheme, the PPA is the first one registered with the CSSA. According to the rationale of the law, the employer should have a register to check whether the notified agreement scheme is no longer applied by another employer to a particular worker. The CSSA should also notify the employer that it cannot approve the employer's request to register for the notified agreement scheme because it already has the scheme registered with another employer.
Agreements not registered in the notified agreement regime are then in the basic regime. In the basic scheme, FTEs will be treated as regular or small-scale employment for insurance purposes, depending on the actual income in each month. Small-scale employment and therefore participation in the insurance premium is determined by the limit for 2024 of CZK 4,000. If the income exceeds CZK 4 000, it will be a standard employment scheme subject to insurance contributions.
The proposed rules can be summarised as meaning that the previously favourable regime for DPP, as we have been used to in the Czech Republic, is possible with just one employer. The employer has to be quick and be the first to register its contractual employee under the notified agreement regime with the CSSA. The DPP with all other employers will then follow the usual rules for compulsory contributions and, unless it is a small-scale employment, the income will be subject to insurance contributions.
Unfortunately, it is still a draft law and its adoption and specific wording is not yet certain. The originally proposed effective date of 1 July 2024 seems very optimistic and delays can be expected, but it all depends on the speed of the approval process.