In the following article, we provide an overview of some important changes in the area of payroll for employers. The first relates to the taxation of employees' income in connection with the private use of low-emission cars, and the next relates to the increase in travel allowances and the related increase in the exempt limit for meal vouchers. The last novelty is the social security discount for employers for part-time employees. Some of these changes need to be taken into account already in the current tax year, others will only take effect from 2023.
Low-emission cars for private use by employees
In the context of promoting low-emission mobility, the legislator has changed the way the amount of income taxed in the employee's wages as non-monetary income for the free provision of a vehicle for private purposes is calculated. As the reduction in taxable income has an impact on the employer's costs in the form of a related reduction in compulsory insurance contributions, the legislator hopes that this amendment will increase employers' incentives to provide more environmentally friendly vehicles to employees.
The change was first applied to wages for July 2022 and can be projected for the entire year 2022 when the annual tax return is settled or filed. The employee will incur an overpayment of tax. More detailed information on how an employer, as a taxpayer, should proceed after the end of the tax year to take into account the retrospective effect of the reduction in taxable income can be found in the GFD information of 30 June 2022.
Until 30 June 2022, the employer's practice was to calculate the employee's non-cash income in the form of the free use of the car provided for private purposes as 1% of the entry price of the car, including VAT. Now, the type of car provided to the employee must be examined. If the car meets the criteria of a "low-emission car", a rate of 0.5% is used to calculate the monthly non-cash income taxed in wages.
A low-emission vehicle is a motor vehicle of category M1, M2 or N1 that does not exceed a CO2 emission limit of 50 g/km and 80% of the emission limits for air pollutants in real operation according to the relevant European regulation. These limits are valid until the end of 2025 and the reduced percentage of the revenue calculation will therefore apply to battery-powered electric vehicles, hydrogen vehicles, plug-in hybrids or electric vehicles with extended range meeting the limits. From 2026 onwards, only zero-CO2-emitting vehicles will be considered as low-emission vehicles, which will be exclusively battery-powered electric vehicles and hydrogen vehicles. The employer will assess compliance with the emission limits by means of a "Certificate of Conformity" (COC). CO2 emissions can also be assessed from the vehicle registration certificate. For more information on the assessment of vehicles as low-emission vehicles, refer to the GFD information of 25 August 2022.
However, social security and health insurance regulations have not responded to the retroactive tax change. Although the assessment base for these levies is based on the value of taxable income calculated for tax purposes, it is assessed monthly, without the equivalent of an annual tax assessment. As confirmed by the General Health Insurance Company (VZP) and the Czech Social Security Administration in response to a query from the Chamber of Tax Advisors, the change will not affect social and health insurance contributions retroactively for the months of January to June. Therefore, if an adjustment is made for tax purposes in the annual settlement or tax return, there will be a difference between the annual aggregate of the assessment bases for insurance purposes and the annual tax base for employment.
Change in the amount of travel allowances and the exempt amount of the meal voucher allowance
Given the current price level, the legislature also responded with another increase in travel reimbursement rates, this time effective from 20 August 2022.
From that date, there has been a significant increase in the meal allowance for domestic business trips. In addition to the calculation of travel allowances, this also affects the amount of the exempt meal allowance. This limit has increased from CZK 82.60 to CZK 99.40 per shift worked.
In addition, the average fuel price, used in particular to calculate compensation for the use of one's own vehicle during a business trip as an alternative to proving the actual cost of fuel, has increased again.
The current text of the Decree establishing travel allowances is available on the website of the Ministry of Labour and Social Affairs.
Discount on social security contributions
The last innovation we would like to draw your attention to was introduced by the Ministry of Labour and Social Affairs with the intention to support the employment of certain groups of people. The legislator wants to motivate employers to create part-time jobs for people who usually cannot work full-time and may thus be disadvantaged on the labour market. If certain criteria are met, employers will be able to apply a 5% discount on social security contributions.
The criteria for applying the discount are linked to (i) the person of the employee and (ii) the parameters of the employment or service relationship.
The discount can be applied to an employee in an employment or service relationship who (simplified):
- is under the age of 21;
- is over the age of 55;
- cares for a child under the age of 10;
- cares for a loved one who depends on help from another person;
- is also preparing for a future profession by studying at a secondary school or university;
- is a person with a disability in an unprotected labour market; or
- started retraining as a jobseeker in the 12 months before the discount was applied.
The employment or service relationship in question must meet the following criteria (except for employees under the age of 21, for whom the restrictions do not apply):
- the employee works part-time between 8-30 hours per week (the discount is only for one such part-time job, and the hours with the same employer are cumulative);
- the sum of the employee's assessment bases from the hours worked per calendar month for the employer does not exceed 1.5 times the average wage;
- the aggregate of the employee's assessment bases on hours worked for the employer in question per hour of the total hours worked in the calendar month does not exceed 1,15 % of the average wage;
- the hours worked for the employer do not exceed 138 hours in a given month; and
- the employee is not covered by the contribution from the Labour Office during part-time work.
The employer must notify the Czech Social Security Administration on the prescribed form at least one month before beginning to apply the discount.
The rebate will be available from 1 February 2023, first in payroll for February 2023. We recommend that employers who wish to take advantage of the rebate investigate their eligibility in detail and consider the administrative burden of claiming it.