Employment Law in Hungary

Contracts

In Hungary, employment contracts can be fixed-term or indefinite, depending on the nature of the job and the agreement between the employer and employee. Indefinite employment contracts must include benefits such as social security contributions, paid annual leave, and health insurance. Fixed-term employees are entitled to the same benefits as indefinite employees from the first day of work, unless the contract duration is under three months. Hungary also has traineeship contracts, primarily for skill development, governed by the Labour Code (Act I of 2012).

Termination and notice periods

In Hungary, labor laws require employers to provide written notice of termination or pay in lieu of notice, with a minimum of 30 days for employees who have completed at least three years of continuous employment. In most cases, terminated employees are entitled to a fair process. Just cause for dismissal includes theft, insubordination, habitual negligence of duty, lack of capability, prolonged illness, redundancy, or serious misconduct.

Employees with at least 12 consecutive months of continuous employment are entitled to severance pay equivalent to one month’s wages for each completed year of service, up to a maximum of six months’ wages. There is no statutory gratuity payment in Hungary; however, additional compensation may be provided based on employment contracts or collective agreements. As your employer of record (EOR) in Hungary, we can assist you in managing employee terminations by providing legal guidance and a personalized process to ensure compliance with national labor standards and minimize legal risks.

Probation periods

In Hungary, probation periods are governed by national legislation, typically lasting up to three months for both fixed-term and indefinite-term contracts, with proportional durations for shorter contracts, as stipulated in employment agreements.

Working hours and overtime

In Hungary, the standard workweek is typically Monday through Friday, with eight hours per day, totaling 40 hours per week. Employees are prohibited from working for more than eight hours a day without appropriate compensation.

Any work beyond eight hours a day is considered overtime, and employees are entitled to an additional compensation of at least 50% over their regular hourly rate. For work performed on rest days or public holidays, the overtime pay rate is higher, as specified by Hungarian labor laws.

Taxes

In Hungary, withholding tax is referred to as Personal Income Tax (PIT) and is deducted by employers before paying salaries to employees. Employers must deduct PIT from employee salaries based on applicable income tax rates and submit it to the National Tax and Customs Administration (NAV).

Employers in Hungary must adhere to various taxation and regulatory compliance requirements to operate legally and avoid penalties. Corporate, value added, and withholding taxes are the most common.

• Corporate tax: Domestic companies are taxed at a flat rate of 9%, which is one of the lowest in the EU.
• Value added tax (VAT): VAT applies to businesses with an annual turnover exceeding 18 million HUF. Employers must register, file periodic returns, and pay VAT at a standard rate of 27% on applicable goods/services.
• Withholding tax (WHT): Employers must deduct WHT from payments such as dividends, interest, and royalties. WHT must be deposited according to the prescribed schedule, and relevant returns must be filed.

Employer payroll contributions

Hungary’s social security system requires employer contributions that are dependent on the total number of employees, and these contributions cover pensions, medical care, disability insurance, and gratuity payments. In addition, workers’ compensation is financed by contributions from state governments, employers, and employees.

Among these contributions are the social contribution tax and social security contribution, which are required to fund certain benefits under Hungarian labor laws.

• Social contribution tax: Employers contribute 13% of an employee’s gross salary to the social contribution tax, funding various social benefits including pensions and healthcare.
• Social security contribution: Employees contribute 18.5% of their gross salary to social security, which also covers pensions and healthcare, as well as unemployment benefits.