Understanding Payroll in Hungary: What Global Companies Need to Know About Hungary Payroll

Hungary boasts the lowest unemployment rate in the world, having dropped to a historic 4.4% in early 2017. That could be due to the fact that Hungary has of the most stable business environments in the Balkan states, and the country has a great deal of support from global economic powers, improving the chances of success for entrepreneurs from all over the world. As a valued member of the EU, Hungary continues to invest in the education and the viability of its middle class, providing great opportunities to companies with products that appeal to the people in the region.

Hungary has the stated purpose of reducing nuclear proliferation and the negative effects of climate change in the Balkan region, along with increasing the rule of law and human rights. Businesses that help these goals along have a history of being especially well received.

Do not let the nuances of an international payroll stop you from taking advantage of the opportunities in Hungary. With your payroll taken care of, you will be able to focus on the core competencies of your business and applying the talents of your in-house staff to the competition ahead.

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Getting Started

Hungary requires that foreign companies retain legal representation from a legal professional within the country. Registration must take place with the help of a Hungarian lawyer. The lawyer will charge a commission fee on top of the fixed costs of registration, which can cause the total amount spent during this step to vary between 100,000 HUF ($365; £280; €324) to 260,000 HUF ($230; £211; €179). 

After registration through a domestically based law firm, a company will be required to open a local bank account and deposit at least 50% of the amount referred to in the subscription in cash. There is no charge for opening the account. Following, the company should apply with the Registration Court, which can be done electronically. This process costs 50,000 HUF ($182; £140; €162). Companies must pass muster with the Tax Authority, and a company may not have a tax debt to the country that exceeds 15 million HUF ($54,711; £42,050; €48.667). If a company chooses not to register through the electronic process for the 50,000 HUF ($182; £140; €162) fee, a standard filing may be considered for a total fee of 105,000 HUF($383; £294; €341). Electronic registration takes 8 days, while the traditional process takes 15 days.

Next foreign companies must register for the Municipal Business Tax with the Tax Department of Municipality,  the Hungarian Chamber of Commerce and Industry, and for social security with the National Office for Health Insurance. These processes may be implemented simultaneously and take one day. The only charge is an annual contribution that the business owes to the Hungarian Chamber of Commerce and Industry of 5,000 HUF($18.25; £14; €16).

Employee Laws / Employee Rights

Working hours are restricted to 40 hours per week over a working cycle, which is 4 months in Hungary. Employees who are working on call have special rules that apply.

Rights conferred through continuous employment are retained even if an employee switches employers, as long as the transfer is successive as defined by Article 85/A of the Labour Code.

There is no restriction on the amount of overtime that an employee may perform, although there is a minimum premium that employers must pay out.

Compensation, Bonuses, Severance Pay

Hungary establishes a minimum wage each year. The wage is tiered according to the level of education that the employee has received. As of January 2017, the minumum wage for unskilled labor is 127,500 HUF ($1,060; £809; €418) and 161,000 HUF ($621; £473; €528) for skilled labor. Minimum wages may also be affected through collective bargaining agreements.

Any employee that works more than 8 hours a day or 40 hours per week is eligible for mandatory overtime pay. Overtime pay is 50% of the base salary on top of the base for every hour worked.

Tax Requirements, Collection & Withholding

In Hungary, there is no cost that is eligible for exclusion from taxes, but the government treats benefits more leniently than base salary. These benefits may include medical treatment or the use of a private vehicle.

Employees who make up to 5 million HUF ($18,237; £14,014; €16,222) are taxed at a 17% rate, while there is a tax of 32% on any amount of income that exceeds 5 million HUF ($18,237; £14,014; €16,222). Taxes are collected by corporations. In Hungary, the employer is the responsible party when it comes to assessing and withholding taxes based on income. Employers are also responsible for withholding the social security tax on employee wages.

Leave – Sick, Maternity, Vacation, Absence, Holidays

Holiday entitlement depends on the age and special conditions of the employee. For instance, a 26 year old must receive at least 21 paid working days of holiday per year. A 46 year old must receive at least 30 days. Special cases include single parents, who may receive an additional 2-7 days per year; employees with a visual impairment, who receive 5 additional paid days per year; and employees under the age of 18, who receive an additional 5 days per year of holiday as well.

If an employee is injured, that employee is guaranteed 70% of base pay for 15 days of sick leave. After these 15 days, the employee may receive a minimum of 50-60% of the base salary. two-thirds of this will be paid by the government, with the rest falling to the employer.

New mothers receive 24 weeks of maternity leave, at a minimum of 70% of her base salary. They may also take up to 3 years off and receive meternity benefits.  Fathers are entitled to five days of paternity leave, which can be taken in the first two months following the birth.

Navigating Your Payroll in Hungary

The opportunity for new businesses is ripe in Hungary, but there is a great deal of competition from large companies that have already established a presence here. In order to retain any advantage, it is necessary to follow all of the rules that apply to foreign businesses precisely. This is usually best achieved through a partnership with a vetted global payroll company with experience in Hungarian payroll regulations.

Hungarian payroll can be difficult because of the multiple registrations that must be maintained; however, if you have this taken care of by your global payroll partner, you will have a much easier time doing business in the country.

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.