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What global businesses need to know about payroll in Hungary
Situated almost perfectly in the middle of Europe, Hungary is a real powerhouse of global industry. It’s responsible for making much of the machinery and equipment that businesses around the world use every day, which is why those products account for more than half of all its exports.
Hungary is a member of the European Union, but has retained its traditional currency (the forint), and has a reputation for relative economic stability compared to many other countries behind the former Iron Curtain. Unemployment is relatively low, its main trading partners are highly varied (Germany being the biggest), and its EU connections mean it’s easier than ever to do business there.
But perhaps Hungary’s biggest selling point is an extremely low corporation tax rate of 9%, making it especially attractive for international investment. Discover more on all of Hungary’s employment and payroll requirements in this guide.
Getting Started
Hungary requires that foreign companies retain legal representation from a legal professional within the country. You should also be aware that once your business has been established, you must open a business bank account in Hungary within eight business days.
Start by preparing the corporate documents, such as articles of incorporation, which must be countersigned by a Hungarian attorney. After this, you can open your bank account, and then register at the Hungarian court of registry to obtain a tax identification number. Once you have this tax ID, you can then register with the tax authorities, chamber of commerce, and the relevant local municipalities where you intend to operate. You’ll also need to provide data on your employees to the government as soon as you start employing them.
Employment Considerations
Working hours in Hungary are in line with many other European countries, at 40 hours a week, spread over five shifts of eight hours each. Work beyond this counts as overtime, which is normally paid at 150% of salary, or 200% at weekends or on public holidays. Collective bargaining can lead to some variations in these rates. Employees should not work more than 72 hours a week, inclusive of overtime.
Notice periods start at 30 days for employees with less than three years of service, and gradually ramp up for longer-service employees. The maximum of 90 days applies to employees with at least 20 years of service. Probation periods should not last more than three months, although they can be extended by a further three months by mutual agreement.
Compensation, Bonuses & Severance
Hungary has two minimum wage rates, both of which have more than doubled in the space of seven years. The standard minimum wage, as of December 1 2023, stood at HUF 266,800 per month (approx. £585; $745; €685). The guaranteed minimum wage applies to jobs that require either vocational training or secondary-level education, and currently stands at HUF 326,000 per month (approx. £715; $910; €835). Collective bargaining can lead to higher rates being negotiated in specific industries.
The payment of 13th-month bonuses is not a legal requirement in Hungary, but it is often paid as a voluntary benefit by many employers.
Employees terminated after at least three years’ service are entitled to severance pay, starting at one month’s salary, and rising to two months’ salary after five years. An additional month’s pay is applicable for every further five years worked, up to a maximum of six months’ salary for employees with at least 25 years of service.
Tax and Social Security
Income tax in Hungary is levied at a flat rate of 15% on all earnings, with no personal allowance applicable. Corporation tax is an extremely low 9%, but is counterbalanced by a high VAT rate of 27% (a range of products and services are eligible for reduced VAT rates of 5% or 18%).
Employers pay a Social Contribution Tax of 13%. Employees, meanwhile, make three social security contributions: 10% into the pension fund, 7% for healthcare, and 1.5% into the unemployment fund.
Holidays and Leave
Annual leave in Hungary is unusual in that it incrementally increases by age. Employees under 25 get 20 working days off per year, then are awarded another day at 25 years old and another one at 28. After this, one further day is awarded every two years, meaning employees aged 42 get 29 days off per year. A final extra day is added at the age of 45, for the maximum of 30 days leave per year. Further annual leave entitlements are given for employees with children under 16 (two days for one child, four days for two children, seven days for three children). There are also 11 days of public holidays in Hungary each year.
Initial maternity leave is 24 weeks and paid by social security at 70% of normal salary. However, for another 18 months after that, mothers can continue to take time off, if they so wish, and receive 70% of salary from social security (up to a maximum rate of double the minimum wage). Paternity leave entitlement was recently increased to ten days: this is paid by employers at full salary for the first five days, and 40% salary for the last five.
Employers cover pay for medically-certified sick leave at 70% of salary for the first 15 days per year. After this point, social security picks up two-thirds of that amount and employers cover the last third. Employees also get two paid days off in the event of a family bereavement.
In Summary
The low tax regime and central geographical location mean Hungary is a fantastic destination for foreign businesses, but that in itself can be a challenge: lots of businesses have the same idea, which makes for a highly competitive marketplace. Falling foul of payroll and employment regulations can therefore have an unnecessary impact on your operations and bottom line, which should ideally be avoided. Working with a global payroll partner gives you the best chance of staying safe and succeeding with your Hungarian expansion.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.