Running payroll in Hungary

As a member state of the European Union, Hungary represents a popular business location for companies who want to outsource their IT services or establish a presence in the European market. Whether they do so as a resident employer or a foreign employer, international companies setting up payroll should be aware of the nuances of local payroll rules and regulations. 

Several registration processes have to be completed before employers can process payroll in Hungary and payroll leaders should always be on the lookout for legislative changes regarding payroll which happen on a regular basis. A recent example is the reduction of the employer's social security burden from 17% to 13%.

Companies need to register with several local authorities before they can start processing payroll in Hungary. First of all, it is necessary to register with the Hungarian National Tax and Customs Office in order to receive a tax number. It is possible to name an official representative who can handle tax registration on behalf of the employing company - special forms are required as proof of authorization. Please note that all necessary registration forms are only available in Hungarian.

New hires (as well as leavers) must also be registered with the Tax Authority. For tax withholding, filing and payment purposes, it is mandatory to create an account for the official online portal “Cégkapu” (Company Gate) which is provided by the Hungarian government. All communication between the employer and the statutory authorities must be made via this secured system.

Furthermore, employers need to register with the National Health Insurance Fund as well as with the Hungarian Central Statistical Office. Separate registration with a pension fund is not necessary. Setting up a local bank account is optional.

Compared to Western European countries like Belgium, France or Germany, the Hungarian social security and tax system is relatively straightforward. Tax on employment income is levied at a flat rate of 15% and social security contribution rates are clearly defined. 

Tax considerations

The Hungarian tax system distinguishes between resident taxpayers and non-resident taxpayers. While the latter only pay income tax on their Hungary-sourced income, residents are liable for taxes on worldwide income. 

Tax residency (for business travelers) is usually determined with the help of the 183-day rule (i.e. whether the individual has spent more than 183 days in Hungary during the tax year). Individuals are further considered Hungarian tax residents if their only permanent home is located in Hungary or if their center of vital interests is there.  

Income is taxed at a 15% flat rate. Tax allowances are available for families with children and newly married couples, among others. There is no special tax regime for expatriates.

Tax withholding and reporting

It is the employer’s duty to calculate and withhold income tax from the employee’s salary and remit the withheld amount to the Tax Authority on a monthly basis. Payments can be made via a local or foreign bank account. They also have to prepare a monthly declaration which details the tax liability as well as social contributions and which has to be submitted through the official government platform. The due date is the 12th of the following month. 

Employees must file a personal tax return which is due by 20 May of the following tax year - extendable until 20 November in certain cases. For this purpose, the employer has to provide an annual tax and social contributions certificate (in two different documents) which needs to be sent to the employee no later than 31 January. In case they are employed by a foreign entity, employees are responsible for making advance payments of their income tax on a quarterly basis. The tax year is the calendar year. 

Social security contributions

In addition to calculating and withholding income tax, employers also have the obligation to withhold the employee’s share of the social security contributions as well as make their own contribution. 

From 1 January 2022, the employer social tax is reduced to 13% (before it was 15.5%) and the former vocational training contribution of 1.5% is now included in the 13% base contribution. The employee’s share of the social security contributions remains fixed at 18.5% of their gross monthly salary. It is possible to deduct a certain percentage (15% in 2022) of the employee’s child allowance - if applicable - from the employee’s social security contributions. Please note that this refers to the unused amount of the allowance. 

The withheld amounts have to be submitted to the Tax Authority together with the withheld income tax by the 12th of the following month. Social contributions are to be included in the monthly tax and contributions declaration which is due on the same day. 

It should be noted that non-resident employers have the same filing and withholding obligations as resident employers if their employee is subject to Hungarian social security contributions. However, if they fail to comply with the regulations, the burden goes over to the employee.

Employees in Hungary are entitled to various benefits. These include:

• Annual leave and public holidays: minimum 20 days, increasing with seniority (30 days maximum); 11 public holidays

• Maternity leave: 24 weeks

• Paternity leave: 5 days

• Parental leave: up to 2 years, paid by social security

• Sick leave: 15 days of sick leave per year

For more information on employee benefits and other employment requirements in Hungary (including severance pay and termination procedures), check out our Global Hiring Guide.

Minimum wage rates are adjusted by the Hungarian government every year. According to a government announcement, the national minimum wage is set to increase by almost 22% in 2022. This will bring the minimum monthly pay to HUF 200,000 (was HUF 167,400 in 2021). The new guaranteed minimum wage for occupations which require at least a basic level of qualification is HUF 260,000. 

Overtime pay is also regulated by law. An employee who works more than 8 hours per day or more than 40 hours per week is entitled to overtime pay equal to 150% of their usual wages. Work on Sundays and on public holidays is also subject to additional pay. In this case, employers must provide double pay. There is no legal obligation, nor is it common practice to pay a 13th salary. 

Payroll in Hungary is generally processed once a month. The exact pay date of the employee is to be fixed in the individual employment contract. However, payments to employees should be made no later than the 10th of the month following the respective pay period. 

Salaries and wages must be paid in Hungarian Forint (HUF) which is the local currency. Both cash and bank transfer are legitimate payment methods. Cash payments need a written receipt. Electronic payments of wages can be issued from a foreign bank account.

It is mandatory to issue a payslip providing detailed information on the employee’s earnings, deductions and the amount of income and social tax paid. Electronic payslips are legally permitted. Payroll records must be kept for no less than 7 years.