Employees against whom is enforced a decision of state authorities by a certified enforcement administrator (in Czech: exekutor) or who are insolvent are not only worried themselves, but it also means extra work for their employers who pay their salary as they are subject to a considerable administrative burden and obligations imposed upon them by Czech law. If this is the case, do you know what you have to do as an employer? What sanctions do you face if you fail to perform any of the required actions? And how do you actually calculate the amount of salary deductions you have to perform?
First, let us explain the difference between enforcement administration and insolvency (debtor’s bankruptcy). While enforcement administration by a certified enforcement administrator is a procedure for an entitled person to individually enforce fulfilment of the obligations of the debtor, insolvency is actually a solution where creditors collectively enforce payment of their debt and are satisfied proportionally. Insolvency occurs when a debtor is in a position where he/she is unable to fulfil his obligations to several creditors and is often connected with the risk that the debtor may favour some creditors at the expense of others.
Why is it important to cooperate with certified enforcement administrators?
If the employer employs employees against whom is enforced a decision of state authorities by a certified enforcement administrator, the employer is, in particular, required to communicate with the certified enforcement administrator and answer his/her legitimate questions. Moreover, the employer is required to cooperate with the certified enforcement administrator in order to perform timely and correct deductions from employee’s salary. As employers’ role in the process of performing salary deductions is essential, employers are strictly required to observe their obligations and, in case of a failure to do so, they may be subject to a fine.
The certified enforcement administrator has the right to request information from the employer regarding a specific enforcement procedure; however, the exact scope of information the certified enforcement administrator may request is not clearly defined.
What the certified enforcement administrator may and probably will request:
- Information on the specific employment relationship and the salary of employee from which the respective claims will be settled
- Information on salary and salary deductions
- Information on the number of dependant persons
- Information on temporary incapacity to work (if any)
However, it may happen that the certified enforcement administrator requires other information (sometimes even unrelated to the enforcement administration which the employee is subject to), and the employer is not sure whether such information may be disclosed to the certified enforcement administrator. In this case, employers need to remember that the unrelated personal data must not be provided to the certified enforcement administrators as it is necessary to ensure compliance with the personal data protection regulation. If you are unsure whether you can provide the certified enforcement administrator with the required information, we recommend that you consult an expert. If you believe that the certified enforcement administrator does not have the right to be provided with certain information, we recommend that you refuse to provide the information with the appropriate explanation that you are prepared to cooperate with the certified enforcement administrator, but you cannot provide the requested information as the provision of such information is prohibited by the personal data protection regulation.
A failure to cooperate during enforcement administration may lead to considerable sanctions on the employer’s side. What kind of sanctions? Such failure may result in the imposition of a fine, an obligation to compensate damages, or even criminal liability for obstructing the execution of an official decision.
What can be subject to enforcement administration?
The rule is relatively simple. Enforcement of a decision of state authorities by a certified enforcement administrator cannot affect amounts provided to employees to reimburse the expenses incurred by them in relation to performance of work. In practice, however, misunderstandings may occur, as certified enforcement administrator in some cases try to enforce amounts that cannot be enforced in this manner.
Example of amounts that can be enforced: Salary compensation, financial help in maternity, pensions, severance pay, compensation for loss of earnings during the period of temporary incapacity to work (e.g. in the case of an accident at work).
What cannot be enforced: Travel expenses, reimbursement of other expenses related to work performance.
Unseizable amount and how to calculate salary deductions
How is it actually determined how much money employees will keep from their salary in case of performing salary deductions? The calculation procedure is explicitly stipulated by Czech law.
- First, the so-called (basic) unseizable amount is substracted from the employee’s net salary. This is the amount that must not be deducted. It is equal to the sum of (i) two thirds of the sum of the individual’s living wage (currently CZK 3,410) and the amount of statutory housing costs for one person paying rent in a municipality of 50,000 to 99,999 inhabitants (currently CZK 6,502) and (ii) one quarter of such sum per any person that the debtor has to maintain.
- The remaining balance shall be then rounded down to an amount divisible by three.
- The 1st third of this amount shall be kept by the employee.
- From the 2nd third of this amount, priority receivables, if any, shall be deducted – otherwise, the debtor shall retain the amount (the list of priority receivables is stipulated by Czech law).
- From the last third of this amount, the remaining priority receivables shall be deducted (if there are any and the 2nd third would not be sufficient to cover them) together with all other receivables.
Attention! If the net salary after deduction of the (basic) unseizable amount and rounding is more than double the sum of (i) the individual’s living wage and (ii) the amount of the statutory housing costs for one person – currently CZK 19,824 – everything over this amount will be deducted without limit.
Change of employer
In the event of changing a job, the obligation to perform salary deductions will be naturally transferred to the new employer. When hiring a new employee, employer is obliged to request from the employee a confirmation issued by the previous employer whether the enforcement administration by salary deductions has been ordered from the employee’s salary. In case the employer learns the enforcement administration by salary deductions has been ordered, it shall, without undue delay, notify the employee’s start of employment to the relevant authorities.
The previous employer is obliged to issue the above-mentioned confirmation, notify that the employee has stopped working for it, and send a statement of performed salary deductions and information regarding the claims to the relevant authorities.
Insolvency proceedings prevails over enforcement administration
If a person is unable to pay his/her debts, he/she can file an insolvency petition. On the day of delivering the insolvency petition, insolvency proceedings is commenced and, from this moment, enforcement administration is suspended. After the insolvency proceedings has commenced, enforcement administration cannot be performed and, if the bankruptcy of the employee is decided during the insolvency proceedings, enforcement administration cannot be ordered or commenced.
After the insolvency court issues its decision approving the employee’s discharge from debts (one of the ways of solving bankruptcy) in a form of repayment plan, it orders the payer of salary (or other income) to perform the salary deductions. The insolvency court also delivers this ruling to the salary payer. The rights and obligations of the salary payer are then similar to the rights and obligations in enforcement administration. In particular, the employer is obliged to cooperate in order to perform deductions from employee’s salary. However, it is important to note that the employer is not obliged to provide the insolvency administrator with assistance in determining the debtor’s assets, as it is not related to performing the salary deductions in any way.