Švarcsystém: When Hiring Czech Contractors Counts as Illegal Employment
If a person works for you the way an employee does but invoices you as a sole trader, Czech law calls it nelegální práce — illegal work, known locally as švarcsystém. The company faces a fine of CZK 50,000 to 10,000,000, the contractor up to CZK 100,000, and since 2025 the labour inspectorate may publish the decision on its notice board for a year. What the contract says is close to irrelevant; what matters is how the work is actually performed.
Updated: 2026-09-11. This is general information, not legal or tax advice.
The statutory test
Section 2(1) of the Labour Code defines dependent work by four features that must all be present: the work is done in a relationship of superiority of the employer and subordination of the worker, in the employer’s name, on the employer’s instructions, and personally by the worker. Section 3 then says such work may be performed only in an employment relationship — a pracovní poměr, a DPP or a DPČ agreement.
Two points foreign founders regularly miss:
- Duration is irrelevant. Effective 1 January 2025, the definition of illegal work in § 5(e)(1) of the Employment Act dropped the requirement that the work be systematic. A two-day engagement can be illegal work.
- Being a registered OSVČ changes nothing. A trade licence, an IČO and correct invoices do not turn dependent work into a business relationship.
What it costs when it goes wrong
| Who | Offence | Penalty |
|---|---|---|
| Company | Permitting illegal work — § 140(1)(c) | CZK 50,000 – 10,000,000 (§ 140(4)) |
| Company | Disguised employment mediation — § 140(1)(e) | CZK 50,000 – 10,000,000 |
| Individual doing the work | § 139(1)(c) | up to CZK 100,000 |
The fine is the visible part. Reclassification also brings back-assessed payroll tax and social and health insurance for the whole period — including the employer’s 33.8% share (24.8% social + 9% health) — plus late-payment interest. Since 2025 the inspectorate may also publish the decision on its notice board for one year, which for anyone bidding for contracts tends to hurt more than the money.
The 2026 ruling every platform business should read
In April 2026 the Constitutional Court closed the long-running case over couriers working for Rohlik.cz. The operator, VELKÁ PECKA, s.r.o., had been fined CZK 2.5 million for permitting illegal work by couriers engaged as self-employed contractors; the Supreme Administrative Court rejected the cassation complaint and the Constitutional Court dismissed the constitutional complaint in decision file no. IV. ÚS 393/26 of 8 April 2026.
Two findings matter well beyond food delivery. First, the substance of the relationship decides, not its contractual label. Second — the part that catches well-drafted contracts — a formal right of substitution or freedom to work for competitors does not help if nobody ever used it.
How likely is a check?
SÚIP’s 2025 figures: of 21,146 inspections, 6,278 targeted illegal employment. Illegal work was found at 1,089 businesses, involving 2,484 people, with fines above CZK 133 million. It remains a stated priority for 2026, now coordinated with the tax authority, the police and the social security administration.
Three set-ups that get foreign companies into trouble
1. No Czech entity, but Czech “freelancers” working full time. A foreign company contracting people in Czechia who work exclusively for it, to its schedule and instructions, is exposed twice: to the illegal-work rules and to permanent establishment. Under § 22 of the Income Taxes Act, services provided in Czechia by a non-resident or by people working for it for more than six months in any 12 consecutive months create a service PE, and with it a Czech corporate tax filing duty. Compare the routes in employer of record vs. your own Czech company.
2. Paying the managing director as a contractor. A jednatel cannot invoice the company for the statutory office as an OSVČ. It is remunerated under a service agreement approved by the general meeting, with its own tax and insurance treatment.
3. Converting employees to contractors to cut payroll cost. A group of people doing the same job, at the same desk, on the same terms until the day their contracts changed is the classic trigger. Payroll history is the first thing an inspector asks for.
What a defensible contractor relationship looks like
- The contractor works for several clients and can prove it.
- Payment is for a deliverable or output, not for attendance; the invoice amount actually varies.
- The contractor uses their own equipment and covers their own costs.
- No fixed working hours, no shift roster, no attendance tracking.
- A real, and occasionally used, right of substitution.
- No company e-mail, business card, uniform or slot in the org chart.
- A contract that describes an outcome — and daily practice that matches it.
Compliant alternatives, side by side
| Arrangement | When it fits | Cost signal |
|---|---|---|
| Employment (pracovní poměr) | ongoing, directed work | employer adds 33.8% on gross pay |
| DPP (agreement to perform work) | occasional work, max 300 hours/year per employer | no insurance below CZK 12,000 per month |
| DPČ (work activity agreement) | regular part-time work | insurance applies from CZK 4,500 per month |
| Genuine B2B contract | independent specialist, several clients | no payroll cost, but the substance test applies |
| Employer of record | market entry without an entity | highest per-head cost, lowest set-up effort |
Full employer costs are broken down in the cost of hiring in the Czech Republic; registration steps for a first hire are in hiring your first employee in a Czech s.r.o.. On the other side of the arrangement, see freelancing in the Czech Republic as a foreigner.
FAQ
Can I hire a Czech contractor with no company in the Czech Republic?
Yes, for genuinely independent services. The risk is the substance of the relationship, plus the six-month service PE threshold in § 22 of the Income Taxes Act.
Does a written contract stating “this is not employment” protect me?
No. Both the labour inspectorate and the courts assess the real content of the relationship. A disclaimer that contradicts daily practice is evidence against you, not for you.
Is a one-off engagement safe?
Not automatically. Since 1 January 2025 the definition of illegal work no longer requires the work to be systematic, so even a short engagement can qualify.
Who pays if the relationship is reclassified?
The company owes back payroll tax and both insurance contributions, plus interest, on top of the fine. The contractor may also be fined up to CZK 100,000.
What is a DPP or DPČ?
Czech statutory agreements outside a standard employment contract. Both are proper employment relationships, so they remove the illegal-work risk while keeping flexibility.
Get the structure right before the inspector does
We map each role you plan to fill, price employment, DPP, DPČ and genuine contracting side by side, and run payroll so the arrangement holds up under inspection. Talk to us about accounting and payroll services in the Czech Republic.