False self-employment and disguised employment in the Czech Republic
Attributes of the “dependent work” and the disguised employment (false self-employment) in the Czech Republic
Disguised employment (false self-employment) in the Czech Republic
According to the Czech labor law, the “dependent work” can only be conducted within the framework of an employment relationship. The disguised employment is the performance of dependent work by a person outside of an employment relationship, with dependent work being work that is carried out for an employer in a superordinate relationship, in the name of the employer, and according to his instructions. The employee performs this work personally, at the employer's expense and responsibility, within a certain working time at a workplace provided by the employer or at another agreed location.
Disguised employment (the so-called "Švarc system") refers to a situation in which the Czech Labour Code and Czech Employment Act provisions regarding employment relationships are circumvented through entrepreneurial activity on a commercial basis while concluding a supply agreement or a work contract. In such a case, it seems to be an entrepreneurial activity, however, the person involved performs standard work for an employer without being an employee. Formally, this person appears to be an independent entrepreneur. It is therefore a matter of replacing a labour law employment relationship (dependent work) with a business relationship.
The following criteria are determinative for distinguishing dependent work from business cooperation under Czech law:
- the remuneration payer directly or indirectly assigns tasks, directs and supervises the natural person, and bears the responsibility associated with the work (subject to instructions);
- a natural person has a position comparable to that of an employee as for the relation with the remuneration payer;;
- the remuneration is determined based on the length of work or in a similar way as remuneration in a standard employment relationship (regular wages);
- Material, facilities, machines, and other work equipment that is required for the work are provided by the remuneration payer;
- The legal relationship between the remuneration payer and the natural person is permanent or the work is exclusively performed for the remuneration payer (working hours, job, vacation, etc.).
In recent years, the Czech authorities have been increasingly sanctioning false self-employment. The disguised employment is regulated by the labour law and is overseen by the State Labour Inspection Office. Falsely self-employed persons face a fine of up to 100,000 Czech crowns (approx. 4,000 euros). Firms that employ falsely self-employed persons face fines ranging from 250,000 Czech crowns (approx. 10,000 euros) up to 10,000,000 Czech crowns (approx. 400,000 euros).
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JUDr. Mojmír Ježek, Ph.D.
ECOVIS ježek, advokátní kancelář s.r.o.
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