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Employment in Hungary

Key points on employment in Hungary

There are several key areas to be aware of within Hungary’s employment framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.

  1. Contracts

    Hungarian labour relationships are governed by Act I of 2012 Labour code. As Employment contracts should be in writing and should include the following information.

    • Employee’s base wage and job function
    • Term of the employment contract. In the absence of the term, the employment contract is deemed to be for an indefinite period of time.
    • Workplace details
    • A probationary period of not more than 3 months from the date of commencement of the employment relationship

    Within 15 days from the commencement of the employment relationship, the employer should inform the employee in writing

    • Daily working time
    • Wages above the base wage and other benefits
    • Frequency of wage payment and day of payment
    • Job functions
    • Number of days of paid annual leave
    • Rules governing notice period
    • Whether a collective agreement applies to the employer

    Specific types of contracts

    There are 2 main types of employment contracts.

    • Fixed term (határozott időre szóló munkaszerződés)

    Duration of a fixed term contract cannot exceed 5 years. A fixed term employment relationship maybe extended between the same parties for a 6 month period or another fixed term relationship may be concluded within 6 months from the termination of the previous fixed term contract.

    • Indefinite (határozatlan időre szóló munkaszerződés)

    Includes permanent employees

    *In addition there are assignment contracts (vállalkozói szerződés) where an individual works as a sole trader and invoices the company. These types of contracts are cheaper for employers since tax and social contributions are high in Hungary.

    These can include:

    • Full or part time work
    • Teleworking
    • Permanent employment relationships
  2. Probationary periods

    Probationary period may not exceed 3 months. However, if the probationary period is less than 3 months parties to the employment agreement may extend the probationary period up to 3 months.

    The term of the probationary period of a collective agreement cannot extend 6 months. An employment contract can be terminated by either party without giving prior notice during the probationary period.

  3. Termination Procedures

    An employment relationship can be terminated:

    • By mutual consent
    • By notice
    • By dismissal without notice

    Termination by Notice:

    Employers may not terminate the employment relationship by notice:

    • During pregnancy
    • During maternity leave
    • During a leave of absence taken without pay for caring for a child

    Employers are required to justify their dismissals. An employee may be dismissed for reasons in connection with his/her behaviour in relation to the employment relationship, with his/her behavior in connection with the employer’s operations.

    Employer may terminate a fixed term employment relationship by notice:

    • In the event of liquidation or bankruptcy
    • For reasons related to the worker’s ability
    • Due to unavoidable external reasons

    Notice period:

    The period of notice will be 30 days.

    Where the employment is terminated by the employer, the notice period shall be extended

    • by five days after three years;
    • by fifteen days after five years;
    • by twenty days after eight years;
    • by twenty-five days after ten years;
    • by thirty days after fifteen years;
    • by forty days after eighteen years;
    • by sixty days after twenty years

    By agreement notice period can extend up to 6 months

    Collective redundancies:

    A collective redundancy means when an employer, based on the average statistical workforce for the preceding six-month period, intends to terminate the employment relationship:

    • of at least ten workers, when employing more than twenty and less than one hundred employees,
    • of 10 per cent of the employees, when employing one hundred or more, but less than three hundred employees,
    • of at least thirty workers, when employing three hundred or more employees, inside a period of thirty days, for reasons in connection with its operations

    At least 7 days before the discussions, the employer should inform the works council, in writing, the following details pertaining to the redundancy:

    • the reasons for the projected collective redundancies
    • the number of workers to be made redundant broken down by categories
    • the period over which the projected redundancies are to be effected, and the timetable for their implementation
    • the criteria proposed for the selection of the workers to be made redundant
    • the conditions for and the extent of benefits provided in connection with the termination of employment relationships, other than what is prescribed in employment regulations

    Severance payment:

    An employee is entitled to severance pay if his/her employment relationship is terminated by

    • by the employer
    • upon the dissolution of the employer without succession

    Severance pay shall be the sum of the absentee pay due for:

    • one month for up to three years
    • two months for up to five years
    • three months for up to ten years
    • four months for up to fifteen years
    • five months for up to twenty years
    • six months for up to twenty five years

    Termination without notice:

    An employer may terminate an employment relationship without notice if:

    • willfully or by gross negligence commits a grave violation of any substantive obligations arising from the employment relationship
    • otherwise engages in conduct that would render the employment relationship impossible

    Right of termination without notice may be exercised without giving reasons:

    • by either party during the probationary period
    • by the employer during fixed term relationships
  4. Statutory leave

    Sick leave: 15 days of sick leave per calendar year

    Annual leave: Employees are entitled to 20 days of basic annual leave. They are also entitled to additional annual leave based on their age.

    • one working day over the age of twenty-five;
    • two working days over the age of twenty-eight;
    • three working days over the age of thirty-one;
    • four working days over the age of thirty-three;
    • five working days over the age of thirty-five;
    • six working days over the age of thirty-seven;
    • seven working days over the age of thirty-nine;
    • eight working days over the age of forty-one;
    • nine working days over the age of forty-three;
    • ten working days over the age of forty-five

    Allocation of annual leave shall be as follows:

    • Allocate 7 working days of vested time in a given year of not more than 2 parts
    • Vacation shall include at least 14 consecutive days at a time

    Employees are entitled to the following additional annual leave as well.

    • Two working days for one child, four working days for two children, a total of seven working days for more than two children
    • Paternity leave: Father will be entitled to five days of vacation in case of the birth of one child, seven working days for the birth of twins
    • Young workers (until they reach the age of eighteen) will be entitled to five extra days of vacation each year
    • Employees working permanently underground will be entitled to five extra days of annual leave each year

    Working hours

    Daily working time for full time employees is 8 hours and the work schedule must  meet health and safety regulations effective in Hungary. Based on an agreement between the employer and employee, full time working hours per day can be extended. However, such total hours cannot exceed 12 hours a day. On average the full time hours per week would be 40 and cannot exceed 60 hours.

    Rules relating to work schedules:

    • Work will be allocated for a five day work week (Monday to Friday)
    • Daily working time will not exceed 12 hours or 24 hours in the case of stand by jobs
    • Weekly working time of such employees shall not exceed forty eight hours or seventy two hours in the case of stand by jobs

    Rest breaks:

    If the scheduled daily working time or the duration of overtime work performed

    • Exceeds six hours, a twenty minute break will be provided
    • Exceeds nine hour s, an additional twenty five minutes will be provided

    Daily rest period shall be as follows:

    • At least seven hours of uninterrupted rest period
    • At least eight hours of daily rest shall be provided to employees working on
      • Split shifts
      • Continuous shifts
      • Multiple shifts
      • Seasonal jobs
      • Stand by jobs

    Weekly rest period shall be as follows:

    • Two rest days per week
    • After six days of continuous work, one rest day shall be provided

    Overtime:

    Overtime work shall be ordered in writing. For full time jobs, two hundred and fifty hours of over time work can be ordered in a given calendar year.

    On call and stand by duty:

    Duration may not exceed 24 hours per day. Duration of the stand by duty may not exceed 168 hours which shall be taken as the average in the event that banking of working time is used.

    Maternity leave:

    Mothers will be entitled to 24 weeks of maternity leave

    Employees will be entitled to unpaid leave if the employee requests leave to take care of the child until the child reaches 3 years of age

  5. Pensions and benefits

    Employer contributions:

    • 27% social security contribution (24% pension+3% health)
    • 5% labour market contribution

    Employee contributions:

    • 10% pension contribution
    • 7% health contributions
    • 5% labour market contributions

    Citizens who are not insured are required to pay HUF 231 per day for health contribution

    Retirement benefits:

    This is operational under a compulsory governmental pension fund scheme. The basis is the average monthly salary earned since 1988 multiplied by an inflation adjustment rate. Minimum pension fund benefit is HUF 28,500 per month.

    Private benefit plans:

    Includes voluntary schemes provided by Voluntary Mutual Pension Funds (VMPS). Members of a voluntary pension fund can decide to take either of the following actions after a 10 year waiting period.

    • Continue make contributions
    • Withdraw partial or full savings from their account

    Voluntary pension fund contributions can be made by the employee as well as the employer. 27% of the contributions paid by the employer are transferred to the state pension system and 10% contributions paid by the employee are transferred to the compulsory private pension fund.

    In Voluntary Mutual Pension Funds (VMPF) employers contribute 2%-6% of salary to the funds and employees are required to make half of the employer’s contribution.

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Hungary. For companies which intend to employ their staff directly through their incorporated Hungarian entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Hungary.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Hungary.

The Shield GEO solution is an attractive alternative where

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in Hungary

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in Hungary

– the company needs help with tax, employment, immigration and payroll compliance in Hungary

 

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