The Regional Court in Hradec Králové has addressed the issue of making social security and health insurance contributions from performances provided to employees of a different company. As the Income Taxes Act and contribution-related legislation treat these types of supplies differently, it is worth remembering the individual differences so that you do not make a mistake in remunerating “outsourced” employees.
According to the Income Taxes Act, an “employer” with the obligation to make personal income tax prepayments is (to put it simply) anyone who provides supplies related to the performance of dependent activities to anyone; however, according to contribution-related legislation, the statutory payment of insurance contributions on behalf of an employee was previously based on the legal relation between the entity that pays the income and the person who performs the activities.
Since January 2014 in respect of social security contributions and since 2009 in respect of health insurance contributions, it has been sufficient for an individual to perform activities for you that give rise to income from dependent activities regardless of whether you have entered into a legal relationship with the person or not: you become an employer for the purposes of social security and health insurance contributions and you are obliged to make relevant insurance contributions and increase the base for calculating the tax prepayment on dependent activities to include the social security and health insurance contributions made by the employer.
To illustrate, imagine the situation where a car repair shop employee sells car care products, among others, as part of their employment relation with the car repair shop. The producer of the car care products rewards selected employees for good results with a watch worth CZK 3,000. According to the Regional Court’s ruling, the producer of the car care products becomes an “employer” of these employees for the purposes of income tax prepayments on dependent activities and must be ready to deal with the extensive red tape related to tax payments.
It may not be clear whether the “outsourced employee” performs activities for you or whether it merely fulfils the instructions of its legal employer; however, in providing supplies to “outsourced employees”, we recommend that you check whether you are subject to these potential other obligations.
The article is part of dReport – July 2018, Tax news; Grants and investment Incentives.
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