In the first half of this year, the number of self-employed individuals in the Czech Republic rose by 19,000, hitting a record 1.174 million, according to data from the Czech Social Security Administration (ČSSZ). Notably, last year the total increase over twelve months was 28,000. This unusual spike has drawn attention, experts suggest it may not reflect increased entrepreneurial activity, but rather a consequence of the controversial “Švarc system.”
What is the Švarc System?
The Švarc system refers to a form of disguised employment, where individuals who could legally be employed by a company instead register as self-employed. This enables them to work for a single company, often full-time and under the company’s direction, while avoiding the protections, taxes, and contributions associated with regular employment. The shift is often driven by companies and workers seeking to save on social security, health insurance, and other payroll costs. A recent study estimated that approximately 175,000 self-employed individuals in the Czech Republic may actually be partaking in the Švarc system.
Švarc System underlying the statistical record
Regional data from the ČSSZ highlights that Prague hosts the highest number of registered self-employed individuals (221,000), followed by Central Bohemia (167,000) and South Moravia (132,000). However, experts caution that much of the rise may be an artifact: companies and workers may be converting employment relationships into trade license-based ones to sidestep increasingly costly and bureaucratic short-term work contracts, thereby inflating the numbers of “entrepreneurs” without reflecting true entrepreneurial growth.
Broader implications and context
According to critics, the Czech Republic stands out in the European Union for how prominently self-employment figures in its economy. Over 95 % of Czech enterprises employ between one and nine people, and these small businesses are the backbone of the job market, accounting for over one-third of total employment. In this context, the growth of purported entrepreneurs must be scrutinized: if driven by the Švarc system, it risks undermining workers’ protections, reducing public revenues, and destabilizing the labor market.
Conclusion: record numbers, distorted reality
While official figures indeed indicate a record-high number of self-employed individuals in the Czech Republic, the rise is likely fueled not completely by a genuine boom in entrepreneurship but by the spread of the Švarc system. Although legally self-employment is permitted, the Švarc variant disguised employment is illegal and controversial. The trend reflects economic actors responding to contract restrictions by “shifting” workers into self-employment, raising concerns about labor rights, public finances, and the accuracy of statistical indicators.
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