Employment Law Overview Hungary

Introduction

In December 2024, Hungary had roughly 9.5 million inhabitants. The employment rate of the inhabitants between the ages of 15 and 64 was 75.1 %, and the unemployment rate was 4.4%.

Hungarian labour law aligns with European standards, requiring only minimal content for employment contracts to be valid. In international comparison, Hungarian labour law is still pro-employee, but the legislation has included several flexible, pro-employer elements in the last decade.

Key Points

• Contracts are generally indefinite, but fixed-term contracts are permitted with some safeguards.
• The primary source of labour regulations is statutory law. Still, case law, particularly that of the Supreme Court, significantly impacts applying labour and employment law in practice.
• Collective bargaining plays a limited role, and the number of collective agreements remains low (today, only about 18 % of employees are covered by collective agreements).
• Statutory minimum wages are set by government decree, with different levels applying to those with at least secondary education.
• Family-related leave entitlements in Hungary are generally longer than in most EU countries, and employees enjoy relatively strong protection under labour law.
• Working-time regulations are strict and protective for employees.
• Job security is relatively high; employers must provide detailed reasoning when terminating employment.
• There is a general cap on claims for lost income in unlawful employer termination cases set at 12 months of salary. Since the introduction of this cap in 2013, the number of employment-related legal disputes has decreased by approximately 50%.
• Non-EU and non-EEA citizens require residence permits to be employed in Hungary. Obtaining a residence permit involves a complex process, with conditions varying by citizenship, type of activity, qualification, and special status of the employer. Employers must demonstrate efforts to fill the position locally before hiring third-country citizens.

Legal Framework

The most important laws governing the field of employment are the following:

• Labour Code (Act I of 2012)
• Occupational Health and Safety Act (Act XCIII of 1993)
• GDPR (General Data Protection Regulation – (EU) 2016/679)
• internal employer policies on, e.g., working time schedules, hybrid work, bonus schemes, additional benefits and allowances, and use of company assets (mobile phone, car, laptop) policies. Internal employer policies are optional, but depending on your operation, some may be critical in preventing unnecessary employment disputes.

Concerning social insurance, the following acts must be observed:

• Act on the Entitlements to Social Security Benefits (Act CXXII of 2019)
• Act on the Benefits of Compulsory Health Insurance (Act LXXXIII of 1997)

New Developments

One of the major changes in the Hungarian labour market in recent years was that in August 2022, the government overhauled the KATA regime—a simplified, preferred tax scheme for self-employed individuals and tiny businesses.

The KATA regime has been a tax system since 2013. It aims to provide a simple, transparent, and easy-to-use tax form for small entrepreneurs and self-employed persons. It is income-based, with no need to collect expense accounts. It is a monthly low itemised tax (HUF 50,000, roughly EUR 120) with an income threshold of HUF 18 million (until the 2022 change, HUF 12 million). If you exceeded the threshold, you had to pay a 40% tax on the part above that.

Due to its preferential model compared to the tax burdens of employment, the KATA scheme was problematic at birth, and an increase in the tax rate or a restructuring over the years would have been necessary.

Despite a rethinking, an increased number of tax investigations and/or an increase in the tax rate, in August 2022, the government decided to make the scheme unavailable to all self-employed individuals or tiny businesses invoicing companies and not individuals.

It’s no surprise that the scheme was very popular in Hungary. At the end of August 2022, 444,041 self-employed individuals and tiny businesses were applying for this preferential scheme, and on 1 January 2023, after the legislative change, there were only 144,729 registered KATA users.

Another significant change in the labour market in recent years was modifying the immigration rules at the beginning of 2024. Through the change, it became way more complicated for third-country nationals to receive residence permits for work purposes in Hungary. The new law divided the previously unified residence permit type into two major categories: guest workers (with several subcategories) and residence permits for highly qualified employees. Guest worker residence permits are limited in number, and they give limited rights to their holders. Please see the topic in more detail under Subsection II.1 below.

Hungarian labour law is pro-employee in international comparison. However, in recent years, there have been a few pro-employer legislative changes. The most important among these, also triggering public discontent, was the increase of annual overtime in 2019. The annual overtime limit in Hungary is 250 hours, which may be extended to 300 hours through a collective agreement. As of 2019, an additional 150 hours of overtime are allowed if individually agreed upon with the employee.