Due to the SARS-Cov-2 epidemic causing COVID-19, working from home is becoming an increasingly topical issue. The current legal regulation of working from home is insufficient, which causes a number of interpretation problems in practice.
Legal regulation of working from home
According to the current wording of the Labour Code, it is possible to view working from home, or remote working, in two ways. One of them is a situation where the employees themselves schedule working time in accordance with Section 317 of the Labour Code, which regulates the rights and obligations of employees performing work outside the employer’s workplace, including from home. In such cases, employees are not subject to the organisation of working time and downtime, as well as interruption of work caused by adverse weather conditions, and are not entitled to compensation of wages if they are unable to perform work due to personal obstacles. Exceptions are obstacles such as wedding, death or moving. Furthermore, employees are not entitled to wages/salaries or compensatory leave for overtime work, or compensatory leave or compensation for wages or bonus for work on public holidays. Other working conditions remain the same as for employees working at the employer’s workplace (e.g. entitlement to holiday, training, etc.).
The second situation is that the employees’ working time continues to be scheduled by the employer, typically in shifts. Such a situation can be called working from home without reference to Section 317 of the Labour Code. In this case, the rights and obligations remain exactly the same as when performing work at the employer’s workplace. With such a regime, it is certainly appropriate to clearly agree on the procedures for recording working time.
For both methods, an agreement detailing the conditions of working from home should be entered into between the employee and the employer.
Reimbursement of expenses incurred by employees
In accordance with Section 2 (2) and within the meaning of Section 151 of the Labour Code, when working from home, the employer remains obliged to provide the employee with compensation for expenses that the employee has demonstrably incurred in connection with the performance of work. These include, in particular, compensation for wear and tear of the employee’s equipment and compensation for the creation and observance of working conditions.
In the case of reimbursement of costs in accordance with the Labour Code, no taxable income arises for the employee from such reimbursement pursuant to Section 6 (7) (d) and (e) of the Income Tax Act (hereinafter referred to as the “ITA”), and payments are not subject to social and health insurance contributions. In other words, financial reimbursements of costs provided by the employer which do not increase the employee’s assets cannot be subject to income tax.
The above reimbursements are difficult to pinpoint and prove. In addition, the Financial Administration states in its published statements that it insists on the actual proof of such expenses.
- Compensation for wear and tear of equipment – in addition to telephone and computer equipment, it can also be, for example, a desk, office chair, cabinets or other office equipment. Such expenses may be reimbursed in the amount of the actual expenses or as a lump sum. However, this sum must be demonstrably determined, i.e. it must be substantiated by expense receipts from which the lump sum is determined. The Financial Administration refuses determination of a lump sum based on a qualified estimate. For equipment that would otherwise be depreciated, a lump sum may only be recognised up to the amount of such depreciation.
- Compensation for costs other than wear and tear of equipment – these are costs for heating/cooling, electricity, telecommunications services, home office cleaning costs, etc. According to the Financial Administration’s interpretation, these expenses cannot be proved otherwise than on the basis of actual expenses, i.e. not as a lump sum.
In the event that the employer fails to sufficiently prove the amount of reimbursement to the tax office, such an amount will be considered the employee’s taxable income subject to social and health insurance.
Compensation of expenses paid by the employer to employees in connection with working from home, whether in a proved or unproved amount, may be considered a tax deductible expense of the employer pursuant to Section 24 (1) and Section 24 (2) (x) of the ITA.
If the working time of an employee working from home is scheduled by the employer, the meal allowance in the form of a meal voucher is subject to the standard tax regime as for other employees. If at least 3 shift hours have been worked, the allowance is a tax deductible expense up to the set limits and it is also exempt from income tax on the part of the employee. In addition, the financial meal allowance (meal cash lump sum) will be assessed for tax purposes in the same way as for employees performing work at the employer’s workplace.
For employees who schedule their working time themselves in accordance with Section 317 of the Labour Code, the purchase of a meal voucher is not a tax deductible expense of the employer (the condition of working the shift is not met, actually this shift cannot be determined). However, the meal voucher provided still remains an exempt income of the employee. On the other hand, the meal cash lump sum cannot be exempted from income tax in this scheme, but it can be used as a tax deductible expense of the employer.
In this context, it is also necessary to draw attention to the fact that, for the purposes of creating a permanent establishment, working from home needs to be viewed in the same way as, for example, any other office.
Therefore, working from home may mean the creation of a permanent establishment for a foreign employer employing employees in the Czech Republic, if it is used continuously and at the request of the employer and if this performance of activity forms a part or the whole of its business. An exception is the performance of activity having only a preparatory or auxiliary nature.
Following the changes caused by Covid-19, the OECD has issued information relating to the creation of a permanent establishment based on working from home. The information implies that if an employee works from home due to public health measures caused by the Covid pandemic, this fact, according to the OECD, represents a lack of stability, or has a temporary nature, and therefore cannot lead to the creation of a permanent establishment.
Working from home has its advantages, but also negative aspects. The employee has more freedom and, for the employer, this type of work arrangement reduces the cost of office space, energy, etc. In conclusion, it must be said that the current legislation on working from home is insufficient, which causes a number of interpretation problems in practice. Therefore, in February 2021, an amendment to the Labour Code was submitted to the Chamber of Deputies which, with the proposed effect from 1 July 2021, regulates the conditions of working from home in detail. This amendment could also have implications for shifting the Financial Administration’s approach to tax interpretations.