Employment versus self-employment: what to decide?

03.11.2025 Tips and advice Trade licenses

Deciding whether to be employed or to embark on a career as an entrepreneur doesn't usually come overnight. Sometimes circumstances lead you to it, other times you may already be running a business on the side and wondering if you should start a full-time business. Whatever the reason you're considering a change, it's worth knowing how a trade and a job differ - including the responsibilities and potential risks. It's easier to choose the right path.

What you can learn in this article:

What's the difference between a job and a self-employed business?
Advantages and disadvantages of employment and trade
Differences between business and employment in practice
Is a trade more financially advantageous than employment?
Side business as a slow start in business
Did the business win? We can help you get started!

What are the differences between employment and self-employment?

Before we get into the comparison, we'll explain what it means to run a business on an IČO and what a traditional job entails :

1
Employee

An employee works for an employer on the basis of a contract of employment on a permanent basis (HPP), or as a temporary worker - on a contract for the performance of work (DPP) or a contract of employment (FTE).
His/her work is considered a so-called dependent activity. He receives a regular salary, uses company tools and equipment and has set working hours.
The employer pays compulsory contributions (personal income tax, social security and health insurance) on his behalf.

2
Self-employed (entrepreneur, sole trader)

First, he/she must obtain a trade licence and register in the public register. This gives them an ID number, which is unique for each entity (company and sole trader) and is used on documents and when communicating with the authorities.
As a self-employed person, the sole trader then works for himself, invoices clients and handles all administration himself.
The self-employed person calculates and pays the compulsory social security and health insurance contributions and taxes on business income on his own.

Are you confused between the terms self-employed, sole trader, entrepreneur or working under an IČO? In fact, there is no difference between them - they all refer to a person who runs a business on a business license, only self-employed is the official official term.

Advantages and disadvantages of employment and trade

Employment offers stability, regular income and less administration. However, it comes with more restrictions and management control. On the other hand, entrepreneurship brings freedom - earnings depend on you and you decide your own time. It also means more responsibility, uncertainty and obligations to the authorities.

Explore the main areas of both types of work and learn about their pros and cons:

Area	Employment	Entrepreneurship (self-employed)
Security of regular income	High	Low
Flexibility	low	High
Sick leave, vacation	always paid	Paid, only if the self-employed contributes to sickness insurance
Own administration	Minimum	Higher
Levies (taxes, insurance premiums)	Higher (both employee and employer pay)	lower
Benefits (food vouchers, car, education...)	according to the company's offer	Self-employed person has no benefits; pays for meals, car, etc. at own expense
Earning potential	limited by salary and possible bonuses	theoretically unlimited
Personal responsibility	Low	High

TIP: Beware of the scarcity system! A combination of the benefits of both options works best. However, if you work for a company as a regular employee and you invoice under an ID number, you are not running a business, but a dependent activity in the eyes of the law.

If your employer does not enter into an employment contract with you and instead asks you for invoices, but you work according to his instructions, at precisely set times, use company equipment and your work is managed and controlled by someone (either from the office or remotely), it may be a so-called "shvarcsystem". This is illegal and carries fines not only for the company but also for you.

Differences between business and employment in practice

Although a comparative table of advantages and disadvantages may make your decision easier, the following specific situations will give you a better idea of the impact on your daily life.

Who decides when and where you work?

In employment, you usually have fixed working hours or at least a framework of when you have to be available. Your time off is arranged with your boss and the work has a clear beginning and end. Similarly, your employer will usually ask you to attend the company's headquarters at least occasionally.

In business, you manage your own time. You can work mornings, evenings or weekends depending on what suits you and how well you can organise your time and responsibilities. The location of the business depends entirely on you and the nature of your work - you can run your business from home, in a workshop, a rented office or even a coworking space.

How do responsibilities at work and in business differ?

At work you are responsible for your work, but the final decision and consequences are usually the responsibility of your manager or the company. If something goes wrong, you are liable for any damages up to a maximum of 4.5 times your average monthly salary.

As a self-employed person , you are responsible for the job, the deadline and the result. If something goes wrong, you lose time and money. If the client doesn't pay, you pay out of your own pocket. And in the event of debt , as a sole trader you are liable with all your personal assets.

Can you afford to get sick or take time off?

You have some job security. If you get sick, you can stay at home and recover without losing income. The first few days of sick leave are paid by your employer and the rest by the state. Similarly, you can take leave without much thought and get paid for it.

It's not that simple in business. Time off means loss of income. When you get sick, it's not just your health that's at stake, it's the work you miss. If you don't pay your sickness insurance, you won't get anything from the state when you're sick - even if the payslips keep coming.

TIP: A situation other than illness can affect the financial stability of a self-employed person. Read our article on insurance for entrepreneurs to find out how to protect yourself from the consequences of unexpected events.

What do you need to watch out for?

At work, a payroll accountant takes care of most of the paperwork. She calculates income taxes, social security and health insurance and sends all mandatory contributions to the state. You just sign the tax declaration and you don't have to file anything further. You just report any significant changes in your situation to your employer, such as a change in your health insurance, residence, marital status or entitlement to benefits.

It's different for the self-employed. Whether it's tax payments, tax returns or reports for the Social Security and Health Insurance Institutions, you keep track of everything, calculate it, report it to the authorities and pay it yourself. However, you can work with an accountant who can advise you on what to send where, what to pay and what not to forget.

TIP: For the most important information for self-employed people, read our article on what you need to know before you start your own business.

Is a trade more financially viable than employment?

The difference between an HPP and a sole proprietorship is not only how you work, but also how much of the money you earn you will have left over.

Payments and contributions of a sole trader

A self-employed person does not pay tax and levies on the full amount they earn, but on their income after deducting expenses. That is, on the amount that represents gross profit.

As a sole trader, you have two options for deducting expenses:

1
You keep tax records or accounts and have an accounting document for each expense (materials, software, telephone or transport etc).
2
You use ' flat-rate expenses' and deduct a fixed percentage of your income, depending on the type of business you do; in this case, you do without collecting receipts.

You then make three payments to the state from the resulting income:

Income tax - as part of your tax return once a year; a 15% basic rate, which you can reduce through tax credits and deductions;
health insurance - a minimum of CZK 3,143 per month in 2025;
social insurance - minimum CZK 4,759 per month in 2025.

After the tax return has been prepared, you will also fill in reports for the health insurance company and the Social Insurance Institution (ČSSZ), where you will calculate the insurance premiums according to your actual income. If you have paid lower advance payments during the year, you will have to make up the difference. On the other hand, if you paid more, you will have an overpayment which you can have refunded or carried forward.

TIP: If you qualify, you can sign up for a 'flat-rate tax', which means you don't have to file a tax return or insurance statements. Instead, you'll pay one monthly amount that includes both income tax and deductions, so you'll simplify your paperwork considerably. However, it's not worth it for everyone. Read more about the flat tax.

Contributions for employees

It's easier for you at work. Your employer calculates and pays your taxes and deductions for you, so you don't have to worry about anything. You get your so-called net wages in your account each month - after all deductions have been made:

15% income tax,
health insurance 4.5%,
social security 6.5%,
0.6% sickness insurance.

In addition, your employer pays an extra 33.8% (24.8% social security and 9% health insurance) out of his own pocket.

Example:

The employee takes home approximately CZK 36,000 a month net after all deductions and tax credits.
His friend, who runs a graphic design business and applies a 60% flat-rate spending allowance, takes home almost CZK 1,000 more per month. He will pay less tax and, thanks to a bonus for his children, he will get something extra from the state.

Want to calculate your net income? Use the online calculator to compare the salary and income of self-employed 2025.

Side business as a slow start in business

Moving from employment to self-employment or vice versa is a big change. Before you apply for a business license, answer a few simple questions.

Can I do without a regular salary?
Can I cope with months when the income will be less?
Do I have enough in reserve if the business doesn't go as planned?
Can I handle the paperwork or do I have someone to help me?
Can I work without a supervisor?

One of the advantages of being an entrepreneur is that you can start slowly while you are employed. As a freelancer on the side, you get to test out how the work suits you, what it takes to communicate with clients and how much you really earn. If you are confident, you can quit your current job.

Did the business win? We'll help you get started!

Have you decided to jump into business with your feet on straight? You don't have to go it alone - we can help you set up your business, explain everything you need to know or prepare your tax return. Just drop us a line using the form below.

Contact information

Write to us and we’ll get back
to you within 24 hours.

+420 226 224 724

info@jake-james.cz

Revoluční 736/15, Praha 1

First name

Last name

Phone

E-mail

Message

I consent to the processing of my personal data

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

News from our blog