Introduction

Employment relationships under Hungarian law are primarily, but not exclusively, governed by the provisions of Act I of 2012 on the Labour Code (“Labour Code”). In addition, the content of employment relationships is further governed by the provisions of other legislation (e.g. Act XCIII of 1993 on Occupational Safety and Health), collective agreements, internal rules of the employer and individual employment contracts. As an EU member state, Hungary is also subject to EU legislation – either directly or by implementation – in the area of labour law. Below is a summary overview of the most important Hungarian labour law rules. Please note that the below does not constitute full legal advice.

1. Establishment of employment

The employment relationship is established by the conclusion of a written employment contract. The employment contract must contain the mandatory elements prescribed by law (e.g. basic salary, job title) and any other conditions that the parties consider necessary. In that context, the parties may derogate from the provisions of the Labour Code mostly in the favor of the employee, unless derogation is prohibited by law.

It is important to note that the employment relationship is an agreement between the parties, thus it can only be modified by the mutual consent thereof.

At the same time as the employment relationship is established, the employee must be provided with an information letter containing the most important information about the employment relationship (e.g. the person exercising the employer’s rights, the duration of the daily working hours, possible starting and ending dates of work, benefits beyond the basic salary, etc.). This is a unilateral information letter issued by the employer, therefore, as a general rule, it can be unilaterally amended (updated) by the same.

The employee should also be informed of their job duties at the time of the establishment of the employment relationship, as the job description summarizes the tasks expected by the employee to perform. That is typically included in a separate job description – the content thereof can indeed be unilaterally amended by the employer without changing the job title.

When the employment relationship is established, the employer must also register the employee with the tax authorities.

2. Working hours and work schedules

The standard daily working hours in Hungary are 8 hours, and the standard working week is from Monday to Friday (i.e. 40 hours a week in principle).

Deviations from the daily working hours and working days are possible for certain activities (e.g., multi-shift activity) and working schedules (e.g., working time frame) within the limits provided by the law.

The right to schedule working hours is assigned to the employer, but it can also be delegated to the employee, known as a flexible work schedule.

3. Teleworking

As a result of COVID, teleworking, or a hybrid version thereof, has also become widespread in Hungary. According to Hungarian law, teleworking is when the employee works partly or at all time at a location separate from the employer’s premises.

Teleworking must be agreed in the employment agreement, i.e. the consent of the employee is always required, if the employer wishes to introduce or eliminate it. Still, the detailed terms (e.g., the number of office and teleworking days) may be determined unilaterally by the employer.

The rules on teleworking are fundamentally different for jobs involving IT devices (e.g. office workers) and non-computing jobs (e.g. seamstresses, chefs).

4. Executive employees

An employee is considered to be an executive employee in two major scenarios:

– by virtue of their position:

the executive(s) of the employer and other employees under their direct authority and authorized to replace them, in whole or in part (e.g. MD, CFO);

– by agreement of the parties, if

the employee holds a position of major importance or a position of a highly confidential nature for the operation of the employer;
their basic salary is at least seven times the statutory minimum wage, i.e. HUF 2,035,600 (approx. EUR 5,100) in 2025.

Regarding executives, the parties may derogate from most of the provisions of the Labour Code, for example, the termination of an executive does not need to be justified in principle (taking into account the fiduciary nature of the position).

5. Non-compete agreements

Upon agreement of the parties, the employee may not engage in any conduct that would harm or jeopardize the legitimate economic interests of the employer (e.g. working for a competitor, starting a business in a competing activity) for a maximum of 2 years after the termination of employment.

Importantly, a valid and enforceable agreement is conditional on (i) the written agreement of the parties; and (ii) appropriate consideration for the employee in exchange for the restriction.

Proportionate consideration must be assessed on a case-by-case basis. When determining the amount of compensation, the degree of impediment the agreement has on the employee’s ability to find employment elsewhere shall be taken into consideration and tailor-made to the certain employment. However, in general the consideration shall not be less than one third of the basic salary due for the same period as the agreement.

6. Termination of employment

The employment relationship may terminate automatically (e.g. death of the employee, termination of the employer without successor, expiry of the fixed term), or initiated by the parties, namely by (i) mutual agreement; (ii) termination (with notice period); or (iii) termination with immediate effect.

Upon mutual agreement the parties are free to determine the terms of termination of their employment relationship, notwithstanding the provisions of the Labour Code.

In the case of termination by notice (termination in lieu of notice), the employment relationship is terminated at the end of the notice period. The basic notice period prescribed by law is 30 days, which increases based on the length of service in the case of termination by the employer.

An employment relationship of indefinite term may be terminated by the employee without giving reasons, whereas the employer is obliged to give reasons. The employer may give notice of termination only for reasons related to the employee’s conduct or ability or the employer’s operations.

The employer or the employee may terminate the employment relationship with immediate effect if the other party (i) willfully or by gross negligence, seriously breaches a fundamental obligation arising from the employment relationship, or (ii) otherwise engages in conduct which makes it impossible to continue the employment relationship.

The termination with immediate effect shall be communicated within 15 days of gaining knowledge of the grounds therefor.

7. Consequences of unlawful termination

The Labour Code provides for sanctions for unlawful termination of employment.

In the case of an unlawful termination by the employee, the employee

– in the case of an employment contract of indefinite term, shall pay an amount equal to the absentee pay due for the period of the employee’s normal notice period (typically 30 days),

– in the case of a fixed-term contract, shall pay an amount equal to the absentee pay for the remaining period of the fixed-term contract (but maximum of 3 months).

In the event of unlawful termination of employment by the employer, it must compensate the employee for any damage caused by the unlawful termination (the amount claimed for loss of earnings must not exceed the employee’s 12 months’ absentee pay).

In certain cases (e.g. violation of equal treatment, abuse of rights), the employee may also request the reinstatement of his/her employment relationship, in which case, if the court grants the request, the time spent in the interim period (the period between the unlawful termination and the final court decision) is considered as employment and for that the employee is entitled for renumeration.

8. Employment of foreigners

Employment of EU nationals is permit-free but may be subject to registration.

Employment of third-country nationals is, as a general rule, subject to permit. There are several types of permits that can be applied, depending on the circumstances of the case to decide which permit is appropriate for the particular third-country national.

9. Foreign employers

If a foreign company decides to carry out activities/provide services in Hungary, it is advisable to consider the nature of the Hungarian activity (especially with regard to the persons to be employed) at the time of the establishment of the Hungarian company. The conditions of employment – for example: form of employment (e.g., employment / assignment), persons to be employed (e.g., on the basis of nationality), mode of employment (e.g., Home office / office presence) – have a fundamental impact on the employment structure.

10. Taxation of salaries

Payments received with respect to the employment relationship (typically salary) are generally subject to three main taxes and contributions in Hungary: (1) personal income tax (15%), (2) social contribution tax (13%) and (3) social security contribution (18,5%).

These taxes and contributions are typically deducted (or paid) in advance by the employer, thus the employee receives his/her tax-deducted, i.e., net salary from the employer.

However, there are certain benefits (e.g. some cafeteria benefits or the newly introduced housing allowance) that are taxed more favourably, and there are also employees who may qualify for tax relief under certain conditions (e.g. based on age, family status).

For further inquiries, please feel free to contact us at info@clvpartners.com.

Anna Katalin Papp, LLM

CLVPartners