In these times of globalization and of free movement of labour across the EU, more and more employees are asking for their salary to be paid in foreign currency. Czech law has only a few circumstantial things to say about this, but in practical terms, such requests pose a number of issues for employers…
With a view to unabated globalism, it is more and more common for Czech employers to hire foreign managers who are not tax residents in the Czech Republic, whose place of permanent residence, family, and real property are all located abroad, and who intend to return home after their stint in the Czech Republic.
More specifically, the Czech Labour Code requires employers to pay salaries in legal tender – which, according to the Act on the Czech National Bank, necessarily means Czech crowns. This rule is mandatory and has only one exemption – namely, employment relationships in which the employee works abroad (outside of the Czech Republic). Only then is payment of salary in foreign currency possible (with the employee’s consent, and if the Czech National Bank has set a legal exchange rate for the currency).
In practice, Czech employers have developed several workarounds to accommodate their employees’ wish to be paid their salary in foreign currency. Unfortunately, none of these workarounds is optimal – or fully legal.
Most frequently, the employment agreement states the salary in a foreign currency (usually euros or U.S. dollars), but the actual payment is made in Czech crowns. There are several issues with this: each month, for the purpose of calculating legal levies, the employee’s salary must be converted to Czech crowns, which means additional work in the payroll department and triggers the risk of fluctuating exchange rates. In fact, this is no solution at all, because the employee still receives Czech crowns.
Occasionally, we encounter cases in which the employer responded to a request for remuneration in foreign currency by entering into a service agreement with the employee, or an obligation governed by civil law, instead of an employment agreement. However, these arrangements must be rejected out of hand, as they violate the rules of Czech law prohibiting fictitious self-employment.
Other employers respond to an employee’s request for salary payments in foreign currency by concluding an employment agreement governed by foreign (e.g. Slovak or German) law allowing for payment in euros. However, this solution may prove problematic e.g. when terminating employment: does the law at the place of performance (i.e., its non-negotiable provisions) apply, or the foreign law agreed between the parties?
In closing, we would highlight just how risk-fraught all these makeshift solutions are, by pointing out that employers who pay salaries in foreign currency (and thus violate the Labour Code) are exposed to sanctions by the State Labour Inspectorate. Under the Labour Inspection Law, the misdemeanour (administrative offence) of granting a salary in conflict with the law carries a fine of up to CZK 1,000,000.
Labor Code (Act No. 262/2006)
Act on the Czech National Bank (Act No. 6/1993)
Labor Inspection Law (Act No. 251/2005)