Severance pay refers to a payment an employee shall receive upon termination of their employment. In Hungary, it applies after at least 3 years of employment, while a few other conditions must be met too.
When do you have to provide severance pay in Hungary?
Severance pay is strictly regulated in Hungary, just like most other aspects of employment. Both its conditions and the sum to be paid are described in the Labor Code. Of course, you can set out different conditions in the labor contract, but those cannot be stricter than the law itself.
For example, severance payment normally applies after at least 3 years of continued employment. In the labor contract, you can stipulate a severance pay after already 2 years, but cannot withhold it until the 4th year.
Cases when severance pay must be provided:
- The employer terminates the employment
- The employer is terminated without a successor
- The employer is sold and the new owner falls outside the scope of the Labor Code
- The employee quits after a change in the employer, when staying in employment would have been either impossible for the employee or would have hurt their interests
- The employee quits based on extraordinary termination, which means there was a willful breach of contract or gross negligence on the side of the employer (see more about that here)
When is severance due?
Normally, severance pay is due after at least 3 years of continuous employment at the same employer. Being promoted or transferred to another position does not restart the count, neither a change in the person of the employer.
For example, you buy a company that has been operational for 10 years, and it has employees who have been there from the start. If you want to terminate them, you must provide them severance pay for their 10 years of service.
When calculating continuous employment, periods of unpaid leaves should not be considered if they were longer than 30 days, unless they were for
- maternity leave
- voluntary reserve military service
When determining whether severance must be paid, the date to be used as a calculation basis is the date of the notice, not the last day spent in employment.
For example, your employee started working for your company about 3 years ago, on 1 March. If you give them their 30-day notice on 15 February, their last day spent in your employment is 17 March, but you will still not have to pay severance.
Standard severance pay in Hungary
Severance pay depends on the latest gross salary of the employee. After at least 3 years in your employment, your employee shall receive a severance pay that equals their gross salary for 1 month. The longer they spent in employment, the higher the severance pay gets.
|Time spent at your company||Severance pay equals their latest gross salary for|
|3 years||1 month|
|5 years||2 months|
|10 years||3 months|
|15 years||4 months|
|20 years||5 months|
|25 years||6 months|
Severance pay may be even higher
While the basis of the severance pay is the latest gross salary of the employee, many employees receive wage supplements, and those must also be considered. For proper calculation, you should take the wage supplements provided to the employee over the last 6 months of employment, and calculate a monthly average. Then that average should be added to the gross salary, which should be multiplied by the right number of months, based on the number of years spent at the company (see the table above).
For example, the latest monthly gross salary is HUF 500,000, and the employee received an average wage supplement of HUF 60,000 over the last six months. In this case, your calculation basis will be HUF 560,000. If they worked for the company for 12 years, you need to multiply that sum by 3.
Moreover, if you terminate an employee who is within 5 years of reaching the current Hungarian retirement age (which is 65 years in 2023), you must add some extra to their severance pay.
|Time spent at your company||Extra severance pay equals their latest gross salary for|
|3-9 years||1 month|
|10-19 years||2 months|
|20+ years||3 months|
For example, your employee is 61 years old, and has been with your company for 12 years. As severance pay, they shall receive 3 months’ gross salary by default, and another 2 months’ as an age-related compensation.
When severance pay does not apply
In some cases, severance pay is not due even if the above listed conditions are met.
- If the employee was already a pensioner at the time of notice
- If the employee was not performing their tasks properly and that behavior was unrelated to their health
Moreover, employment relationships are often terminated with mutual agreement. When that happens, the employee loses their right to receive severance pay. Of course, severance pay can be included in the mutual agreement, but that is already a question of agreement instead a question of rights.
Severance pay must be paid on time
Severance is normally paid together with the last salary of the employee. If it is not paid on time, the employee can enlist a lawyer to issue an order for payment towards the company. This is normally the first step towards forced liquidation, which you probably want to avoid.
Helpers at your service
Normally you provide severance pay to your Hungarian employee if it is you, the employer, who terminates the employment relationship, and your employee has been working for your company for at least 3 years. The sum of the severance pay is in proportion to the length of employment.
The Helpers Team offers assistance not only regarding work permit application, but also other administrative procedures relates to business operation in Hungary, such as accounting and HR support. Our focus is on working with foreign owners of small and medium-sized companies, but we are committed to find tailored solutions for all occasions, regardless the size of your operation.