How Hungarian companies should hire in the Czech Republic

Fixed-term employment contracts and the three-year rule

Hungarian companies frequently use fixed-term employment contracts to manage staffing needs. Czech law permits this practice but imposes significant limitations known as the "3x3 rule." The Czech Labour Code establishes that a fixed-term contract cannot exceed three years in total duration, and it cannot be renewed more than twice.

This means the legal maximum is three consecutive fixed-term contracts, after which the employee is automatically deemed to be employed on an indefinite basis if the relationship continues.

The way the "renewal" concept works in practice is strict. Each time an employer extends or renews a fixed-term contract, this counts as a new agreement. If you initially hire someone on a one-year fixed-term contract, then extend it for another year, that is the second contract.

If you attempt to hire the same person on a fourth consecutive fixed-term contract, Czech labour law automatically converts that employment to an indefinite contract if the employee requests it.

There is an exception to this limit for seasonal work, but it applies only in cases where special regulations or collective agreements allow it for operational reasons. Without a specific exemption, Hungarian companies cannot simply declare work "seasonal" to circumvent the three-contract limitation.

Additionally, the three-year clock resets only if three full years have passed since the last fixed-term contract with the same employer.

Hungarian companies must track not only the duration of each fixed-term contract but also the number of repetitions. Creating a contract that appears fixed-term but inadvertently violates these rules results in an automatic conversion to an indefinite contract.

Probationary periods: Strict statutory limits

Czech law permits employers to include probationary periods (called "zkušební doba") in employment contracts, though these periods are not mandatory. Understanding the strict limits is critical, as Czech law is rigid regarding duration and extensions.

Under the current Czech Labour Code, probationary periods for regular employees cannot exceed three consecutive months from the commencement of the employment relationship.

For managerial employees (those who manage at least one subordinate), the probationary period cannot exceed six consecutive months. For fixed-term employment contracts, the probationary period cannot exceed half of the total duration of the contract.

A critical procedural requirement is that probationary periods must be agreed in writing and must be established no later than the day the employee begins work.

Many Hungarian employers overlook this requirement and attempt to add probationary conditions after the fact, which is legally void. Once agreed, a probationary period cannot be extended by mutual agreement.

The only exception is automatic extension required by law, where the probationary period extends by the number of days the employee was unable to work due to illness or leave.

Mandatory reporting requirements for foreign workers and EU citizens

Hungarian companies hiring in the Czech Republic must understand that notification obligations to Czech labour authorities represent a critical compliance requirement. Even more surprisingly to many Hungarian employers, EU citizens are considered "foreigners" under Czech law for statistical purposes and require notification.

The current rule is that employers must notify the relevant regional Labour Office on the day of commencement of work at the latest.

This requirement applies to EU citizens (including Slovaks and Hungarians) and their family members. For non-EU nationals, specific rules apply, and notification is also required. The notification obligation is not limited to hiring; employers must also notify authorities when employment ends.

Failure to provide timely notification is an administrative offense that carries fines of up to 100,000 CZK.

Illegal employment (working without a valid contract or necessary work permit) carries much higher penalties, up to 10 million CZK. For Hungarian companies, this creates a practical workflow requirement to coordinate hiring timelines with the notification process.

In practice, this means employers or their legal representatives submit the specific information form to the Labour Office on the exact day the employee starts.

Many Hungarian companies operating in the Czech Republic also hire workers through staffing agencies. Czech law strictly regulates employee leasing, and only licensed agencies can legally provide workers.

ARROWS Law Firm regularly advises Hungarian companies on proper staffing arrangements and can help ensure your hiring structures comply with Czech regulations (consultation@arws.cz).

Working hours, rest periods, and overtime compensation requirements

The Czech Labour Code establishes specific rules regarding working hours, rest periods, and overtime compensation that represent mandatory minimum standards. Hungarian employers must understand that these rules are not negotiable, and employees cannot agree to worse conditions than those mandated by law.

The standard weekly working hours in the Czech Republic are generally set at forty hours per week.

For certain shift operations, standard hours are reduced without a reduction in wages. The employer has the authority to distribute working hours and determine shift start and end times but must usually announce the schedule at least two weeks in advance.

After a maximum of six hours of continuous work, the employer must provide the employee with a break for food and rest of at least thirty minutes.

These breaks are not counted as working time. Additionally, employees must typically receive continuous rest of at least eleven hours between the end of one shift and the beginning of the next shift.

Employees must generally receive uninterrupted rest during the week of at least thirty-five hours.

Overtime work must be compensated with at least 25% of average earnings on top of the regular wage, or the employer and employee can agree on compensatory time off. Work performed on weekends and night work requires an additional pay surcharge.

Hungarian employers must track working hours carefully and maintain records documenting the beginning and end of each shift, overtime work, and night work.

Annual leave, sick leave, and special leave entitlements

Every full-time employee in the Czech Republic is entitled to a minimum of four weeks (20 days) of paid leave per calendar year. While this is the statutory minimum, it is common market practice in many sectors to offer five weeks as a benefit.

An employee working a standard 40-hour week has a statutory entitlement of 160 hours of leave per year.

The leave entitlement applies to employees who have performed work for the same employer for at least 4 weeks and worked at least 4 multiples of their weekly working hours. If the employment lasts less than a year, the entitlement is calculated proportionally.

The employer must strictly inform employees of their scheduled leave at least 14 days in advance unless agreed otherwise.

When an employee takes leave, they receive compensatory wages equal to their average earnings. The Czech system also provides sick leave benefits when an employee becomes temporarily incapable of work due to illness or injury.

The employer pays wage compensation for the first 14 days of illness, after which sickness benefits are paid by the state Social Security Administration.

This division of responsibility requires employers to process sick leave notes electronically and calculate the wage compensation correctly for the first two weeks.

Termination of employment: Procedures and grounds

Terminating employment relationships in the Czech Republic is significantly more regulated than in Hungary or other jurisdictions. Hungarian employers must understand these restrictions to avoid invalid terminations and lawsuits.

The safest method is termination by mutual agreement, where the employer and employee agree in writing to end the relationship on a specific day.

Alternatively, the employer can terminate the employee only for specific statutory reasons listed in the Labour Code, such as redundancy or poor performance. The statutory notice period is at least two months and begins on the first day of the calendar month following the delivery of the notice.

Immediate termination is permitted only in exceptional circumstances, such as criminal conviction or especially gross breach of duty. Employers cannot terminate an employee simply "without cause." Terminating for redundancy requires a formal decision by the employer to cancel the position, while terminating for poor performance requires a prior written warning.

Employees generally cannot be terminated by notice during protected periods, such as sick leave, pregnancy, or parental leave.

ARROWS Law Firm has extensive experience representing foreign companies in termination disputes. We can provide representation in court disputes to help protect your interests and minimize litigation risks (consultation@arws.cz).

Common compliance risks in Czech employment law

Wage transparency and remuneration requirements

The legal landscape regarding wages is evolving, with the Czech Labour Code and associated court rulings heavily emphasizing the principle of "equal pay for equal work." Historically, many employers used confidentiality clauses to prevent employees from discussing their wages.

Under current Czech case law, strict wage confidentiality clauses are generally considered unenforceable and potentially invalid if they prevent employees from determining discrimination.

Punishing an employee for discussing their wage can be deemed illegal retaliation. Hungarian employers should remove strict wage confidentiality penalties from their templates to ensure compliance with current legal standards.

The minimum wage is set annually by government decree, but Czech law also includes "guaranteed wages" which set higher minimums for more complex jobs.

Employers must also ensure compliance with tax and insurance thresholds. For "Agreements on Work Performance" (DPP), the limit for exemption from social and health insurance is generally 10,000 CZK per month.

For "Agreements on Work Performance" (DPP), specific limits apply for exemption from social and health insurance, subject to recent legislative changes regarding notification.

Hiring non-EU foreign workers: The employee card system

While Hungarian nationals enjoy free movement, hiring non-EU citizens requires specific authorization. For non-EU citizens, an Employee Card is the standard dual permit.

For non-EU citizens, an Employee Card is the standard dual permit covering both residence and work authorization.

The process is complex, involving reporting the vacancy to the Labour Office and a subsequent market test. The employee then applies for the card at a Czech embassy abroad, with the process typically taking 60 to 90 days.

For highly skilled workers, an EU Blue Card is available, requiring a university degree and a salary of at least 1.5 times the average gross annual salary.

Because of the strict timelines, Hungarian companies should plan hiring of non-EU workers with a timeline of at least 4-5 months from initial contact to start date. ARROWS Law Firm works regularly with Hungarian companies on hiring non-EU workers (consultation@arws.cz).

Integrating into the Czech social security and tax system

When Hungarian companies hire in the Czech Republic, they must register as employers with the Czech Social Security Administration (ČSSZ) and relevant Health Insurance companies within 8 days of the first employee's start.

Payroll costs include social security, sickness insurance, and health insurance deducted from the gross salary, plus employer contributions on top of the gross salary. Income tax is generally calculated from the gross salary, with a higher rate applying to income exceeding specific high thresholds.

Employers must file monthly reports to the Social Security Administration and Health Insurance companies and remit payments by the 20th of the following month.

Executive summary for management

• Mandatory employment contracts are non-negotiable: Every worker requires a written employment contract before starting work.
• Fixed-term contracts have strict limits: Max 3 years, max 2 renewals (3 contracts total). Violation creates permanent employment.
• Labour authority notification: You must notify the Labour Office on the day of commencement for every employee (including Hungarians).
• Probationary Periods: Max 3 months (regular) / 6 months (managers). Cannot be extended by agreement.
• Termination is rigid: You cannot fire "at will." Only statutory reasons apply, and notice periods start the 1st of the next month.
• Hiring non-EU workers: Requires 4-5 months lead time for Employee Cards.

Conclusion of the article

Hungarian companies establishing operations in the Czech Republic must recognize that employment law in the Czech Republic is substantially more detailed and prescriptive than in many other jurisdictions. The requirement for written employment contracts, strict limitations on fixed-term contracts, notification duties, and complex termination rules creates a regulatory landscape that requires professional navigation.

ARROWS Law Firm regularly handles employment matters for Hungarian companies and other foreign employers operating in the Czech Republic.

Our lawyers combine deep knowledge of the Czech legal environment with experience in cross-border employment issues.

To discuss your specific employment law questions and to receive expert guidance, please contact ARROWS Law Firm at consultation@arws.cz.