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Liability for wages of subcontractors' employees in construction business

Dear all,

we would like to inform you about the new regulation of liability of contractors for payment of the wages of employees of subcontractors:

On 1 January 2024, an amendment became effective which introduces the liability of construction entrepreneurs (contractors) for the wage claims of subcontractor's employees to the extent that they participated in the contractual performance for the contractor, up to the amount of the minimum wage.

The law also takes into account cases of liability in situations where chains of subcontractors are formed and liability is thus extended to more than one entity:

  1. a)   Liability falls within the chain on the contractor who is directly above the subcontractor;
  2. b)   The contractor at the highest level of the chain is jointly and severally liable with such subcontractor.

However, it is not only the liability for the wage claims of the subcontractor's employees. The contractor shall also be obliged to make mandatory deductions and contributions. Failure to comply with the guarantee obligation within 10 days of the claim may result in a fine of up to CZK 2 million

However, the supplier has the option to completely waive the liability (including chains) if two conditions are simultaneously met:

  1. a)    Upon commencement of the performance of the contract, the subcontractor shall provide the supplier with a certificate that it is not in arrears with public payments (social, health, etc.) not older than 3 months;
  2. b)    The subcontractor has not been fined by an amount exceeding CZK 100 000 for breach of labour law obligations one year before the works started.

Therefore, based on the above, it may be recommended to request both certificates from the subcontractor before commencing the execution of the works and also consider corresponding adjustment of the contractual documentation.

As it happens, with the new regulation also comes certain application problems. There is likely to be increased pressure on contractors given the short timeframe for payment of wages. In addition, the method of verifying the claims of the subcontractor's employee, such as the amount of the wage and the extent of the employee's participation in the obligation, may be problematic. Last but not least, it should be noted that the failure to submit the certificate is unlikely to lead to the contractor's withdrawal from the subcontract, but it will extend the institution of retentions to employees' wage claims, which may lead to a deterioration in cash flow.

Should you have any further questions, feel free to contact us for more information.

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