Experts warn: new law could legalize "švarc system" for 80,000 workers

The Czech government is preparing a new definition of dependent employment that, according to the analytical organization PAQ Research, would effectively legalize between 70% and 90% of current cases of the so-called švarc system. That amounts to some 50,000–80,000 people whose real economic dependence on their employer would remain unchanged — but whom the state would no longer be able to hold accountable.

The švarc system refers to a practice in which a person works for a company not under an employment contract, but as a self-employed individual, issuing invoices instead of receiving a regular salary under a labor contract.

What experts and the ministry say

According to PAQ Research, the current definition of the švarc system is already vaguely worded, making it difficult for the state to effectively combat the practice. The number of officially detected violations remains low — partly because the state lacks the resources for proper oversight.

The Ministry of Labour and Social Affairs countered that the goal of the proposed amendment is not to legalize the švarc system, but to increase legal clarity and more sharply distinguish genuine entrepreneurship from disguised dependent employment. The ministry has proposed including the new definition of employment in an amendment to the Labour Code as part of the preparation of a law on platform work. The documents are currently being reviewed by the Chamber of Deputies.

One in five workers is self-employed

People operating as self-employed individuals typically pay lower contributions, and their actual employer does not make social or health insurance payments on their behalf, as would be required for a regular employee. At the same time, these workers are denied a range of labor rights — such as paid vacation and sick leave — and may end up with smaller pensions in the future.

More than a million self-employed individuals are registered in Czechia, accounting for roughly 22% of the country's workforce — according to PAQ experts, one of the highest shares in Europe.

Specialists say the švarc system is most common in IT, financial services (including insurance), and administrative and support activities — for example, call centers, staffing and travel agencies, and private security firms. The phenomenon also significantly affects transport, construction, food service, and professional services such as accounting, consulting, legal work, and technical services.

Source: novinky.cz