Proper planning is a key of every successful business activity. While certain schemes are similar on various markets, labour costs and taxation are unique in most countries. We shortly introduce the current taxation of payroll to ensure that you can prepare a precise budget with no surprises.
Salaries in Hungary
Salaries are usually paid on monthly basis. The employment contracts must include the gross basic monthly salary of each employee. There is a minimum salary to be paid nationwide, but there are no collective agreements for each sector.
Deductions from gross salary
The employer must deduct and pay the following from the gross salary:
- 15% personal income tax (PIT). This can be less if the employee is entitled to family tax discount due to children.
- 18.5% social insurance contribution. This is paid for the full health insurance and the pension contribution. In Hungary, every employee is fully covered with health insurance, but private healthcare companies are also present – their services are not always covered. Pensioners are automatically insured, so they do not have to pay this insurance contribution.
In a standard case, the employee receives 66.5% of the gross salary after the above deductions. The employees often refer to their net salary during the recruitment, but the contract must include the gross monthly salary.
Employer’s costs on payroll
The gross salary is not the total cost of the employer. The following additional costs must be considered related to payroll:
- 15.5% social contribution tax is general for all employers.
- 1.5% vocational training contribution for all employers who are registered and have an official address in Hungary. Foreign employers without local address are excluded. This amount can be reduced by the costs of certain professional training activities.
This way, the total cost of the employer is 117% of the gross salary.
Note 1: if the company is under KIVA taxation scheme for SMEs, the employer’s costs are replaced by 11% of KIVA.
Note 2: Larger companies must also pay rehabilitation contribution if the average headcount is over 25, and the ratio of employed persons with disabilities is less than 5%. The difference must be compensated by 9 times the actual minimum monthly salary each year. It is paid quarterly.
For further details, please contact us.