How to correctly calculate the average earnings in the Czech Republic? | News Flash

The amendment to the Czech Labour Code, which came into effect as of 30 July 2020, has also affected the calculation of employees´ average earnings, whereas this change is significant especially to employees with lower incomes. According to the previous legislation, it was necessary to comply with the minimum wage limit only, but employers must now ensure that the amount of the average earnings also reaches the guaranteed wage limit. And if it does not, the average earnings must be adjusted to this limit by the employer.

To explain, the guaranteed wage is an instrument similar to the minimum wage. However, while the minimum wage is a general remuneration for work limit, the guaranteed wage is a minimum limit of remuneration according to the strenuousness, complexity and responsibilities associated with such work. The amount of the guaranteed wage is determined by the Government Regulation no. 567/2006 Coll., which divides individual jobs into 8 groups, where the simplest jobs that do not require any special qualifications fall into the first group (and the guaranteed wage equals the minimum wage here, i.e. CZK 14,600; e.g. cleaning), while the most demanding jobs in terms of complexity and responsibility, with high psychological strain and demands on creative and abstract thinking, fall into the eighth group (with a guaranteed wage of CZK 29,200; e.g. financial and capital market trading). Similarly to the minimum wage, the amount of the guaranteed wage is valorised annually.

Therefore, in order to be able to ensure compliance with the guaranteed wage when calculating the average earnings of its employees, the employer must assign each employee to one of the guaranteed wage groups. If the employer fails to fulfil this obligation and does not take into account the guaranteed wage limit when calculating the average earnings, there is a risk of recourse, among other things, in the form of a penalty for committing an offense in the area of employee remuneration in the amount up to CZK 1 million, depending on the circumstances and severity.