As your Hungarian company is growing, you might want to distribute leadership duties and increase the number of executives either by way of promoting existing employees or employing executives as new hires. However, executive employees have different rights and protections, while a promotion may affect the work permit status of an employee.
Who are the executives?
Executives are those members of the organization who can make executive decisions on behalf of your Hungarian company. Such decisions may include strategy, resource allocation, process optimization, or other areas that may shape outcomes for the business.
To be an executive, it is not enough to have the word “executive” in the job title, especially as Hungary is quite lenient when it comes to titles. However, a FEOR code that tells authorities what that job does should be attached to each job title, and that must match the executive function.
Typically, the following people can be executives at a Hungarian company:
- The Managing Director, especially if they can act on their own and without restrictions on behalf of the company. The MD may or may not be an employee: if they are, the relationship is governed by the Labor Code; if they aren’t, it is governed by the Civil Code.
- Employees reporting directly to the MD if they are also entitled to substitute them in part or in full. This is not holiday substitution but interchangeability in representation and decision making, like in case of a CTO or CFO.
- Other employees may become executives if the job is either crucial to the business operation or highly confidential, and if their monthly gross salary is at least 7 times the minimum wage.
Employing executives from abroad
Of course, the executives at your Hungarian company may be third-country nationals, just like the employees in any other position. Being an executive involves different rights and obligations that what is relevant to regular employees (detailed below), so this fact must be reflected in the labor contract.
When becoming an executive means a change to an employee’s position, the labor contract must be updated. At the same time, it must be considered whether the FEOR code of the position must be updated too. If the FEOR code changes, the employee will need to apply for a new work permit before they can start working in their new position.
To ensure the compliant operation of your Hungarian company, always consult an HR specialist like Helpers before offering a promotion that might affect the FEOR code of your third-country national employee.
Employing executives under the Labor Code
As mentioned above, executives have different rights and obligations than other employees. These roles come with more responsibility, which must be reflected in the labor contract, but it is also reflected in how the Labor Code applies to them. As you will see below, the law typically offers less protection to these employees, but the contract you mutually agree on can be more liberal.
The protections that remain in place are usually related to having children or to assert children’s rights:
- exemption from work during doctor’s appointments related to reproduction (not even standby)
- no termination during pregnancy or maternity leave (while the child is below 3)
- option to request unpaid leave related to childcare (e.g. when the child is sick)
- no night shifts from the announcement of pregnancy until the child reaches 3 years of age
- extra PTO while the children are under 16
The protections lost reflect the increased responsibility.
No collective agreements
If your Hungarian company has a collective agreement with its employees, that will not apply to the executive employees. While collective agreements usually include additional safeguards for the rights of employees, they might be restrictive for executives.
Flexible working time
For regular employees, a full-time job means 40 hours a week, which is normally distributed over 5 days a week and 8 hours a day. Even if they are working on an alternative schedule, rest periods must be observed, and wage supplements must be paid in specific cases, e.g. shift work or overtime.
Executive employees can allocate their working time themselves, they are not even required to track their working hours. At first glance, it might look like they come and go as they please, but in fact they might be working more hours, without receiving wage supplements, and rules regarding their paid time off may also be different.
Stricter non-compete rules
All employees are expected to consider the interests of their employees and avoid engaging in activities that may harm those. The rules are stricter for executive employees, since they:
- cannot have a side job;
- cannot run a side business in the same field;
- cannot own shares in a business in the same field (the only exception is owning stocks in a public limited company);
- must let their employer know if any of their close family members engage in any of the above listed activities.
More liability
Employees are normally liable for damages caused to the business if the damage could have been avoided. If the damage was caused by inattention or negligence, the maximum amount of compensation they might be expected to pay is the worth of 4 months’ salary. If the damage was intentional or the result of gross negligence, full compensation may be expected.
In contrast, executive employees are expected to pay full compensation even if the damage was caused by recklessness.
Of course, if the damage was unforeseeable, neither executives nor regular employees are considered liable.
Less protection against termination
In the case of regular employees, dismissal requires a good cause and a notice (unless they are still on probation). In contrast, executives are less protected:
- The employer is not required to provide justification under ordinary termination (which lowers the risk of litigation, so it benefits the employer)
- Ordinary termination can happen during an unpaid leave taken for childcare (which is not an option in the case of regular employees)
- Regular protections available close to retirement age will not apply
- Unlike regular employees, an executive close to retirement age may be dismissed while on sick leave
- If a valid reason for immediate termination is discovered, regular employees may be dismissed in 15 days, while in the case of executive employees, this period is increased to 3 years
At the same time, if the termination of an executive is unlawful, they can sue to receive a severance equal to 12 months’ salary – as opposed to regular employees, who can only sue for salaries not received until they found a new job, but at most for 12 months.
Before employing executives
While executives enjoy greater freedom in their work and their decision making, they have increased responsibilities and liabilities. Having additional people in such roles will have both advantages and disadvantages for the company too. You will need to consider the fundamental differences in how the Labor Code applies to them, and if you are promoting a third-country national, their work permit status must be re-evaluated.
Helpers Hungary offers assistance regarding both HR and immigration. Whether you need help simply with preparing the new labor contract for employing executives or also with evaluating whether a new work permit application will be necessary, you can get that from one provider. Thanks to our 20 years of experience in business and immigration, we will be able to find the best solutions to your needs.