It is increasingly common for foreign parent companies to send their employees, particularly expert professionals, middle-level and senior executives, to work at their Hungarian subsidiaries. Reviewing the labour law framework for intercompany postings, also looking at tax and social security implications, is vital here.
Typical labour law models for intercompany postings
- Posting agreement
In the case of short postings, the parties often modify the labour contract between the posting employer and the posted employee by mutual consent for a set period. The parties define the main conditions of the posting in a posting agreement. These conditions have to be in line with the minimum working conditions contained in Section 295 (1) of the Hungarian Labour Code, which include specifying the longest working hours or the shortest rest period, the lowest salary amount and the conditions for employing the different categories of vulnerable people.
- Multiple-contract model
If the intercompany posting is for a longer period, the parties generally set out the legal framework for the posting based on the multiple-contract model. The multiple-contract model is primarily seen with intercompany secondments where the posted employee comes to Hungary for several years (usually appointed as a senior executive at the subsidiary and performing tasks as a senior employee). In these cases, the posting employer and the employee mutually agree to “suspend” the employment relationship (i.e. the main responsibilities derived from the foreign labour contract, the availability obligation and the salary payment obligation, are suspended) and the employee continues working at the Hungarian employer which is part of the group. Then a labour contract usually subject to Hungarian labour law is concluded between the receiving employer and the posted employee for a set period.
Intercompany posting: a triangular legal relationship
An intercompany posting is a triangular relationship where, in addition to the labour contract, there is a legal relationship between the home country employer and the host country employer. The civil law agreement between the parties is particularly important because it affects the decision as to which employer qualifies as the economic employer. This has legal consequences in terms of tax law and social security.
Content of agreement between host country and posting employer
The content of the agreement between the host country and the posting employer is determined freely under the given legal framework. The integration test applied in tax law can provide a starting point for deciding which issues should be agreed upon. It can be established based on the integration test which employer qualifies as the economic employer. This is designed to reveal whether the posted employee is organically integrated into the activity of the receiving employer or not. It is very important which enterprise bears the responsibility or risk for the results of the work by the posted employee.
In addition, the following aspects, among others, should be reviewed as part of the intercompany posting,
- who is entitled to exercise the right to give instructions,
- who is authorised to exercise control and who must undertake responsibility for the place of work,
- whether the formal employer shifts the responsibility for the employee’s remuneration directly to the company where the employee actually works,
- who provides the tools and materials necessary for working,
- who is in a position to determine the number and qualifications of the employees working,
- who is entitled to select the employee, who exercises the right to terminate the employment,
- who is authorised to apply sanctions under labour law,
- who determines the rules for leave and work schedules.
These issues and others have to be reviewed when establishing the content of the agreement between the parties.
In light of the above, it is essential with intercompany postings to address the employment scheme in terms of labour law, social security and income taxation, and harmonise these independent systems.
Articles related to the topic:
Guidelines for HR professionals – taxation of foreigners’ income in Hungary
Taxation of foreigners’ income in Hungary – definition of tax residency
Taxation of foreigners’ income by types of income in Hungary
