Employment Act / Labor Laws Hungary

Hungary’s sustainable and booming economy offers great opportunities for companies to develop businesses. The corporate tax rate of this country is known to be the lowest in the EU, which can increase a company’s profit margin. Additionally, Hungary is an integral part of the European Union, providing worldwide organizations with a great chance to invest. 

Companies can establish a business presence in the country and hire skilled employees. While hiring, companies need to comply with the Hungarian labor law and employment act.

Hungary has various labor guidelines and regulations set in place, keeping the best interest of its employees in mind. Hence, being well-versed in the labor regulations in Hungary can help you make informed decisions and take rational steps to succeed in this country’s competitive market.  

Read this article to understand Hungary’s labor code. 

Applicability of the Act

The labor act rules in Hungary are regulated in Act I, 2012 Labor Code, and were created to protect the rights of working citizens. It applies to all individuals employed by an organization registered in the country. It also includes employees working under foreign companies and subsidiaries who have established their businesses in Hungary. It covers:-

• Employers
• Employers’ interest groups
• Works for councils
• Trade unions

Employment Contract

The Hungary labor law demands employment contracts be documented in a written format within 30 days after the first work day. The types of employment contracts set by the labor regulations in Hungary have been elucidated below:-

• Indefinite contract: This is a standard type of contract in the country used in indefinite employment where a company hires an individual for an indefinite period. 
• Fixed-term contract: This type of contract is an agreement between the employee and the employer explicitly addressed in the document. Fixed-term contracts have a maximum span of 5 years. The employment also requires a permit or a license and can be terminated if it is not authorized.

All forms of employee contracts should have the statutory conditions mentioned below:-

• The names and particulars of the parties involved in the employment
• The basic salary of the employee
• The role of the employee

It is also advisable to add the following:-

• The place of work
• Probationary periods
• Notice periods
• The clauses of the agreement/ work procedure regulations relevant to the employment 
• The starting date 
• The duration of the employment (only for fixed-term employment contracts)

The employees should have the relevant section of the contract in hand within 15 days of their first work day. The employment contract, as per the Hungary labor law, has binding provisions. To defer from them, both parties must come to a collective bargaining agreement that works in their favor.

Key Provisions of the Act

Before seriously considering establishing a business in Hungary, it is important to stay well-informed about the labor act rules in Hungary. Here is an elucidated list of the key provisions of the Hungary labor law.

Minimum wage 

As per the newly amended labor act of Hungary, the minimum wage of every registered employee is 232,000.00 HUF per month.

Wage payment 

• The scope and amount of the guaranteed wage are determined by considering the following:-
  • Living conditions
  • The scale of pay increments
  • The scale of non-wage benefits
  • The national level of employment status and economic development status
  • Certain economic sectors and geographical areas 

• According to Hungary’s labor law, the minimum wage regulation applies to every employee and employer. No employee can be discriminated against regarding wage allocation, regardless of their citizenship status. Employers who fail to comply with this can face severe legal consequences.  

• Additionally, wages are to be paid in national currency (Forints or HUF) in cash or bank transfer to the employee’s bank account. Wages are usually paid based on time and performance, and the hourly rate is calculated by dividing the basic monthly wage amount by the daily working time (174 hours). 
• They are payable in monthly arrears and should be, at most, the 10th day of the following month. If the payment date is due on a public holiday, paid vacation period, or rest day, it must be paid on the final working day after the due date. 

Working hours 

• As per the labor code in Hungary, the standard working hours are 40 hours per week.
• Generally, people work five days weekly (Monday to Friday), dedicating eight hours daily. 
• Timings are usually between 8 A.M. and 6 P.M, but they are subject to change depending on the company. 
• Employees are also entitled to at least a 20-minute break every day.

Overtime

• Overtime is paid to employees for the extra work they perform outside of the standard working hours. 
• Employment contracts or collective bargaining agreements govern it. 
• When employees are called in to work overtime or during the holidays, there is a weekly limit of 72 hours. Minors also have different maximum working hours.
• Employees working overtime exceeding 40 hours per week are entitled to compensation at 150.00% of their basic salary rate. On the other hand, public holiday and weekend overtime is paid at 200.00% of their basic salary rate.

Holidays 

Every employee is entitled to 20 days of paid holiday per year, which increases with age to a maximum of 30 days for those over 45. Hungary has numerous public holidays when employees are not expected to work. They are:- 

• New Year
• Memorial Day
• Good Friday 
• Easter Monday 
• Labor Day
• Whit Monday 
• St. Stephen’s Day
• Hungarian Republic Day
• All Saint’s Day
• Christmas
• Boxing Day

If employees are required to work on the days above, they should be compensated with extra pay and time off.

Leaves

As per the enforced labor code in Hungary, employees are entitled to paid and unpaid leaves that employers are obliged to allocate. When it comes to unpaid leaves, there are generally two types:-

• Leave granted as requested by the employee 
  • It requires a valid reason from the employee and can only be granted if the legal conditions are fulfilled. Employees are eligible to ask for a maximum leave period of two years for the reasons listed below:-
    • For childcare (only for children less than three years of age)
    • Voluntary military service
    • Childcare benefit period
    • Personal care of a family member
• Leave agreed by parties
  • The employee must apply for leave in writing at least 15 days before. As for paid leaves, there are many kinds that employers are obligated to grant employees as per the labor code of Hungary.

Annual leaves

• The Hungary labor law states that every employee is entitled to at least 20 days of paid vacation per year. 
• If a part-time or a full-time employee has not worked for a whole calendar year, their paid leaves are calculated based on the duration of their employment. 
• Employees can take at least seven days off for a paid vacation, and the employer, post-discussion, decides the rest. 
• As an employer, you must ensure that your employees apply for their paid vacation days per year. 
• Extra holidays are carried over to the next year depending on the employee’s age. 

Maternity leaves

• As per the labor code of Hungary, pregnant working women are entitled to 24 weeks of maternity leave. 
• Employers should grant maternity leave four weeks before the due date of childbirth. The same rules apply to women who adopt a child. 
• Employees are also eligible for unpaid childcare leaves until the child turns three years old post 24 weeks of maternity leave.

Paternity leaves

• New fathers are entitled to a maximum of five days of paid leave every year post the birth of their child. 
• Five days of paid leaves are also granted to fathers who have specially-abled children. 
• The Hungary labor law also allows fathers with children under 16 years to apply for two, four, or seven extra leaves depending on how many children they have.

Medical leaves

• Employees can apply for at least 15 working days of medical leave annually if they are unable to work due to health problems. 
• The employer has to pay the 70% of the absence pay to the employee during this period as per the Hungary labor law. 
• A mandatory health certificate issued by a certified doctor should be presented to the employer as proof of the employee’s incapacity to work.

Retirement and Pension

• After the amendment of the Hungarian labor decree in 2022, 1957-born employees can retire after 65 years. 
• As per the labor code in Hungary, employees who have reached the legal retirement age and made the necessary number of insurance payments and contributions are entitled to an old-age pension. 

Termination & notice period

Employers have the authority to cancel a fixed-term contract for any of the reasons stated below:-

• Business
• Personal
• Employee misconduct

It requires written notice and an explanation for the termination. The employee must receive the final wage payment no later than the fifth working day following the termination of the employment if the employment relationship is terminated by notice.

The notice period in Hungary is 30 days. If the employer decides to fire an employee, they must extend the 30-day notice period to certain days based on the number of years of service:-

• Five days’ notice is necessary after three years of service.
• After five years of service, you must provide 15 days’ notice.
• A further 20 days’ notice is required after eight years of service.
• After ten years of employment, you must provide 25 days’ notice.
• Thirty days’ notice is necessary after fifteen years of service.
• A further 40 days’ notice is required after eighteen years of service.
• A further 60 days’ notice is required after twenty years of service.
• The notice period may be extended by up to six months if the parties agree.

Severance pay

Whenever an employer terminates employment for operational reasons, employees are entitled to receive a severance package. Severance pay can range from a minimum of one month’s income to a maximum of six months, based on the employment contract terms.

Penalties

Failing to adhere to the regulations imposed by the labor code in Hungary can lead to severe penalties for employers. If a business is non-compliant with government decrees, the supervising authorities can impose labor fines and softer measures (warnings, payment orders to employees, etc.).

The fine amount per the labor code in Hungary can range between 30,000 HUF to 10,000,000 HUF.

Compliance Strategies for Employers

Companies need to thoroughly follow the employment law Hungary guide for a compliant hiring process. Some compliance strategies you can follow as a business owner looking to establish a business in Hungary are:-

• Stay updated about the labor code in Hungary: Check your knowledge of minimum wage, working hours, overtime, vacation time, and sick leave regulations.
• Accurate records: Maintain meticulous records of your employees’ working hours, wages, and other vital information. This will assist you in remaining in compliance with local laws and regulations.
• Obtain required permits and licenses: Depending on your industry and the nature of your business, you may need permits or licenses from local authorities.
• Implement the following workplace safety measures: Ensure your workplace complies with all safety standards and regulations. To prevent accidents and injuries, provide your employees with the necessary safety equipment and training.
• Regularly conduct audits: Audit all employment practices on a regular basis to ensure that your company is compliant with laws and regulations. Change your practices as needed to remain in compliance.
• Seek legal help if required: If you have questions about employment law in Hungary or are facing legal issues related to your employment practices, consult a qualified attorney.

Conclusion

Multiplier is a one-size-fits-all solution for all your needs if you want to set up a business in Hungary. We have helped multiple businesses with drafting multilingual contracts, international payroll management, employee onboarding, and the like. With a plethora of new features to help enterprises ease, we can ensure that you will remain compliant with the local labor and employment law.