Employee misclassification in the Czech Republic

Employee misclassification in the Czech Republic has a local name, švarcsystém, and a statutory test underneath it. The arrangement it describes will be familiar to any foreign employer: a person works for one company week after week, but is engaged as an independent business holding a živnostenské oprávnění and an IČO, and invoices monthly for something that looks very much like salary.

The term is named after the businessman who popularised the practice in the early 1990s. Státní úřad inspekce práce, the labour inspectorate, describes what it is looking for in plain words: a person who outwardly appears to be an independent OSVČ working under a commercial contract, but who is in reality an employee.

What matters for a foreign company is that the contract does not answer the question. Czech law asks how the work is actually performed. A services agreement drafted in English, signed by both sides and priced as a monthly fee settles nothing by itself, because the test in § 2 zákoníku práce looks at subordination, instructions, personal performance, and who carries the cost and the risk.

This article sets out what the statute says, what a labour inspectorate may find, and what the statutory penalty range is where illegal work is made out. It does not tell you which side of the line any particular engagement of yours falls on. That is a question of fact for an inspector or a court, and it turns on evidence about day-to-day working practice rather than on drafting.

Dependent work, závislá práce, is defined by cumulative features rather than by a label. Under § 2 odst. 1 zákoníku práce, work is dependent work where it is performed in a relationship of the employer’s superiority and the employee’s subordination, in the employer’s name, according to the employer’s instructions, and by the person themselves.

§ 2 odst. 2 adds the surrounding conditions: the work is done for wage, salary or remuneration, at the employer’s cost and risk, in working time, and at the employer’s workplace or another agreed place. The features are read together. No single one of them decides the question on its own, and Státní úřad inspekce práce publishes no score sheet and no official checklist.

The second half of the test gives the first half its force. § 3 zákoníku práce provides that dependent work may be performed exclusively in a basic employment relationship. That means a pracovní poměr, a dohoda o provedení práce or a dohoda o pracovní činnosti. There is no fourth option, and the parties cannot agree their way out of the category.

Czech law does recognise genuine business-to-business work. The inspectorate draws the contrast expressly, between an obchodní vztah, a relationship between two business entities, over which the labour inspectorates have no jurisdiction, and a relationship that only looks like one. A supplier with several clients, their own equipment, their own pricing and their own commercial risk is doing something the statute does not reach.

Illegal work, nelegální práce, is defined in § 5 písm. e) zákona č. 435/2004 Sb., o zaměstnanosti. Work is illegal work where it bears the features of dependent work under § 2 odst. 1 zákoníku práce and is performed by a natural person outside an employment relationship, unless other legislation permits it. Two further limbs cover foreign nationals working without, or contrary to, a required permit or residence document.

The bridge from one to the other is short. Engaging a worker through a trade licence, where the relationship has the hallmarks of employment, may constitute nelegální práce. Whether a given engagement has those hallmarks is a question of fact, decided on how the work is actually done rather than on what the paperwork says, and it is decided by a Czech authority under Czech law whatever law the commercial agreement names.

One line in the statute removes a defence foreign employers often assume they have. The act states expressly that the length of time the work was performed is not relevant to whether it is illegal work. A three-day project and a three-year engagement are assessed the same way. A pilot, a trial or a short handover does not sit outside the definition because it was brief.

A second offence arrived alongside it. Nehlášená práce, unreported work, covers work done by a person whose employer failed to tell the competent regional branch of the Úřad práce that the employment was starting before the person started, and work done by a person the employer failed to enter in the employee registry. It is a separate offence with its own penalty, and it can be made out even where the underlying relationship is an ordinary employment.

The indicators are derived from § 2 zákoníku práce rather than from a published test. Státní úřad inspekce práce operates no scoring system, and any list of warning signs, including this one, is a reading of the statutory features. An inspector may weigh some of them heavily and set others aside, depending on what the evidence shows.

The features that tend to draw attention are the ones that make an engagement look like a job:

• Work for one client, or near enough one client, over a long period
• The client’s premises, the client’s hours and the client’s equipment
• Integration into the client’s reporting line and management structure
• Personal performance, with no genuine right to send a substitute
• A fixed monthly invoice that does not vary with output or delivery
• The client carrying the cost of tools, travel and materials, and the commercial risk

None of that makes an arrangement unlawful by itself. Plenty of genuine consultants work at a client’s site, and plenty of genuine suppliers bill the same amount every month. What an inspector considers is whether the whole picture is subordination presented as a supply of services.

Two practical points follow for a foreign company. The evidence that counts is operational: messages, rotas, access badges, expense claims, calendar invitations and job titles in internal directories, rather than the signature page. And the assessment happens after the fact, on a relationship that has already run, which is why the exposure grows quietly rather than announcing itself. Státní úřad inspekce práce publishes its own guidance on the difference between an obchodní vztah and švarcsystém at suip.gov.cz.

Where illegal work is made out, the statutory range in zákon č. 435/2004 Sb. is wide. The figures below are those in force for 2026. For an employer that enables illegal work, the fine runs to 10,000,000 CZK (approximately 410,678 EUR at 24.350 CZK to the euro, ČNB fixing for 21 September 2026), with a floor of 50,000 CZK (approximately 2,053 EUR). The floor applies once the offence is established; it is not an opening position.

The person doing the work is exposed as well. Performing illegal work carries a fine of up to 100,000 CZK (approximately 4,107 EUR) for 2026. Enabling nehlášená práce carries up to 500,000 CZK (approximately 20,534 EUR), and failing to keep copies of the documents evidencing the employment relationship at the workplace carries up to 100,000 CZK.

For enabling illegal work, the act also allows a ban on activity, zákaz činnosti, to be imposed for a maximum of two years. That is the sanction that turns a fine into a question about whether the business can keep operating in the same form.

Liability can travel up a contracting chain. A person who received the benefit of the work as a direct or indirect contractor is a guarantor for the fine imposed for enabling a foreign national’s illegal work, where they knew, or with due care should and could have known, about it. An intermediary is equally liable. A company buying services several links down a supply chain cannot assume the question stops with its immediate counterparty.

Beyond the fine sits the ordinary consequence of reclassification: if the relationship was an employment relationship, it carries the contributions, the tax, the leave and the notice that go with one. Illegal employment and remuneration are the two named priorities in the published 2026 inspection programme of Státní úřad inspekce práce, which says it is coordinating with Finanční správa, the police and ČSSZ.

Employing the person answers the characterisation question at source, because dependent work performed in a pracovní poměr is what § 3 zákoníku práce requires. It does not remove the rest of the employer’s duties. Contributions still have to be calculated and remitted, the contract still has to carry its mandatory elements, and the § 37 information still has to be given in writing within seven days of the start date.

That is the work our Czech company does. Your people are employed by our own Czech s.r.o. on Czech employment contracts under the zákoník práce, and our Czech company holds an employment agency licence (povolení ke zprostředkování zaměstnání) issued by MPSV. You keep the parts that are yours: who you hire, what they work on, how they are managed and when the role ends. More on the model is on Employer of Record Czech Republic, and the detail of what is included is on our EOR services page.

Two adjacent points are worth naming. The first is the small agreements: a dohoda o provedení práce and a dohoda o pracovní činnosti are employment relationships under the zákoník práce, never freelance or contractor arrangements, and our guide to DPP and DPČ work agreements sets out how they work. The second is the employment contract itself, where written form and the three mandatory elements are not optional; our guide to Czech employment contracts covers that ground.

What we will not tell you is that any particular arrangement is safe, or that using an employer of record makes a past engagement someone else’s problem. Whether work already performed was dependent work is a question of fact about that work, and it is one for a Czech lawyer who can see the facts. What we can describe is what we do, which is employ people in the Czech Republic on Czech contracts and run the payroll and the filings that follow.

One practical consequence is worth naming. Where an engagement is reclassified, the intellectual property position moves with it, because the statutory defaults for work created by an employee are not the same as the terms in a contractor agreement. Our post on protecting IP when hiring in the Czech Republic sets out what those defaults are.