Probably everyone has experienced at one time or other, either in person or through someone close they know, being offered work through the so-called ‘false self-employment’. A system where the ‘employee’ is formally listed as self-employed even though their work bears all the hallmarks of a standard employment relationship.
How is this system defined?
The current definition of false self-employment refers to an illegal form of cooperation between an entrepreneur and persons who work for them as self-employed persons, but actually perform work similar to an employment relationship. This system, known in the Czech Republic as ‘the Švarcsystem’, is named after the entrepreneur Miroslav Švarc, who first applied it on a large scale in the 1990s.
Characteristics of false self-employment include:
- Dependent work: The work is performed according to the employer’s instructions, on their premises, and with their means.
- Long-term cooperation: Cooperation has a long-term character and the worker is basically integrated into the organisational structure of the company (formally has superiors or subordinates).
- Absence of one’s own business: A person formally listed as self-employed does not really have their own customers and performs all work for and on behalf of only one ‘employer’.
As of 1 January 2024, in Czech Republic, the definition of illegal work has been amended: it now explicitly states that the duration of work is not critical to assessing its legality. This means that the Labour Inspectorate can also sanction illegal work on the basis of one-off or short-term cooperation, if it shows signs of dependent work.
Is false self-employment really that advantageous?
At first glance, the scheme may seem to benefit both sides – companies save on employer contributions and can react flexibly to labour market fluctuations, while more money is likely to land in the account of ‘employees’.
But the ‘employee’ is also deprived of many of the benefits and security offered by the employment relationship. They are not entitled to holidays, sick leave, and probably can expect a lower pension. Moreover, the state has lower revenues for its coffers, which in the long run has a negative effect on the bottom line.
“Complying with workplace rules protects both the health of employees and equality of opportunity. I insist that everyone deserves a fair and safe working environment, which is why we have long focused on agencies that do not adhere to these basic principles,” says Czech Labour and Social Affairs Minister Marian Jurečka (KDU-ČSL).
Up to 2 year ban possible
Whether false self-employment is immoral or a modern-day necessity could be discussed at length. But there is no question that this is an illegal practice. So far, Czech employers have faced fines of up to CZK 10 million. 2024 saw a tightening of the legislation, however, and bans of up to 2 years are threatened, which could mean liquidation for a large number of companies.
| What inspections from the Labour Inspectorate in the Czech Republic reveal As of 20 April 2024, a total of 1,588 employment agencies were registered. Of these, only 958 retained their permit for temporary assignment. A total of 798 employment agency permits have been terminated. The main reasons were: failure to provide proof of debt-free status and non-payment of the increased deposit. We therefore recommend that all employers thoroughly check their supplier portfolio to ensure that their suppliers still comply with all the legislative rules. |
Do you want to avoid false self-employment? Beware of covert employment
- Covert agency employment is the activity of a natural or legal person that consists of hiring out labour to another legal person or natural person without respecting the conditions for job placement imposed by law.
- The correct method of agency employment is a model where an employment agency assigns its own employee to perform work for the client. The agency then continues to act as an employer in relation to the assigned employee and bears all rights and obligations arising from the employment relationship.
Being fair to employees and the state
Legal employment, agency employment, and workforce outsourcing – these are the main tasks of professional recruitment agencies. Unlike false self-employment, it is a transparent way of providing companies with a flexible workforce while complying with all legal obligations.
Recruitment agencies with a valid job placement permit handle all administration related to employment, including social and health insurance contributions. This allows companies to focus on their core business without risking violations of labour laws.
Do not hesitate to contact us, we will help with finding suitable candidates, the recruitment process, and payroll processing. So you can focus on your company’s core business, without worrying about Labour Office inspections.