Effective as of 1 January 2022, the base rate for the minimum wage rises by CZK 1,000 per month to CZK 16,200, or by 5.90 crowns per hour to CZK 96.40. The increase was decided by the Czech government at the cabinet meeting of 5 November 2021, and implemented by government decree No. 405/2021 Coll.
Consequences of the 2022 minimum wage:
1. For the amount of guaranteed income
Wages, salaries, and the compensation under agreements on the performance of work outside an employment relationship must all amount to at least the minimum wage, which in 2022 is CZK 16 200 (note in the case of agreements on the performance of work outside an employment relationship, the only relevant figure is the minimum hourly wage, as opposed to monthly wages).
Employees in the private sector whose compensation is not determined by a collective bargaining agreement as well as employees outside the private sector are protected from dumping wages by what is known as “guaranteed income”. There exist eight categories of work, with the differentiation being made based on the complexity of work tasks, the degree of responsibility associated with the work, and how exhausting the work is. Each category is coupled with a minimum level of guaranteed income. Hence, employers are not only bound by the minimum wage – employees must always be compensated at least on the minimum level of guaranteed income for the given group, which rises along with each increase of the minimum wage. The lowest guaranteed income in the 1st work category is identical to the minimum wage.
Note that the guaranteed income does not apply to compensation paid under agreements on the performance of work outside an employment relationship.
If the wage or salary falls short of the minimum wage or the applicable minimum level of guaranteed income, the employee becomes entitled to a compensatory payment to settle the difference.
2. For health insurance contributions
Along with the minimum wage, the health insurance contribution to be paid by persons without taxable income also rises, and so does the minimum health insurance contribution to be paid for employees, which is in both cases CZK 2 187 as of 1 January 2022, having been stipulated as 13.5% of the minimum wage.
All persons without taxable income must actively follow the development of these health insurance contributions and adjust their monthly payments accordingly. This group of persons includes students above the age of 26 and home-makers (unless they personally care on a full-time basis for at least one child up to the age of 7 or at least two children up to the age of 15) who do not draw a pension under the public retirement insurance scheme and who are not registered with the labor office as unemployed job-seekers.
Employees need not keep track of the amount of health insurance contributions to be paid: these payments are withheld and transferred by their employer, who is liable for performing the correct calculations. If the income posted for the employee lies below the minimum wage, the employer must perform a supplementary calculation and pay up the difference so as to bring the health insurance contribution to the statutory minimum. Only in those cases in which the employee is someone who is considered a person insured by the state (i.e., pensioners, students, individuals on parental leave, job-seekers registered with the labor office who pursue what is known as a ‘non-colliding’ gainful activity) will the employer make health insurance payments on behalf of the employee which are based on the actual level of their income even if it falls short of the minimum amount.
3. For the institutional daycare tax incentive
Parents who put their child into a daycare facility may draw a tax incentive, which has risen in 2022 along with the minimum wage, to CZK 16 200 per year and per child. This tax incentive may be claimed by one of the parents (who must live in a joint household with the child) after the respective calendar year has passed (either as a part of the annual wage tax adjustment, or in their tax return). This tax incentive may only be drawn up to the amount of the person’s tax burden (which is thus brought down to zero): unlike e.g. the tax allowance for children, no tax bonus can be claimed (i.e., the finance authorities won’t pay the difference to the taxpayer if the amount of the incentive exceeds the amount of tax they have to pay).
4. For the payment threshold for tax bonuses
Along with the minimum wage, the limit for the actual payout of tax bonuses also rises. In 2022, it will newly be CZK 97 200, or CZK 8 100 per month.
Tax bonuses are cash payments which you receive from the state if your child allowance is higher than the calculated income tax. The child allowance may be claimed as a part of one’s monthly paycheck (subject to a signed affidavit, to be submitted to the employer’s payroll accountant), or as a one-off payment during your annual wage tax adjustment or in your personal income tax return.
5. For permitted additional earnings of persons registered with the labor office
Persons registered with the labor office are allowed to earn some money in what is known as non-colliding gainful activity, but only up to half the amount of the minimum wage – i.e., in 2022, up to CZK 8 100.
6. For the tax exemption limit applying to pension entitlements
Pension claims are generally tax-exempt, but only up to an amount equal to 36 times the minimum wage. In 2022 this limit for tax exemption is newly CZK 583 200; those who draw a higher pension must tax the amount above the limit by filing a tax return.
7. For welfare benefits
The amount of the minimum wage does not directly affect the amount of welfare benefit payments – but it does affect whether a claim arises in the first place. As the minimum wage rises, so does the threshold as of which certain benefits may be drawn, such as basic social security, the housing allowance, the child allowance, or the childbirth benefit.
Because of this, certain households may fall through the roster of the social security network: they may find more money in their paycheck, but may newly no longer be eligible for welfare benefits.