How and why to avoid false self-employment? Main features and advice

There are currently almost two million self-employed persons (self-employed persons) in the Czech Republic. But how many of them are actually in business and who has a trade licence only in disguise? Check out the main features of the false self-employment ("švarcsystém") and find out how to avoid working illegally.

What is a švarcsystém?

The principle of a švarcsystém is simple: an individual who might normally perform a given job as an employee performs it as a self-employed person. In reality, however, it is not a relationship between supplier and customer, but a classic dependent activity disguised as a business.

An example is a programmer who has a trade licence but works for a single company, regularly visits its headquarters and uses a company computer to carry out his work.

The employer saves money by not having to pay social security and health insurance contributions and by having less administration overall. The sole trader has long-term cooperation and can use the company's equipment and other benefits. However, this method of employment is illegal and carries a high risk of fines and penalties:

• For the employer: a fine from 50,000 CZK to 10 million CZK, ban from work for up to 2 years.
• For a natural person (self-employed): a fine of up to CZK 100,000.
• Other penalties: retroactive payment of social and health insurance contributions including penalties.

Main features of the švarcsystém

If a job position has the typical characteristics of a full-time employee, but instead of an employment contract or agreement (FTE/ FTE) under the Labour Code, the company requires work under an IČO, it may be a švarcsystém.

Caution: on 25 February 2025, the Supreme Administrative Court (SAC) reaffirmed its unequivocal position against the švarcsystém, where companies incorrectly qualify employees as independent contractors in order to avoid employment and, in particular, tax obligations.

In its judgment, the Supreme Administrative Court confirmed a fine of CZK 445,000 for the company HENNLICH, s.r.o., which remunerated persons on so-called invoices, even though their work met the definition of dependent activity. It further emphasised that the actual nature of the employment relationship was decisive and not merely the contractual form.

How to avoid the švarcsystém?

The švarcsystém is and will be a grey area. However, if you follow the following advice, you will significantly increase the chances that you will not be accused of working in a švarcsystém. And if they do, it will be much easier to prove that it is not an employment relationship.

Protecting against a švarcsystém from the company's point of view

A well-drafted contract is essential:

• Clearly define what specific work, or part of it, the self-employed person will perform for you.
• At the same time, it must clearly state the worker's independence.
• Do not limit the cooperation of the freelancer with other customers and omit the competition clause.

The contract should also not contain any aspects typical of a classic employee-employer relationship, such as a fixed monthly remuneration (unless it is a lump sum, e.g. for a service call), fixed working hours, benefits or a place of work at your company's headquarters.

If you don't want to hire an employee directly, use other legal options that don't circumvent the Labour Code, such as a FTE, an employment agency or outsourcing.

Protection against the scarcity system from the perspective of the self-employed

As a self-employed person, make sure that the object of the activity is not continuous work, but its result or one-off performance.

Use your own means to do the work and do it in a location of your choice, ideally away from the customer's head office, business premises or branch. If it is necessary to use the employer's tools or premises, you must contractually anchor their hire.

At the same time, the work schedule should be free. As a self-employed person, you are the master of your time, so do not record your working hours in the attendance book or any other record system of the customer.

Ideally, perform work for multiple clients, under your own name, and invoice according to the work done.

Run your business legally

Already know how to avoid the scabsystem and want to start a business on an IČO? Just fill in the contact form and we'll get to work.

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