How Finnish companies can manage employment contracts in the Czech Republic: key pitfalls to avoid

Finnish companies expanding into the Czech Republic often encounter employment law challenges that differ significantly from Nordic regulations. This article reveals the critical pitfalls in employment contracts, notification obligations, and compliance requirements that could expose your business to substantial fines or operational disruptions. You will discover practical solutions that experienced legal professionals recommend.

Why Czech employment law differs from what Finnish companies expect

When Finnish businesses establish operations in the Czech Republic, they frequently assume that EU membership means employment regulations are broadly similar across member states. This assumption creates significant legal exposure. Czech labour law, governed by the Labour Code, operates under fundamentally different principles than the Finnish system, and these differences matter enormously in practice.

The Czech Labour Code is substantially more prescriptive than Nordic legislation. Where Finnish employment law often relies on collective agreements and general principles of good faith, Czech law specifies precise requirements for contract formation, termination procedures, and employer obligations. Each apparent simplicity in regulation contains hidden procedural details and mandatory timelines.

ARROWS Law Firm has regularly worked with Finnish companies navigating these distinctions. The lawyers at ARROWS Law Firm understand not only the Czech legal environment but also how it contrasts with Scandinavian approaches, proving invaluable when management teams must implement compliant practices.

The fundamental requirements for valid employment contracts

Czech law establishes non-negotiable requirements for employment contract validity. Unlike some jurisdictions where employment can be established through conduct or written confirmation, Czech law mandates that every employment contract must be concluded in writing, and each party must receive a copy. While a contract not in writing does not automatically invalidate the employment relationship once work has begun, the failure to put it in writing is an administrative offense.

The law specifies three essential elements that must appear in every employment contract: the type of work the employee will perform, the place or places of work, and the commencement date. Beyond these statutory essentials, employers must also provide employees with written information about the specification of work duties, vacation entitlements, notice periods, weekly working hours, salary, and any applicable collective bargaining agreements.

This information can appear either within the employment contract itself or in separate policy documents. However, the employer bears responsibility for ensuring employees receive it in writing within 7 days of the commencement of employment, or within 1 month if there are changes to the relationship.

The contract must be drafted in a language the employee understands. While not strictly mandatory to be bilingual, Czech law strongly recommends bilingual versions (Czech/English or Czech/Finnish) for legal certainty and inspection purposes. Many Finnish companies operating in the Czech Republic initially believe they can use standard Finnish employment contracts translated into Czech.

This approach creates problems because standard Finnish provisions frequently conflict with Czech mandatory law. What appears as routine contractual language in Helsinki may violate Czech labour regulations, exposing your company to labour inspections, employee disputes, and potential fines.

ARROWS Law Firm has observed that companies lose labour disputes not because they failed to create written contracts, but because the contract wording contradicted mandatory provisions or failed to address specific regulatory requirements.

Understanding the difference between employment types

Czech law recognizes three primary forms of dependent work, and choosing the correct classification carries significant consequences. The standard employment contract provides employees with full legal protections under the Labour Code. Beyond this, employers can also engage workers through an agreement to complete a job (DPP) or an agreement to perform work (DPČ).

These alternative forms appeal to Finnish companies seeking flexibility, but each carries restrictions and risks. Recent amendments effective from 2024 and 2025 have tightened the rules for these agreements, introducing entitlement to leave and stricter social security contribution rules. If a worker performs more hours than the legal maximum, the Labour Office can reclassify the engagement as illegal employment.

The Labour Inspectorate evaluates not the contract's title but the actual working conditions. If a worker uses the company's equipment, works exclusively for one employer, follows the employer's schedule and instructions, and has no entrepreneurial risk, Czech authorities will classify the relationship as employment regardless of the contract designation.

microFAQ – Legal tips on employment contract formation

1. Can we use our Finnish employment contract template translated into Czech?
Standard Finnish contracts often contain provisions that conflict with Czech mandatory law—such as broader termination flexibility or different probation rules. ARROWS Law Firm recommends having contracts reviewed by Czech employment lawyers before use. Each contract should address specific Czech requirements that do not exist in Finnish law.

2. What language should the employment contract be in?
While the contract can be in any language agreed by both parties (provided the employee understands it), Czech law strongly recommends a Czech version (or bilingual version) for legal certainty and to avoid disputes during labour inspections. Electronic signatures are legally recognized, but the contract must clearly identify both parties and allow both parties to retain a copy.

3. If we employ someone without a written contract, can we still defend ourselves if they claim non-payment?
No. Without a written contract, you have committed an administrative offense. Furthermore, if work was performed, Czech courts will generally rule that an employment relationship exists based on the factual performance of work, often defaulting to an indefinite duration, which makes termination difficult.

Notification obligations for foreign workers and "illegal work" risks

A critical area where Finnish companies often face exposure concerns the notification requirements for foreign employees and the strict definition of illegal work. While EU citizens have free access to the Czech labour market, specific administrative duties remain mandatory and carry heavy penalties if ignored.

Employers must notify the relevant Labour Office of the employment of any foreign national no later than the day of commencement of work. While previous practice sometimes allowed for leniency, current enforcement is strict. Failure to notify the Labour Office is an administrative offense.

Even more critical is the notification to the Czech Social Security Administration (ČSSZ). If an employee is found working during an inspection and has not been registered for social security, authorities may classify this as "undeclared work". The fine for enabling illegal work is up to CZK 10 million, with a mandatory minimum of CZK 50,000.

The definition of illegal work and the penalties associated with it have been tightened effective January 1, 2024. Authorities now place the burden of proof heavily on the employer to demonstrate that a worker present at the workplace is properly declared.

The scope of notification requirements includes EU citizens, their family members, and third-country nationals. Finnish managers who arrive to assume positions at Czech subsidiaries fall within this requirement. The obligation applies regardless of whether the foreign worker needs a visa or residence permit.

This regulation appears simple in principle but creates substantial practical complexity. For companies accustomed to Nordic flexibility, where employment formalities might be completed shortly after arrival, the Czech requirement demands a strict "paperwork first" approach.

ARROWS Law Firm has observed that multinational companies often underestimate the coordination required between HR in Finland and the local Czech payroll providers. Lawyers at ARROWS Law Firm have experience managing such timing issues and can advise on compliance protocols that work with your company's recruitment procedures.

microFAQ – Legal tips on foreign worker notification obligations

1. Do Finnish citizens need this notification even though they're EU citizens?
Yes. All foreign workers, including EU citizens, require notification to the Labour Office (information card) no later than the day of commencement. Free access to the labour market does not exempt the employer from this notification requirement.

2. What happens if we accidentally start an employee before completing the notification?
If an inspection occurs and the employee is working without proper social security registration or Labour Office notification, you risk fines for administrative delicts or, in severe cases, classification as undeclared work. This triggers fines up to CZK 10 million.

3. How long does the Labour Office notification process take?
The notification itself is administrative and quick (filing a form), but the supporting data (passport details, address in country of origin, Czech address if known) must be gathered beforehand. ARROWS Law Firm recommends preparing the notification data at least three business days before the intended start date.

Probation periods: shorter windows than Finns expect

Czech law allows probation periods (zkušební doba), but the framework differs considerably from Finnish practices. For regular employees, the maximum probation period is three months. For managerial employees, the maximum is currently six months. For fixed-term contracts, the probation period cannot exceed half the contract duration.

Critically, probation periods must be agreed in writing and specified in the employment contract no later than the first day of employment. Attempting to add a probation period after employment begins is legally invalid. Probation periods cannot be extended retroactively or unilaterally imposed; both employer and employee must agree, and extensions are only permitted in cases of employee absence.

During the probation period, either party can terminate employment without reason and without notice (except that employers may not terminate during the employee's first fourteen calendar days of sick leave). After the probation period expires, termination protection immediately strengthens.

This distinction matters significantly because Finnish managers often expect more flexible termination during the initial employment phase. However, Czech law views probation primarily as a mutual assessment period, not as a trial employment that can be extended indefinitely. Once probation ends, Czech law shifts to strong employee protection.

Furthermore, if a probation period is disproportionately long relative to the contract period—for example, a three-month probation on a four-month fixed-term contract—it violates the statutory rule limiting probation to half the contract term. This area contains hidden complexity; what appears as a reasonable probation arrangement in Nordic context may violate Czech law.

Termination procedures and notice periods: more complex than they appear

Terminating employment in the Czech Republic requires compliance with a detailed statutory framework that offers fewer options than Finnish law. Czech law recognizes three methods of termination: mutual agreement, termination with notice, and immediate termination for cause.

The standard notice period is two months, calculated from the first day of the calendar month following the delivery of the notice. For example, if notice is delivered on January 15, the two-month period begins on February 1 and ends on March 31. The parties may agree on longer notice periods, but the period must be identical for both employer and employee.

Shorter notice periods are not permitted for unilateral termination by the employer. While upcoming amendments propose shortening notice periods for specific breaches, current law mandates the two-month standard unless the employment is terminated by mutual agreement (where parties can agree on any date).

The law further restricts termination during certain protective periods. Employers may not terminate employees during temporary incapacity (sick leave), pregnancy, maternity leave, paternity leave, or parental leave. Attempting termination during these periods is void, and the employer remains liable for wages.

Immediate termination (without notice) is permitted only in exceptional circumstances: when the employee commits a gross breach of duty or when the employee is lawfully convicted of an intentional crime. Even immediate termination requires written notice specifying the reasons precisely.

For collective redundancies (terminating five or more employees for organizational reasons within 30 days), additional obligations emerge. Employers must notify affected employees' representatives and the Labour Office at least thirty days before issuing termination notices.

False self-employment and the "Švarc system": understanding actual versus formal status

One of the most serious compliance risks for Finnish companies in the Czech Republic involves misclassification of workers as independent contractors when they actually perform dependent work. This practice, known colloquially as the "Švarc system," is illegal in Czech law and carries severe penalties.

Czech authorities distinguish between actual working conditions and contractual designation. If a worker functions as an employee—working under the employer's control, using the employer's tools and workspace, following the employer's schedule—the relationship is dependent work requiring an employment contract. The fact that the contract is titled "agreement for services" does not change this legal reality.

The Labour Inspectorate and Tax Authority examine multiple factors when assessing whether a relationship constitutes false self-employment. They check whether the contractor works under direct supervision, whether working hours are controlled by the client, and whether the arrangement is long-term and exclusive.

Penalties for enabling false self-employment are substantial. Businesses that knowingly or negligently structure relationships as false self-employment face fines up to CZK 10 million, with a mandatory minimum of CZK 50,000. Additionally, the employer must pay retroactive social security contributions, health insurance, and taxes.

Recent legislative adjustments explicitly clarified that the duration of engagement is not determinative. Even one-off or brief work arrangements can be classified as illegal employment if they demonstrate characteristics of dependent work without a proper employment relationship.

Finnish companies sometimes structure Czech operations through independent contractors to reduce administrative burden or achieve cost savings. ARROWS Law Firm has observed that multinational companies often fail to recognize that their home country's contractor classification does not transfer to Czech jurisdiction, creating substantial legal exposure.

Social Security and Health Insurance Obligations: The Cost Structure Employers Miss

When Finnish companies calculate the cost of Czech employment, they frequently underestimate the mandatory social security and health insurance contributions. Understanding this cost structure is essential for accurate budgeting and regulatory compliance.

Employers in the Czech Republic must contribute to social security (24.8 percent of gross wages) and health insurance (9 percent of gross wages). These contributions are employer obligations separate from and on top of employee salary. Additionally, employees have their own contributions deducted from gross wages: social security at 7.1 percent and health insurance at 4.5 percent.

Many Finnish companies initially view these percentages as merely accounting entries. In practice, they represent mandatory state-imposed costs. If an employer fails to remit these contributions, the state treats it as theft of insurance premiums and initiates collection procedures that can include penalties.

The contributions are calculated on gross wages. Bonuses, allowances, travel reimbursements (beyond specified limits), and other compensation forms all factor into the contribution base. Attempting to minimize contributions by using alternative payment structures often leads to tax compliance issues.

Beyond the standard percentages, additional contributions apply in specific circumstances. For employees with disabilities, employers may satisfy hiring quotas through substitute payments rather than direct employment.

Working hours, overtime, and rest period requirements

Czech law establishes maximum working hours and mandatory rest periods that differ from Nordic standards. The standard working week is forty hours, typically distributed across five days. Individual collective agreements or employment contracts may establish shorter hours, but cannot exceed forty hours without constituting overtime.

Overtime work is permitted only in "exceptional circumstances" as specified in the Labour Code. Regular overtime is not routine in Czech law; employers cannot simply assign unlimited overtime. When overtime is permitted, it cannot exceed eight hours per week on average and cannot exceed 150 hours annually—or up to 416 hours if the employee explicitly agrees in writing.

Additionally, a maximum shift length of twelve hours applies. Even when calculating overtime, individual shifts cannot extend beyond this twelve-hour limit. For companies accustomed to flexible shift arrangements, this maximum shift restriction can create scheduling constraints.

Employees are entitled to daily and weekly rest periods. After working continuously for up to six hours, employees must receive a break of at least 30 minutes. Weekly rest periods must be at least one continuous thirty-five-hour period. Employers who fail to provide these rest periods violate occupational health and safety requirements.

The interaction between these rules and posted worker provisions creates additional complexity. If Finnish employees are posted to the Czech Republic to perform work, they must receive working conditions no worse than Czech employees in comparable roles—including compliance with Czech working hour limits.

Annual leave, public holidays, and sick leave rights

Czech employees receive substantially more statutory leave entitlements than many Finnish companies initially anticipate. The basic entitlement is four weeks of annual leave (twenty working days) for employees who worked the full calendar year at standard weekly hours. Employees are entitled to proportional leave if employed for less than a full year.

Additionally, Czech law specifies thirteen public holidays annually. When public holidays fall on weekdays, employees receive the day off. Unlike some systems, if a public holiday falls on a weekend, it does not strictly transfer to the next working day, but specific years may vary based on calendar placement.

Sick leave operates differently in Czech law than in many Nordic jurisdictions. When employees become ill, they are entitled to wage compensation (sick pay) from the employer for the first 14 calendar days of temporary incapacity. From the 15th day onwards, the state pays sickness benefits.

From January 1, 2024, employees working under DPP and DPČ arrangements also have certain eligibility for leave and, if contribution thresholds are met, sick pay benefits. This change substantially altered the cost structure for these alternative employment forms, as they no longer provide the significant savings they once did regarding benefit obligations.

Risks and Sanctions	How ARROWS helps (office@arws.cz)
Undeclared work penalties: Fines up to CZK 10 million for failing to notify Social Security or Labour Office before/on commencement; additional consequences including hiring restrictions.	Compliance protocol design: ARROWS Law Firm establishes procedures ensuring all foreign employee notifications are completed before employment commences.
Illegal employment reclassification: Misclassifying employees as independent contractors triggers retroactive liability for social security contributions (24.8%), health insurance (9%), taxes, plus fines up to CZK 10 million.	Worker classification assessment: Experts from ARROWS Law Firm evaluate your engagement arrangements against Czech regulatory criteria.
Employment contract invalidity: Contracts that fail to include required statutory elements, conflict with Czech mandatory law, or lack proper written form create disputes where employees claim non-payment.	Contract drafting and review: ARROWS Law Firm creates Czech-compliant employment contracts addressing all statutory requirements.
Probation period invalidation: Probation periods that exceed maximum durations, fail written specification, or lack proportionality create disputes where courts invalidate the probation retroactively.	Probation structure consultation: ARROWS Law Firm designs probation periods complying with maximum duration requirements.

The reality of labour inspections: what inspectors examine

Czech employers face regular labour inspections from the State Labour Inspection Office (SÚIP). Understanding what inspectors prioritize and what documentation they require helps companies maintain compliance and prepare for inevitable examinations.

Labour inspectors examine a hierarchy of concerns, with illegal employment being the most serious issue. This area carries fines up to CZK 10 million. Following this, inspectors examine occupational health and safety conditions, wage compliance, and working time records.

Critically, inspectors require employers to have physical copies of employment documentation on site. When inspectors arrive, they demand immediate production of employment contracts, agreements on work performance, foreigner permits, and residence documents for all individuals working at that location.

Failure to provide on-site copies constitutes a separate violation regarding the obligation to have copies of documents proving the existence of an employment relationship at the workplace. This on-site documentation requirement creates practical challenges for multinational companies if contracts are stored in a central filing system abroad.

Inspectors also examine payroll records, time sheets, records of work-related accidents, and internal safety policies. For foreign employees, inspectors specifically verify that notifications were properly submitted to the Labour Office.

ARROWS Law Firm specializes in labour inspections and has represented numerous multinational corporations during inspections. The lawyers at ARROWS Law Firm can prepare comprehensive compliance documentation and ensure all required documents are properly organized and available on site.

microFAQ – Legal tips on labour inspection compliance

1. Must we keep employment contracts at the workplace, or can they be stored at the parent company office?
Copies of all employment contracts and work agreements must be immediately available at the workplace where employees perform work. Storing contracts exclusively at parent company offices abroad does not satisfy this requirement; inspectors will impose fines if documents are not available on site during inspection.

2. What other documents must be kept at the workplace?
Residence permits (for non-EU), proof of employment notification for foreign workers, occupational health assessments, personal protective equipment distribution records, time sheets, accident reports, and occupational health and safety policies must all be available for inspection.

3. Can our company dispute a fine if we were unaware of specific regulatory requirements?
Ignorance of the law does not provide defense against labour violations. However, ARROWS Law Firm can challenge fines if the inspector's procedure violated regulatory requirements, if the violation has since been cured, or if the inspector's assessment was factually incorrect.

Posting workers to the Czech Republic: a regulatory minefield for multinational companies

When Finnish parent companies post employees to Czech subsidiary operations, additional regulatory obligations emerge—obligations that differ substantially from standard employment relationships. Understanding these posting requirements is essential for any multinational company with cross-border personnel movements.

When an employee of a foreign employer performs work in the Czech Republic, the employee is "posted" and Czech law applies to key aspects of employment. Specifically, the employee must receive Czech-mandated minimum working conditions, maximum working hours, mandatory rest periods, and minimum wage.

The posting employer must notify the Czech Labour Office of the posting no later than the day the posted employee begins work. This notification can only be submitted through a designated registration portal; paper notifications are no longer accepted.

For postings exceeding twelve months, the employee is entitled to nearly all mandatory employment conditions under Czech law. This expansion of obligations creates a threshold that companies must monitor carefully.

The employer must provide posted employees with written information before departure, including the work location, expected duration, currency for wage payment, monetary or material benefits related to posting, and arrangements for return after posting completion.

Many Finnish companies underestimate these posting obligations. A Finnish manager temporarily assigned to Czech operations must receive Czech minimum wage and working conditions for that period, even though they are employed under the parent company's Finnish contract.

Executive summary for management

Czech employment law contains mandatory requirements that differ substantially from Nordic standards. What appears as straightforward employment arrangements in Finnish context frequently violates Czech mandatory law, particularly regarding contract formation, worker classification, and foreign employee notification.

Employers must notify the Labour Office regarding foreign employees (including EU citizens) no later than the day of commencement. Furthermore, notification to Social Security is critical to avoid "undeclared work" classification. Penalties for non-compliance are severe, reaching up to CZK 10 million.

Misclassifying employees as independent contractors triggers penalties up to CZK 10 million plus retroactive contributions and taxes spanning years. Czech authorities examine actual working conditions, not contract titles, when determining classification.

Labour inspectors require copies of employment documentation on site. Failure to produce documents immediately triggers separate penalties up to CZK 500,000. Inspectors increasingly focus on foreign workers, requiring notification verification and minimum wage compliance documentation.

Czech law mandates specific probation periods, notice periods, termination procedures, working hour limits, rest period requirements, and leave entitlements that differ from Finnish practice. Contracts must address these mandatory requirements explicitly; generic Nordic employment terms frequently conflict with Czech law.

Conclusion of the article

Managing employment contracts for Finnish employees and contractors in the Czech Republic requires substantially more precision and procedural attention than many multinational companies initially anticipate. The Czech Labour Code imposes mandatory requirements that do not align with Nordic practices, and these requirements carry significant financial and operational consequences when violated.

The recent legislative changes regarding illegal employment and agreements outside employment demonstrate that Czech employment law continues evolving. Companies that implemented procedures based on outdated regulations now face non-compliance risks. Additionally, false self-employment enforcement has intensified, and Labour Inspectorate scrutiny of foreign workers has increased substantially.

ARROWS Law Firm has extensive experience guiding multinational companies through Czech employment compliance. Experts from ARROWS Law Firm have represented dozens of Finnish companies, understand the specific cultural and regulatory differences between Finnish and Czech business environments, and can implement Czech-compliant procedures.

Rather than navigating these complex requirements independently, consider engaging ARROWS Law Firm to establish robust compliance protocols. ARROWS Law Firm can prepare Czech-compliant employment contracts, design compliance documentation procedures, ensure all Labour Office notifications are timely and complete, and represent your interests in disputes with authorities.

FAQ – Frequently asked legal questions about employment contracts for Finnish companies in the Czech Republic

1. Can Finnish managers working in a Czech subsidiary use their existing Finnish employment contracts, simply translated into Czech?
No. Standard Finnish employment contracts frequently contain provisions that violate Czech mandatory law—such as more flexible probation terms, different notice periods, or broader grounds for termination. Each Finnish manager assigned to Czech operations requires a Czech-compliant employment contract addressing all mandatory Czech Labour Code requirements.

2. What are the key steps before hiring a foreign employee (including EU/Finnish citizens)?
You must notify the Czech Labour Office no later than the day of commencement of work. Additionally, you must register the employee with the Social Security Administration (ČSSZ) and the health insurance company. For non-EU citizens, work permits or employee cards are typically required beforehand. Failure to meet these notification requirements creates "undeclared work" risks and potential fines up to CZK 10 million.

3. How do we avoid the "Švarc system" false self-employment classification for contractors?
Czech authorities examine actual working conditions, not contract titles. If your contractor works exclusively for your company, uses your equipment, follows your schedule, and performs no independent business activities, Czech authorities will reclassify the relationship as employment regardless of contract designation. To maintain legitimate independent contractor relationships, contractors must work for multiple clients, use their own tools and systems, control their own schedule, and bear genuine entrepreneurial risk.

4. What happens if a labour inspector arrives and we cannot produce employment contracts on site?
You face a separate fine up to CZK 500,000 for failing to maintain copies of employment documentation at the workplace. This fine applies regardless of whether the underlying employment relationship is valid. All employment contracts, work agreements, and foreigner documents must be physically available (or immediately accessible electronically) at each workplace location.

5. Can we terminate a Czech employee more flexibly after an initial probation period, as we would in Finland?
No. After probation ends, Czech law shifts to strong employee protection. Employers can only terminate for specified statutory reasons (organizational changes, health incapacity, poor performance with documented warnings, serious misconduct) and must observe two-month notice periods (unless mutual agreement is reached). Probation periods cannot extend beyond three months for regular employees (unless planned amendments extend this to four months).

6. What social security and health insurance costs should we budget when calculating Czech employee expenses?
Employers contribute 24.8 percent to social security and 9 percent to health insurance on top of gross wages. These are non-negotiable mandatory costs. Additionally, employees have their own contributions (7.1 percent social security and 4.5 percent health insurance) deducted from gross wages. Many multinational companies initially budget only the gross salary, then discover substantial additional costs during payroll implementation.

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.