How Cypriot Businesses Should Approach Hiring in the Czech Republic: Key Differences in Employment Contracts

When Cypriot entrepreneurs expand into the Czech market, they quickly discover that employment law operates very differently. While Cyprus offers flexible procedures, the Czech Republic enforces a comprehensive Labour Code with strict requirements. Understanding these differences is essential to avoid costly mistakes, fines up to CZK 10,000,000, and unexpected legal disputes.

The fundamental legal framework: What Cypriot employers need to know about Czech labour law

The Czech Republic's employment landscape is governed primarily by the Labour Code, which is far more prescriptive than Cyprus law. Unlike Cyprus, where employment relationships can sometimes be established informally or verbally, the Czech Labour Code requires that every employment contract be concluded in writing. Each party must receive a signed copy, and this is a legal mandate without exceptions.

The Labour Code establishes what the Czechs call "dependent work," which is the critical legal concept defining who must be employed under the Labour Code's protection. Dependent work encompasses employment based on employer superiority and employee subordination, performed on the employer's behalf according to their instructions.

The "Švarc system"—named after a legal case—occurs when companies wrongfully classify employees as independent contractors to avoid social security contributions and labour protections.

Czech authorities have intensified enforcement against false self-employment, imposing fines ranging from CZK 100,000 for individuals to CZK 10,000,000 for companies.

ARROWS Law Firm regularly advises Cypriot and other foreign businesses on these fundamental distinctions and helps them structure their Czech operations in full compliance with the Labour Code.

The lawyers at ARROWS Law Firm understand the emotional and practical challenges of expanding internationally, specifically the desire to keep employment flexible. However, the Czech legal environment demands a different approach, and getting it right from the beginning protects both the company and its employees.

Employment contract types: Indefinite vs. fixed-term arrangements

In Cyprus, employers can hire employees on either permanent or fixed-term contracts with relatively few restrictions. The Czech system operates differently, strongly favoring indefinite employment unless the contract explicitly specifies a fixed term.

An indefinite-period contract in the Czech Republic has no predetermined end date and continues until either the employer provides legally valid notice or the employee resigns. This is the default employment arrangement, and the Labour Code assumes this status unless the parties agree otherwise in writing.

A fixed-term contract can be concluded for a maximum of three years and may be extended or renewed only twice, meaning the maximum duration is nine years.

However, this rule applies per specific employment relationship—the total duration of one fixed-term contract cannot exceed 3 years. If an employer attempts to renew a fixed-term contract beyond these limits, the employee may notify the employer that they insist on continued employment. The contract is then deemed to have converted to an indefinite-period arrangement.

For Cypriot employers accustomed to different rules for fixed-term contracts, the Czech limitation of "maximum 3 years, repeated twice" represents a rigid framework. This means that if a company hires someone for a temporary role, they must be extremely careful about contract duration and renewal mechanics.

An Agreement to Perform Work (DPČ) is designed for ongoing, part-time engagements and restricts working hours to half of the standard workweek.

The Labour Code also permits flexible work arrangements like the Agreement to Complete a Job (DPP), which limits work to 300 hours annually with one employer. These arrangements provide alternatives for employers seeking truly flexible resources, though recent legislative changes have increased the administrative reporting burden.

microFAQ – Legal tips on contract types and their application in Czech employment law

1. Can a Cypriot company hire someone in the Czech Republic for 18 months and later extend the contract by another two years?
Technically, yes—a fixed-term contract for 18 months can be extended once for two years (total 3.5 years is allowed because each individual contract does not exceed 3 years). However, this counts as the first renewal. You would only have one renewal left. Plan your renewal strategy carefully from the start.

2. Is the 300-hour limit for Agreements to Complete a Job (DPP) calculated across all employers or just one employer?
The limit applies per employer. An employee could theoretically work 300 hours for Company A and 300 hours for Company B within one calendar year, but cannot exceed 300 hours with any single employer.

3. If we hire someone under an Agreement to Perform Work (DPČ) for 15 hours per week, can we later increase their hours to 25 hours per week?
Any increase that would exceed an average of 20 hours per week (over the balancing period, usually 52 weeks) would violate the statutory limit for DPČ. If the work requires more hours, you must convert to a standard employment contract.

Essential contract terms and written requirements: Detailed overview

Every employment contract in the Czech Republic must include three essential elements: the type of work the employee will perform, the place of work, and the start date of employment. These aren't merely administrative details; they are legally mandatory, and their omission can render the contract invalid.

The job title must be specific enough that the employee understands what work they're expected to perform, yet detailed enough that the employer retains reasonable flexibility.

The agreed place of work is equally critical, as it is not possible to transfer a worker to a different workplace without their consent. The Labour Code stipulates that the place of work can be determined narrowly or broadly. If the contract specifies one workplace and the employer later requires the employee to work elsewhere, this constitutes a change to the employment contract.

Employers should already be cautious about enforcing confidentiality regarding an employee's own salary, as such clauses may be deemed invalid under current interpretations.

In addition to essentials, employers must inform employees in writing about annual leave entitlement, notice periods, weekly working hours, and salary details. Following EU Directives, employers are facing increased pressure on wage transparency.

Recent amendments have also introduced stricter reporting requirements. Employers must now report employees working under DPP agreements to the Czech Social Security Administration (CSSZ), even if their income is below the participation threshold.

The lawyers at ARROWS Law Firm prepare and review employment contracts daily, ensuring that each contract protects the employer's interests while meeting all legal requirements.

Probationary periods: Strict statutory limits

Cypriot employers frequently use probationary periods to assess whether new hires are suitable for their roles. In Cyprus, a probationary period can extend up to six months or even longer in specific cases. During probation, employers can terminate employment without cause.

Under current law, probationary periods are capped at three consecutive months for regular employees and six consecutive months for managerial employees.

The probationary period must be agreed upon in writing no later than the day the employment commences. Unlike in some jurisdictions, the probationary period cannot be extended by mutual agreement of the parties once it has been established. It effectively serves as a strict "trial window."

For fixed-term contracts, the probationary period limits are the same, but with an additional restriction: the probation cannot exceed half of the total employment period. For example, if an employer hires someone for a 4-month fixed-term position, the probationary period can be no longer than 2 months.

The probationary period is automatically extended by the number of days the employee is absent due to illness, other obstacles to work, or leave during the probation.

During the probationary period, either the employer or the employee can terminate the employment relationship for any reason or without giving a reason. However, an employer cannot terminate the employment during the first 14 calendar days of an employee's temporary incapacity for work (sick leave).

microFAQ – Legal tips on probationary periods in the Czech Republic

1. We hire someone for a three-month probationary period. If we need more time to evaluate them, can we agree to extend it by another month?
No. Under current Czech law, the probationary period cannot be extended by agreement. It can only be extended automatically by obstacles to work (e.g., sickness).

2. An employee becomes ill on day 50 of their three-month (90-day) probationary period and is on sick leave for 10 days. Does the probationary period automatically extend?
Yes. The probationary period is automatically extended by the number of full working days the employee did not work due to obstacles.

3. Can we dismiss someone during their first two weeks of probation without any reason, even if they're sick?
No. Employers are prohibited from terminating employment during the first 14 calendar days of an employee's temporary incapacity for work (sickness) or quarantine. You must wait until the 15th day (if the probation is still valid) or until they return.

Termination of employment: Procedures that are far more complex than they appear

This is where Cypriot employers frequently encounter the greatest shock. Cyprus law permits relatively straightforward termination with notice periods scaled by tenure, and employers have significant flexibility. The Czech system is fundamentally different.

The Labour Code specifies an exhaustive list of legally valid reasons for termination by notice, including redundancy, loss of medical fitness, or breach of obligations.

The notification of termination must be in writing and must specify the reason for termination in such a way that it cannot be confused with another reason. The reason cannot be changed later; employers cannot cite one reason in the termination notice and then later argue a different reason if the termination is challenged.

The statutory notice period for termination is two months unless the parties agree to a longer period; it cannot be shorter.

The notice period begins on the first day of the calendar month following delivery of the notice. This applies even for terminations due to poor performance or breach of obligations, unless the breach is so severe it warrants immediate termination.

This is allowed only if the employee has been convicted of a criminal offense or has violated their employment obligations in a particularly gross manner.

The consequences of an invalid termination are severe. If a court determines that an employer has dismissed an employee without valid grounds, the termination is void. The employer must continue to employ the person and pay "wage compensation" for the entire period of the dispute.

Employees terminated for redundancy are entitled to statutory severance pay ranging from one to three times their average monthly earnings.

Working hours, overtime, and mandatory benefits: Structural differences from Cyprus

While both Cyprus and the Czech Republic follow European Union working time directives, the practical implementation differs significantly. The Czech Republic establishes a 40-hour maximum weekly working time as standard. Overtime work can be ordered by the employer only for serious operational reasons.

Employees are entitled to a minimum of four weeks of paid annual leave per calendar year, and must take their leave within the year it accrues.

Furthermore, the Czech Labour Code mandates that at least one portion of the employee's annual leave must be taken as a continuous two-week block unless the employer and employee specifically agree otherwise. This requirement is designed to ensure genuine rest periods.

Employees are entitled to paid leave for important life events like marriage, funerals of family members, and medical appointments.

Regarding sick leave, the employer pays "wage compensation" for the first 14 calendar days of temporary incapacity for work. From the 15th day onwards, the state Social Security Administration pays sickness benefits. This places the direct cost of short-term illness on the employer.

While employees returning from maternity leave are entitled to return to their original job, those returning from parental leave are entitled to a job corresponding to their contract.

microFAQ – Legal tips on working hours and leave entitlements in Czech employment law

1. Can we require an employee to take their annual leave in small daily increments, or must they take a two-week continuous block?
Unless agreed otherwise with the employee, the employer must schedule at least one portion of the annual leave as a continuous period of at least two weeks.

2. An employee in the Czech Republic becomes ill on January 15 and is absent until February 10. Who pays for this absence?
The employer pays wage compensation for the first 14 calendar days (for the shifts scheduled during this period). From the 15th calendar day onwards, the state pays sickness benefits.

3. We need to transfer an employee to a different location within the Czech Republic due to business needs. Is this possible?
Not without the employee's consent, unless the employment contract defined the place of work broadly enough to cover the new location (which is rare for standard roles) or unless it is a temporary transfer under strict statutory conditions.

Foreign employees and work permits: The administrative complexity

For Cypriot companies hiring workers in the Czech Republic, the nationality of the employee dictates the process. EU Citizens (including Cypriots) do not require work permits and have free access to the Czech labour market.

Employers must notify the Labour Office of the employment no later than on the day of commencement of work.

Hiring non-EU foreign workers is significantly more complex. They typically require an Employee Card (a dual residency and work permit) or a Blue Card. This involves a "labour market test" where the vacancy must be reported to the Labour Office.

As of July 1, 2024, citizens of specific countries like the USA, UK, and Canada have free access to the labour market and do not need a work permit.

Ukrainian refugees with Temporary Protection status also have free access to the labour market. Employers must still notify the Labour Office and observe specific reporting codes, but no work permit is required.

Employers must maintain copies of documents proving the legal residency and work status of all foreign employees at the workplace.

Given these complexities, administrative errors are common. The time and cost of obtaining permits often surprise Cypriot business owners accustomed to the relative simplicity of hiring EU citizens in Cyprus.

The lawyers at ARROWS Law Firm strongly recommend that foreign employers consult on work permit strategy before extending offers to candidates.

Payroll taxes, social security contributions, and hidden costs

When a Cypriot employer calculates the cost of hiring in the Czech Republic, they must account for mandatory payroll taxes and social security contributions that significantly exceed the gross salary.

Employer contributions for social security and health insurance amount to 33.8% paid on top of the gross salary.

The minimum wage is adjusted annually. Employers must ensure no employee falls below this threshold. For 2025, it is projected to increase to approximately CZK 20,800.

If employees work from home, employers generally must cover costs, often calculated as a flat rate set by decree.

Compared to Cyprus, where employer contributions are significantly lower, the Czech "super-gross" cost structure implies a 15-20% higher total cost for the same net salary delivered to the employee.

Risks and Sanctions	How ARROWS helps (office@arws.cz)
Underpayment of minimum wage: Paying below statutory minimums results in fines up to CZK 2,000,000 and mandatory back-pay.	Payroll audits: ARROWS Law Firm reviews compensation structures to ensure compliance with minimum wage levels.
Failure to remit contributions: Non-payment of the 33.8% employer contribution is a serious offense, potentially leading to criminal liability.	Payroll coordination: ARROWS Law Firm coordinates with accountants to ensure all withholdings and notifications are precise.
Misclassification (Švarc system): Disguising employment as invoicing (contracting) carries fines up to CZK 10,000,000.	Classification analysis: We review contractor agreements to ensure they do not cross the line into dependent work.
DPP Reporting: Failure to report DPP agreements to the Social Security Administration (a new requirement since July 2024).	Compliance setup: We advise on the new reporting duties for flexible work agreements to avoid penalties.

Restrictive covenants, non-compete agreements, and confidentiality clauses

Cypriot employers often use non-compete agreements and confidentiality clauses as standard protective measures. Czech law permits these, but with strict limitations. A Non-Disclosure Agreement (NDA) or confidentiality clause must be specific.

Under EU Pay Transparency directives, clauses preventing employees from discussing their own wages are becoming invalid.

In Czech law, a post-termination non-compete clause is valid only if the employer agrees to pay financial compensation. This must be at least 50% of the employee's average monthly earnings for every month the non-compete is in force.

Under the Czech Labour Code, if the employee pays the agreed contractual penalty, the non-compete obligation is terminated.

microFAQ – Legal tips on restrictive covenants in Czech employment law

1. Can we put a non-compete in the contract without offering payment, just to scare the employee?
No. A non-compete without the agreed financial compensation (min. 50% of avg earnings) is invalid and unenforceable.

2. If we include a non-compete, can we cancel it if we decide we don't need it later?
Only under very specific conditions or by mutual agreement. A unilateral withdrawal from a non-compete by the employer is legally difficult and restricted to prevent employers from binding employees and then releasing them at the last minute to save money.

3. Does the penalty for breach replace the non-compete?
Yes. Under the Czech Labour Code, if the employee pays the agreed contractual penalty, the non-compete obligation is terminated.

Executive summary for management

• Mandatory written employment contracts: Czech law is strictly formal. Verbal contracts are legally risky and prohibited. Ensure every employee has a compliant, written contract before starting work.
• Rigid Termination Rules: You cannot fire "at will." You need a statutory reason, a 2-month notice period, and valid documentation. Invalid termination leads to expensive litigation and back-pay obligations.
• Higher Payroll Burden: Budget for an additional ~34% on top of gross salary for employer levies.
• Strict Probation: Max 3 months (6 for managers). No extension by agreement. Use this time wisely.
• Administrative Duties for Foreigners: Even EU citizens must be reported to the Labour Office on their start date. Non-EU hiring is slow (months) and bureaucratic.

Conclusion

For Cypriot business owners expanding into the Czech Republic, employment law represents both a significant operational challenge and a critical area where missteps carry severe financial consequences. The Czech Labour Code is far more prescriptive and protective of employees than Cyprus law.

The lawyers at ARROWS Law Firm have extensive experience advising Cypriot and other foreign employers on these exact challenges.

If you are planning to hire in the Czech Republic or are already operating there without comprehensive legal guidance, do not hesitate to contact ARROWS Law Firm at office@arws.cz.

FAQ – Frequently asked legal questions about hiring in the Czech Republic for Cypriot businesses

1. Can we start the hiring process in the Czech Republic without establishing a Czech subsidiary?
Yes. A foreign legal entity (e.g., Cypriot Ltd) can hire employees directly in the Czech Republic. However, you must register as an employer with the Czech Social Security Administration and health insurance companies and pay payroll taxes locally. Be aware that this may create a "Permanent Establishment" for corporate tax purposes. Consult with tax advisors first. For more information, contact office@arws.cz.

2. What is the actual cost of hiring a full-time employee in the Czech Republic?
If you offer a gross salary of EUR 2,000, your total employer cost is approx. EUR 2,676 (gross + 33.8%). The employee receives approx. EUR 1,600 net (depending on tax credits).

3. We have a Cypriot employee whom we're transferring to our Czech office. Do we need a new contract?
Yes, or an amendment governed by mandatory Czech rules. If they will habitually work in the Czech Republic, mandatory provisions of Czech law (min wage, working time, holidays, safety) apply regardless of the choice of law in the contract. It is usually best to draft a local Czech contract.

4. Can we hire Ukrainian workers under their temporary protection status?
Yes. They have free access to the labour market. You do not need a work permit, but you must notify the Labour Office and check the validity of their Temporary Protection visa.

5. What happens if we classify someone as a contractor (invoice) but they work like an employee?
This is illegal ("Švarc system"). You face fines up to CZK 10 million, and you may be assessed for unpaid payroll taxes and social security retrospectively.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we strive for maximum accuracy in the content, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation, it is therefore necessary to contact ARROWS Law Firm directly (office@arws.cz). We accept no responsibility for any damage or complications arising from the independent use of the information in this article without our prior individual legal consultation and expert assessment. Each case requires a tailor-made solution, so please do not hesitate to contact us.