Can an employer reduce an employee's salary

The basic rule: it won't work without an agreement

The Labour Code (Act No. 262/2006 Coll.), as amended, clearly states that the wage is one of the essential elements of an employment contract (Section 34(1)(a)). In principle, its modification is governed by the same rules as the modification of any other existing contractual arrangement.

If you want to reduce an employee's wage, it is always necessary to obtain their written consent to the new amount. This consent is most often implemented in the form of an amendment to the employment contract. When preparing the amendment and setting up the internal procedure, you can rely on our specialisation in labour law. The agreed wage cannot be unilaterally reduced without an agreement with the employee.

Common situations where employers mistakenly believe they can reduce wages without formalities:

• A significant drop in the company's revenue (economic reasons alone do not justify a unilateral reduction of the agreed wage).

• A change in position or a partial transformation of the job role (you still need an agreement to amend the employment contract, including the wage).

• The termination of a specific project or a reduction in activities (this is also not sufficient for a unilateral wage reduction).

• The employee is on long-term sick leave (the rules for wage compensation are specific, see below, but they do not concern the reduction of the agreed wage for work performed).

If you want to be safe and know the legal ways to proceed in these situations, the lawyers at ARROWS law firm will be happy to explain them to you.

When wages or their components change based on previously agreed conditions or a legal regulation

In practice, there are situations where an employee's income changes without the need to negotiate a completely new ad hoc amendment to the employment contract. These are cases where such a change is foreseen in the employment contract (for variable wage components), a collective agreement, or directly in a legal regulation.

Changes in the amount of variable wage components according to the employment contract

If the employment contract (or an internal regulation to which the contract refers) clearly and comprehensibly sets out the conditions for the payment and amount of variable wage components, such as premiums, rewards, or bonuses, their amount may change without the employee's new consent, provided the established conditions are met. The key is that the conditions for obtaining and paying these wage components must be objective, measurable, and known to the employee in advance. This is also related to the practice of flexible work arrangements – see our summary on the topic of time tracking for home office.

Only variable wage components can be changed in this way. The fixed (basic) wage is agreed upon and cannot be reduced without an agreement. A contractual provision that would allow the employer to unilaterally reduce the fixed wage as a penalty or for any other reason without an agreement would most likely be invalid for being in conflict with the Labour Code.

Changes based on a collective agreement

If you are also figuring out how to correctly reflect the rules for premiums or bonuses in your documentation, legal support in the area of contracts and negotiation can also help.

If a collective agreement has been concluded in your company and it contains rules regarding variable wage components (e.g., conditions for paying premiums, bonuses for achieving certain goals, or, conversely, their reduction for failing to meet set criteria), you can rely on it. A collective agreement has strong legal weight, but it must be in compliance with the Labour Code and meet the formal requirements for its conclusion and publication. However, it cannot establish the right to unilaterally reduce the agreed basic wage.

Changes based on a legal regulation

The Labour Code itself regulates some situations where the amount paid to an employee changes, or where the wage or part of it is not paid. These situations mainly concern wage compensation or wage deductions, not a reduction of the agreed wage for work performed:

Obstacles to work on the employer's side mean an entitlement to wage compensation. In the case of obstacles to work on the employer's side (e.g., downtime or other obstacles), the employee is entitled to wage compensation, typically in the amount of 80% (downtime) or 100% (other obstacles) of their average earnings, unless the parties have agreed otherwise or special regulations stipulate a different procedure.

During obstacles to work on the employee's side, wage compensation or sickness insurance benefits are primarily paid. Specifically, for the first 14 days of temporary incapacity for work (sick leave), the employee is entitled to wage compensation amounting to 60% of their reduced average earnings (Section 192(1) and (2) of the Labour Code). For work agreements (DPP), it may also be crucial to correctly set the limits and contributions – we discuss this in more detail in the article Agreements on Work Performance in 2026: How to correctly set limits, prevent unexpected tax contributions and penalties after changes to the Labour Code.

Deductions from wages: The Labour Code regulates the possibilities of making deductions from wages, but only in cases defined by law (e.g., enforcement of judgments, child support, compensation for damages caused to the employer, wage overpayments) and up to legally established limits (the so-called unseizable amount and the one-third rule). However, these deductions do not represent a reduction of the agreed wage, but rather a deduction after its calculation.

It is precisely in these legal details that mistakes are often made. When the lawyers at ARROWS law firm handle cases where an employer has incorrectly applied legal regulations, it is often due to ignorance of these "silent" rules and a confusion of terms.

Minimum wage and the principle of equal pay

One of the most common mistakes: an employer reduces a wage to a level below the minimum wage. The minimum wage in the Czech Republic is regularly adjusted by government regulation. It is expected to increase further by 2026, and its current amount will be determined by the relevant government regulation. It is always necessary to follow the valid version of this regulation.

The minimum wage applies to all employees, regardless of their activity or job position. Therefore, if you reduce an employee's wage so that their income for standard working hours falls below the level of the current minimum wage, it is a violation of the employee's legal entitlement. Such a reduction is invalid.

The second level of protection is the principle of equal pay for equal work (Section 110 of the Labour Code). This principle states that all employees of an employer are entitled to the same wage for the same work or for work of equal value.

If you have multiple people in the same or a comparable position in your company and you reduce the wage of one of them without an objective reason while the others' wages remain at the normal level, you risk a discrimination lawsuit. A practical example: Employee A and Employee B do the same work. Employee A's wage was reduced by 10% due to a "decrease in company revenue," but Employee B still has their original wage. Employee A can go to court claiming that this is discriminatory conduct.

If the court finds that the reason for the differentiation is not objective and legitimate (e.g., different qualifications, experience, performance), the employer will have to pay the difference (the wage gap) and may also be ordered to pay compensation for non-pecuniary damage.

The lawyers at ARROWS law firm know how to anticipate such situations and set up a procedure so that all decisions about wage changes are factually and legally defensible.

Practical risks and common mistakes

If you reduce a wage without an agreement, the employee can go to court claiming that you have breached their employment contract. The court must then decide whether the change had a legal basis. If not, the court will usually order you to repay the difference in wages (in full for the period the reduction was in effect).

• It may also add interest on late payments from the amount owed.

• In some cases, compensation for non-pecuniary damage is also decided.

The average length of a court dispute over wages is between 1-2 years, but it can take longer. This means the matter can still be active even after the employee has left.

Immediate termination of employment by the employee

An employee has the right to immediately terminate their employment (Section 56(1)(b) of the Labour Code) if the employer "has not paid them their wage or salary, or wage or salary compensation, or any part thereof, within 15 days after the due date." A unilateral, unauthorised reduction of the agreed wage by the employer can be classified as non-payment of a part of it.

The employee can then claim severance pay (in the amount of at least three times their average earnings if the employment relationship lasted longer than 2 years).

• Compensation for lost earnings.

• And possibly compensation for non-pecuniary damage.

If an employee leaves, citing that you are at fault, and later claims severance pay and other entitlements, you may face another legal dispute.

Impacts on tax and social security contributions

Reducing the wage also changes the basis for calculating income tax and social and health insurance contributions. If you make the reduction retroactively or without proper legal adjustment, it may later be discovered that you have calculated the employee's tax or contributions incorrectly. This then leads to corrected payroll records, refunds or additional payments, and may also result in penalties from the tax authorities or social security administrations.

How to proceed correctly if you want to reduce a wage

Step 1: Determine if you have a legal basis

Review the employee's employment contract and related internal regulations (e.g., wage regulations). Find out if there are provisions concerning variable wage components whose amount can change based on pre-determined and objective criteria. To reduce the basic (fixed) wage, an agreement with the employee is always necessary.

Step 2: Prepare written grounds

It is never a bad idea to have the justification for the proposed wage reduction in writing (or in an email). This does not mean the employee must agree just because you present them with economic reasons – but it carries weight in a potential future dispute. The employer should be able to prove that the reduction was part of solving a legitimate problem and was made by agreement.

Step 3: Communicate with the employee

Preferably in person, or at least by phone. Present them with the proposal for the change. Listen to their arguments. In many cases, the matter can be resolved without conflict, for example, by agreeing on a temporary reduction or a gradual decrease, or by agreeing on another form of solution.

Step 4: Conclude a written amendment

Once the employee agrees to the reduction of the fixed wage or the adjustment of variable wage components beyond the scope of the original rules, formalise it in writing. The amendment to the employment contract must contain:

It is necessary to state the old wage amount (or the original rules for variable components).

• The new wage amount (or the new rules for variable components).

• It must also include the effective date of the change.

• The signatures of both parties.

Carefully store the amendment in the employee's personnel file.

Step 5: Handle the technical side

Recalculate the payroll records, the basis for income tax, and social and health insurance contributions. Make sure the new wage is not below the current minimum wage and does not violate the principle of equal pay.

If you want to be sure that all these steps are carried out safely and without legal risk, the lawyers at ARROWS law firm will be happy to help you with the preparation of amendments, review of employment contracts, and legal opinions on individual situations.

Special situation: Wage compensation during sick leave

An employee on sick leave is entitled to sickness benefits from the Czech Social Security Administration from the 15th day of their incapacity for work. For the first 14 calendar days of sick leave, they are entitled to wage compensation from the employer. The Labour Code states that the employer must provide wage compensation of at least 60% of the reduced average earnings (Section 192(1) and (2) of the Labour Code).

It is not possible to "automatically" reduce an employee's agreed wage during a period of sick leave without an agreement. The agreed wage only applies to remuneration for work performed. Wage compensation is different and is governed by special rules. The minimum 60% entitlement to wage compensation always exists. Anything above this statutory minimum is governed by the employment contract or a collective agreement, provided they contain specific and valid arrangements.

Another specific case: An employee is on holiday, and you want to reduce their agreed wage during that time. Be careful – mistakes are most common in these situations. Taking holiday is governed by special rules, and the employee is entitled to wage compensation equal to their average earnings for that period. A wage reduction for the period when the holiday was taken would only be possible based on an agreement that became effective before the holiday was taken. Formal agreement is also recommended here.

Final summary

Reducing an employee's wage may seem like a simple gesture in practice – perhaps an email with the new amount or a verbal promise. The reality is much more complicated. The Labour Code, the principle of equal pay, the protection of the minimum wage, tax and insurance rules, and especially the strong legal protection of the employee place all situations in a stricter framework than many managers think.

Mistakes in this process are expensive: they lead to legal disputes that last for months or years, to the obligation to pay wage differences including interest, to fines from state inspection authorities, and can damage your reputation among other employees and potential candidates. A single mistake can be laboriously resolved by the lawyers at ARROWS law firm – but it is easier to prevent it.

If you are considering reducing the wage of any employee, it is safer and, in the long run, more effective to discuss the procedure with the lawyers at ARROWS law firm. They will help you with the preparation of amendments, a legal opinion on your situation, a review of employment contracts, and communication with the employee. Without risk, without surprises, without lawsuits. Contact them at consultation@arws.cz.