The social security systems of EU Member States vary significantly, and experience shows that the Member States do not even strive to harmonise them. In practice they are only coordinated, so that foreign employees do not find themselves disadvantaged during postings. This is how they can avoid multiple social security statuses in several Member States, and prevent someone being left without social security. Persons subject to the coordination regulation may only be registered in the social security system of one Member State. The general rule is that employees are insured in the state where they perform their work. So what exactly are the posting rules?
From 1 May 2010, all Member States must apply the coordination regulation on the coordination of social security systems, as well as the relevant implementing regulation.
Social security status for posted employees
In most cases, posted employees come to Hungary for a temporary period only.
The most important question is whether contributions should be paid in Hungary in respect of the employment. To examine this, two aspects essentially have to be taken into account:
- Does the employee qualify as a foreigner?
- Does the employee qualify as an EU citizen or are they from a third country with which Hungary has a bilateral social security treaty?
Posting rules in the coordination regulation
The coordination regulation defines who qualifies as a posted employee, depending, among other things, on the circumstances of the work and the expected period of the posting. The direct relationship between the posted employee and the posting employer has to be continuously monitored. If the employer does not retain full employment authority, the posted person cannot remain registered in the posting country’s social security system. The posted employee cannot remain insured in the posting country in several other cases either. Therefore the social security status definitely has to be examined regarding the period directly preceding the posting for example, along with the circumstances of any former postings, indeed, any signs of other irregular circumstances.
Verification of posting
In the case of legal status as a posted employee, the foreign employee is essentially insured in the posting country based on the posting rules, however, this fact must be proven to the authorities of the host country too. The A1 form is used for this purpose, which is a certificate verifying the insured status for the period directly preceding the posting based on the declaration of the employer, the maintenance of the employment during and after the posting, the agreement to make contribution payments, and even ruling out the possibility that the posting is designed to replace another employee.
The competent authorities of the Member States can deviate from the rules of the coordination regulation by mutual agreement. The employee and the employer may request an exemption if:
- the period of the posting is expected to exceed 24 months,
- the posting conditions still apply, but 24 months have already passed since the beginning of the posting and circumstances requiring special consideration justify the exemption.
Form A1 exempts both the employer and the employee from the obligation to pay social security in Hungary, which means only personal income tax must be deducted from the private individual in this case, and the employer in Hungary does not have to pay the 22% social contribution tax and the 1.5% vocational training contribution.
Posting rules in case of citizens of third countries
It frequently occurs that employees arrive in Hungary from outside the European Union. Persons from third countries become insured in Hungary based on their employment (provided there is no social security treaty with the given country), so their social security status is identical to that of employees in Hungarian employment relationships.
For people posted from third countries, it is nevertheless possible that they do not become insured because the duration of their work does not exceed two years for example, and so they do not qualify as residents pursuant to the Act on Social Security.