Employer of Record (EOR) Hungary

Employment Contracts in Hungary

At Mercans, we emphasize the crucial elements that must be included in an employment contract in Hungary to ensure compliance and clarity for both employers and employees.

Concept of Employment Contract

The employment relationship in Hungary is established through an employment contract, which serves as the foundation of rights and responsibilities between the employer and the employee. According to law, this contract must outline:

• The obligation of the employee to perform work under the direction of the employer.
• The obligation of the employer to provide employment and pay wages.

Mandatory Elements of the Employment Contract

Key components that must be clearly specified in the employment contract include:

• Employer’s company details and employee’s personal information.
• Basic salary and job title of the employee.
• Duration of the probationary period, if applicable.
• Terms defining the duration of the employment relationship; in the absence of specific terms, the relationship defaults to indefinite.
• Definition of the workplace; typically, this is where the employee performs their duties unless otherwise agreed.
• Terms of general full-time employment unless otherwise specified.

Employer Information Requirements

Within 15 days of the employment commencement, the employer must provide a written document accompanying the employment contract. This document should detail:

• Daily working hours and any deviations.
• Breakdown of wages including benefits beyond the basic salary.
• Method and frequency of wage payments.
• Calculation and allocation of leave entitlements.
• Notice periods applicable to both employer and employee.
• Collective agreements and the authority within the employer’s jurisdiction.

Concept of Job Description

The job description forms an integral part of the employment contract, outlining:

• Work processes, activities, tasks, and functions.
• Connection systems including objectives, primary responsibilities, and work conditions.

A comprehensive job description ensures clarity regarding the employee’s role and responsibilities within the organization.

Working Hours

In Hungary, full-time employment entails working 40 hours per week, typically spread over 5 days (Monday to Friday) with 8 hours per day, generally between 8 am and 6 pm. Variations are common, especially in service sectors like hospitality and retail, where evening shifts or weekend hours are standard for roles such as waiters, shop attendants, and drivers.

To accommodate varying work patterns, some employers adopt a system of working time banking, allowing employees to spread their hours over a 16-week period, totaling 640 hours. However, daily work hours cannot exceed 12 hours, and weekly hours are capped at 48.

Part-time employment is prevalent, offering flexibility with weekly hours ranging from 1 to 40. Students often engage in flexible work arrangements through student job agencies, adjusting their hours based on mutual agreements with employers. Employers also have the option to hire temporary workers for short-term assignments or keep standby personnel available as needed.

At Mercans, we ensure that employers understand and comply with these regulations, facilitating efficient workforce management tailored to the needs of businesses operating in Hungary.

Probation Period

In the context of Hungarian employment contracts, employers and employees have the option to include a probationary period lasting up to three months from the start of employment. If a shorter probation period is agreed upon initially, it can be extended once by mutual consent. However, under all circumstances, the probation period cannot exceed three months.

The probation period can be specified in both fixed-term and permanent employment contracts, providing a period for both parties to assess the fit and performance expectations. This stipulation must be clearly outlined within the employment contract itself to ensure transparency and mutual understanding.

At Mercans, we ensure that probationary terms are structured to meet legal requirements and serve the best interests of both employers and employees in Hungary.

13th Month Salary

In Hungary, while there is no requirement for a 13th-month salary, employers have the option to provide discretionary bonuses.

Termination, Severance Pay and Notice Period

In Hungary, the termination, severance, and notice period guidelines are established by the Labour Code (Act I of 2012), ensuring a structured approach to employment cessation.

Termination Process 

Termination of employment in Hungary can occur through:

• Termination by Notice (Ordinary Termination): Requires written notice specifying the termination date.
• Termination for Cause (Extraordinary Termination): Immediate termination due to serious employee misconduct or incapacity.
• Mutual Agreement: Both parties agree to terminate the employment.

Severance Pay 

Severance pay in Hungary serves as compensation for employees dismissed under specific circumstances outlined in the Labour Code. To qualify, an employee must have continuous service of at least three years. Severance pay is calculated based on the employee’s years of service and average gross earnings, ranging from one month’s salary for 3-5 years to six months’ salary for over 25 years. Exceptions where severance pay is not applicable include termination due to misconduct or retirement age, and re-employment by the same or legal successor company within a specified period.

Notice Periods

Under Hungarian law, notice periods are determined based on the length of the employee’s service:

• 0-3 years: 30 days
• Up to 5 years: 45 days
• Up to 10 years: 50 days
• 10-15 years: 55 days
• 15-18 years: 60 days
• 18-20 years: 70 days
• Over 20 years: 90 days

Employers and employees may agree on different notice periods in the employment contract, provided it is not less than seven days or more than six months. Exceptions include termination for cause and mutual agreement for immediate termination, exempting the employee from work duties during the notice period.

Employees vs Independent Contractors

Here’s a comparison table outlining the distinctions between Independent Contractors and Employment Guidelines in Hungary:

This table highlights the key differences between an employment relationship and a mandate agreement (independent contractor) in Hungary, covering regulatory aspects, contractual terms, qualification criteria, and obligations regarding taxes, benefits, and termination compensation.

Social Security in Hungary

Social Security in Hungary is a comprehensive system designed to provide financial protection and support to individuals in various stages of life, ensuring a safety net for both employees and self-employed individuals. Managed by the Hungarian government, the system encompasses a range of benefits and services aimed at promoting social welfare and economic stability.

Key components of Hungary’s Social Security system include contributions towards pension schemes, health insurance, unemployment benefits, disability benefits, and various other social assistance programs. These contributions are mandatory for both employees and employers, with rates and regulations governed by Hungarian legislation.

The Social Security framework in Hungary plays a crucial role in safeguarding the well-being of its workforce, offering security during periods of employment, retirement, illness, disability, and unemployment. Understanding and complying with these regulations are essential for businesses and individuals operating within Hungary, ensuring access to necessary benefits and maintaining legal compliance with national social policies.

Employee Social Security Contributions 

Social security contributions in Hungary play a pivotal role in the country’s welfare system, ensuring financial support and access to essential benefits for both employees and self-employed individuals.

Employers are required to pay employment-related taxes and social security contributions, known as social tax. This tax is calculated based on the gross income received by the employee, with a fixed rate of 13%.

Social Security Contribution Rates and Calculation

In Hungary, social security contributions are based on the gross income paid to employees. As of 2024, employers are obligated to contribute at a rate of 13%, known as the ‘social tax’. Employees themselves contribute 18.5% of their gross income towards social security. Notably, employers can deduct 15% of the unused child tax base allowance from the total 18.5% social security contribution obligation.

Minimum Wage Requirements

Effective from 1 January 2024, the minimum wage stands at 266,800 Hungarian forints (HUF) per month. For roles requiring secondary level qualifications or vocational training, the guaranteed minimum wage is set higher at HUF 326,000 per month. Employers based in Hungary are responsible for both making social security payments and electronically filing monthly social security declarations. Similarly, non-Hungarian employers operating in Hungary must fulfill these obligations, with potential repercussions shifting to employees if employers fail to comply.

Healthcare Contribution and Responsibilities

Dependents aged over 18 are typically eligible for healthcare services upon payment of healthcare service contributions. In 2024, uninsured individuals must pay monthly contributions totaling HUF 11,300.

Social Tax Allowances

Employers have the discretion to apply a single type of social tax allowance per employee, selecting the most advantageous option based on specific circumstances. These allowances are intended to alleviate employment costs for categories such as jobseekers, mothers with three or more young children, individuals with reduced work capacity, and researchers. The eligibility and amount of these allowances hinge on the employee’s situation.

Social Security Contributions for Foreign Nationals

Determining the applicability of Hungarian social security contributions to foreign nationals necessitates careful review of both local regulations and international agreements. Generally, foreign nationals are subject to Hungarian social charges under the following circumstances:

• Employment by a Hungarian employer within Hungary
• Employment by a non-Hungarian employer while being nationals of an EU member state or a country with a social security treaty with Hungary, without coverage under their home country’s social security system
• Third-country nationals assigned to Hungary from a non-EEA country for assignments exceeding two years

Understanding and adhering to these social security contribution guidelines are essential for employers and individuals alike, ensuring compliance with legal requirements and facilitating access to essential social benefits in Hungary.

Payroll in Hungary

Minimum Wages

The minimum wage rates in Hungary, effective from December 1, 2023, are as follows:

Minimum Wage:

• Per Hour: HUF 1,534.00
• Per Day: HUF 12,270.00
• Per Week: HUF 61,340.00
• Per Month: HUF 266,800.00

Minimum Wage for Professional Workers:

• Per Hour: HUF 1,874.00
• Per Day: HUF 14,990.00
• Per Week: HUF 74,950.00
• Per Month: HUF 326,000.00

These amounts are denominated in Hungarian Forint (HUF) and are applicable before tax deductions.

Payroll Cycle

Employees in Hungary receive their payments on a monthly basis, typically by the 10th of each month, covering work performed from the first to the last day of the previous month.

Overtime Pay

Overtime in Hungary refers to hours worked beyond the standard 40 hours per week.

Employees can be required to work overtime, but mandatory rest periods must be observed.

The maximum annual overtime limit is typically 250 hours, which can increase to 300 hours with a collective agreement or up to 400 hours with voluntary overtime.

Overtime pay includes a 50% surcharge on regular working days.

On rest days and state holidays, employees are entitled to either a 50% wage supplement plus extra time off, or a 100% wage supplement.

Mercans’ payroll capabilities

Payroll Cycle

• Pay employees and contractors in the local currency: Experience the efficiency of Mercans’ payroll services in Hungary, ensuring timely and accurate payments to both employees and contractors in Hungarian Forint (HUF).
• Payroll Setup, Payroll Processing, and Payroll Administration: Mercans offers comprehensive payroll solutions tailored for Hungary. From meticulous setup of payroll systems to precise processing and efficient administration, we handle every step with a commitment to accuracy and compliance.
• Statutory Filings and Payments: Navigate Hungary’s regulatory landscape seamlessly with Mercans. Our dedicated team manages statutory filings and payments, ensuring your business remains compliant with all legal requirements. Trust Mercans for accurate and timely submissions, providing peace of mind in meeting your statutory obligations.
• Payroll Processing Schedule: In Hungary, payroll is typically processed monthly. The specific pay date is stipulated in individual employment contracts, with payments to employees and contractors due no later than the 10th of the month following the respective pay period.

Personal Income Tax in Hungary

Hungarian personal income tax (PIT) applies to both domestic and foreign income received by residents.

• Taxes on Personal Income: PIT covers domestic-source income earned within Hungary and foreign-source income for residents.
• Personal Income Tax (PIT) Rate: The standard rate is 15% of taxable gross income.
• Residence: Tax residency is determined by spending 183 days or more in Hungary within a calendar year.
• Deductions: Deductible expenses include healthcare, education, and pension contributions.
• Tax Administration: Managed by the Hungarian Tax and Customs Administration (NAV).

Hungary Employee Hiring Cost

Employing staff in Hungary involves understanding both the direct salary paid to employees and the additional employer costs mandated by local regulations. Here’s a detailed example to illustrate the total costs:

Salary Details:

• Gross Annual Salary: HUF 1,000,000.00

Annual Employer Costs:

• Social Contribution Tax: HUF 130,000.00

Total Annual Cost:

• Total Cost to Employer: HUF 1,318,400.00

Explanation: In Hungary, the cost of hiring includes more than just the employee’s gross salary. Employers are required to contribute to social security and other statutory expenses. These costs ensure that employees receive social benefits and contribute to the overall employment framework.

Breakdown of Costs:

The Gross Annual Salary represents the amount paid directly to the employee before any deductions. Employers also incur additional costs, such as the Social Contribution Tax, which together form the total annual employer costs.

Employee Benefits in Hungary

Hungary’s pension system underwent significant reforms in 1997 to ensure financial sustainability. Mandatory private pension funds (Second Pillar) were introduced but later dismantled in 2010 and 2012, with assets transferred back to the state (First Pillar). The government now encourages voluntary private retirement savings, supported by tax-deductible pension insurance introduced in 2014.

Types of Pension:

• First Pillar: Basic state pension.
• Second Pillar: Formerly mandatory, now optional for existing members.
• Third Pillar: Voluntary private contributions for additional benefits.
• Fourth Pillar: Contributions to specific accounts.

Retirement Age

The retirement age for both men and women is gradually increasing based on birth year.

Legislated Leaves

Employees are entitled to statutory paid annual leave and additional leave based on age and specific conditions. Additional paid leave is also provided for parental responsibilities and bereavement.

Healthcare Benefits

Healthcare benefits include maternity and paternity leave, health insurance covering pregnancy and childbirth, and family allowances based on the number and condition of children.

Cafeteria System (2023)

Employers may offer tax-free and tax-advantaged benefits through a cafeteria system, including childcare, cultural services, and sports passes.

Supplementary Employee Benefits

Additional benefits such as retirement pension insurance (voluntary), healthcare and medical insurance, and group life, accident, and health insurance are common offerings by employers. These benefits often include preventive screenings, outpatient services, and coverage for accidents and critical illnesses.

Taxation of Benefits

Most employee benefits are taxable, including medical insurance and certain allowances. Tax rates vary based on the type of benefit provided.

Employee Perks

Stipends for massages, sports passes, and wellness programs are popular perks but are taxed as part of the employee’s salary.

Work Permit in Hungary

Short-Term Work Permits

Effective from January 1, 2009, citizens of EEA countries and Switzerland can work in Hungary without a work permit. However, their sponsoring company must notify the Hungarian Labor Office before they start working. Non-EEA nationals staying in Hungary for less than 90 days must obtain a short-term work permit, even if not directly employed by a local company. The sponsoring company must submit a workforce demand and a separate work permit application to the regional labor bureau, along with notarized copies of the applicant’s qualifications translated by the Hungarian Office for Translation and Attestation.

Work permits are granted if no Hungarian or EEA citizen is available for the job, the applicant’s qualifications meet job requirements, and the work doesn’t fall under exceptions set by the Ministry of Labor. Typically issued within 21 days, short-term work permits are valid for up to 90 days. Longer durations require a combined residence and work permit application. Certain exemptions exist, such as for diplomats, executives of foreign-owned Hungarian companies, and professionals listed by the Minister of Foreign Affairs and Trade.

Self-Employment

Citizens of EEA countries have the right to be self-employed in Hungary without needing a work permit. This allows individuals from these countries to establish and run their own businesses under the same conditions as Hungarian nationals, fostering entrepreneurial opportunities and economic integration.

Posted Workers

Posted workers from EEA states can work in Hungary under cross-border service provisions without a work permit. Their home employer must register the posting on the Ministry of Finance’s website. This process ensures that the workers are legally allowed to perform their duties in Hungary while maintaining compliance with local regulations and standards.

Contact Mercans for Global Mobility Assistance

Navigating the complexities of work permits and global mobility can be challenging. Mercans is here to assist with obtaining work permits for foreign employees, ensuring compliance with local regulations, and facilitating smooth transitions for your workforce. Reach out to us today to learn how we can support your global mobility needs.

EOR Solutions in Hungary

Mercans offers comprehensive Employer of Record (EOR) solutions tailored specifically for businesses entering the Hungarian market. Our services span the entire employee lifecycle, ensuring strict adherence to Hungary’s labor laws and regulations.

• EOR and Recruitment Services: For organizations requiring assistance in talent acquisition, our EOR and recruitment services provide an integrated solution. Leveraging our extensive network and expertise, we support sourcing, onboarding, and retaining top talent, facilitating your market entry into Hungary.
• Visa Sponsorship and Global Mobility: Simplify the complexities of expatriate employment with our visa sponsorship and global mobility services. We manage the relocation of your international workforce, ensuring full compliance with Hungarian immigration and employment regulations.
• AOR for Contractor Payments: Our Assistance on Record (AOR) services are designed to effectively manage contractor payments. We handle the intricacies of contractor payroll, ensuring precision and compliance with local laws.
• Freelancer to Employee Conversion: Mercans facilitates the transition from freelance status to full-time employment in Hungary. Our expertise ensures a seamless conversion process while meeting all legal requirements.
• HCM Integration: Integrate Mercans’ EOR services seamlessly with your Human Capital Management (HCM) system in Hungary. This integration enables real-time data exchange, enhances compliance, and improves operational efficiency. Trust our expertise for unified and compliant workforce management, enhancing your payroll operations.