In connection with the amendment of the Labor Code last summer, in the previous months a lot was said about the changes in the rules of posting employees abroad.
The Hungarian labour law provisions implementing the relevant European acts leave open several questions that may arise during posting employees abroad. Both in connection with the posting of a Hungarian employee to a foreign location and with the receiving of a foreign employee in Hungary, the practice filled in the gaps of the legislation. We now review the topic through practical examples.
Posting poses implementation hardships from taxation and social security aspects as well, however, we only examine the labour law considerations below.
Contrary to the previously effective act, the current Labor Code does not apply the expression of secondment but regulates the rules of working at another working place or another employer among the rules of employment in deviation from the employment contract. Under the European rules, posting means to send an employee for a limited period, to carry out his work in the territory of a Member State other than the State in which he normally works. The Hungarian and European social security regime applies the concept of posting only upon fulfilment of further conditions.
The legal provisions do not articulate that international posting always presupposes at least two contracts. On the one hand, an employment agreement exists between he posting employer and the employee, on the other hand, the two employers also conclude an agreement whereby the posting party provides services to the receiving party through its posted employee. Even though the receiving party and the employee do not conclude an employment contract, the receiving employer is often a party to the so called assignment agreement.
During posting it is often asked who is entitled to instruct the employee and to what extent. Neither do the legal acts regulate to which employer is the employee liable for damages caused during the posting, nor which employer should compensate the employee for damages: may the receiving employer be held responsible directly or the damages should be compensated first by the posting employer and the receiving party needs only to indemnify the posting employer?
All of these questions are worth settling in the agreement of the two employers. Also, the rules ought to be communicated to the employee as well in order to avoid later disputes.
Employment in deviation from the employment agreement may last for 44 working days or 353 hours per year, the most. However, this limit does not constitute an absolute ban on longer postings, it only refers to the posting ordered unilaterally by the employer. In case longer posting is necessary, the employee and the posting employer need to amend the employment agreement. This amendment is concluded for a definite term, that is, for the duration of the posting and is usually called the “assignment agreement”. The assignment agreement may contain the information and declarations required under social security rules too.
It may be less known that in case of working outside of Hungary, the employee’s salary can be determined and paid in a currency other than HUF. During the posting, the employee is entitled to at least the base wage set out in his employment agreement. Additionally, the employer is obliged to reimburse the costs of the employee incurred during the posting and in connection with his work. Paying a daily lump sum is a common practice as the amount thereof is not limited, only the amount of deductible expenses is regulated by the relevant tax laws. Thus, the employer covers the cost of travel, accommodation and catering either by providing a business credit card to the employee or by reimbursement, upon invoices. The employer should pay special attention to those benefits that are provided with respect to the employee’s family also moving to the new location (e.g. schooling expenses, housing allowance). Although many employers have a universal regulation for posting, it may be worth leaving space for individual planning of the benefits, as the target location, duration, taxation and social security consequences of each posting may wary greatly. A good practice is to give the details of each benefit in the regulation and allow for the selection of those benefit-elements that are the most adequate for the concerned posting.
In basic cases, everything goes according to the instruction of the employer or the assignment agreement: at the end of the posting, the employee returns to his original working place in Hungary and he will be entitled to the allowances set out in his employment agreement. The employer usually covers the cost of relocation and moving. However, situations may arise when either the employee or the employer wishes to terminate the posting prior to its end date. In case of a posting due to which the employment agreement was modified, clearly the initiating party needs to agree on the terms of the return with the other party. Regulating the conditions to terminate the assignment agreement in the same document brings clarity for both parties. As for posting on the basis of the unilateral instruction of the employer, in absence of specific provisions, one may invoke the rules on rightful refusal of an order (especially if the employee’s health or life is in danger). However, most often the parties’ agreement settles the details of the employee’s return in such cases as well.
According to the relevant provisions of the Labor Code, the place of work may be indicated by more than one address or as a larger geographical unit (e.g. Hungary, Eastern-Europe). Work at these addresses or geographical area is not considered as posting. For an employee filling a regional position within the company group and who therefore travels abroad frequently, it is possible to indicate a larger geographical area as place of work and to expressly prescribe such trips connected to the position as a task of the employee.
Even though in case of reversed posting, i.e. posting from abroad to Hungary, the underlying employment relationship is typically governed by foreign law, in many aspects, the Hungarian labour law rules need to be applied.
An employee posted to Hungary under a foreign employment agreement is entitled by law to the so called core Hungarian labour rights, if such rights are more beneficial to the employee in comparison to the rules of the law governing his employment agreement. Among the core labour rights are the rules on the upper threshold of working time, the lowest limit of resting time, the minimum wage, the conditions of employing pregnant employees and employees caring for young children and the minimum amount of paid vacation. It is not clear though, whether the foreign employee is entitled to the Hungarian holidays or the holidays according to his personal law, perhaps both sets of vacation. Furthermore, due care should be given from labour law and social security perspective if the posted employee becomes pregnant or gives birth during her posting in Hungary.
Last summer’s amendments to the Labor Code introduced an even stricter rule whereas they established the joint and several liability of the receiving and the posting employer for the salary and allowances of the employee. Under this joint and several liability, the competent authority of the posting employer’s state may request the fulfilment of the above obligations either from the posting, or from the receiving employer, provided that the receiving employer knew or with due care, should have known of the omission of the posting employer.
While the receiving party is obliged to retain documentation, the foreign employer is obliged to register and inform the authority since the end of August 2016. Foreign employers can fulfil the above obligations by registering on the dedicated webpage of the labour inspectorate (district offices of the metropolitan and county government office).
The above is a non-exhaustive description of the relevant Hungarian legal provisions. The above summary should not be considered as legal advice and should not be relied upon when making business decisions. Before resolving on investment in Hungary, we recommend that you contact our law firm for detailed, tailor-made legal advice.