COVID-19: The much-awaited new rules of Hungarian short-time working and the State subsidy scheme

Under this scheme, the Hungarian State undertakes to subsidise 70% of employees’ unpaid salary (subject to certain conditions) for three months provided the employer employs the employees in reduced working time instead of making them redundant, and agrees to maintain the employment of the subsidised employee for a certain period. Employers can apply for the State subsidy from 16 April 2020, and the new rules apply retroactively for the current procedures in place.   

What are the main conditions for the State subsidy?

The Government Decree 105/2020 (IV. 10.) amended by Government Decree 141/2020 (IV. 21.) on 21 April 2020 specifies the main rules for short-time working and the related State subsidy scheme. This law sets out a significant number of eligibility requirements for the subsidy, and below we summarise the key ones.  

The State subsidy is not available during unpaid leave, and in case of “employment different from the employment agreement”. However, the subsidy can be applied for in the case of telework and home office. 

A reduction in working time of between 15% and 75% is possible. If the reduced working time exceeds half of the working time being in effect before the modification, during 30% of the reduction in working time, so-called “individual development time”, the employee must perform some sort of “development” related to his/her position or the employer’s business activity (e.g., complete trainings). However, the employee is not obliged to perform work during this period. Individual development time can be scheduled for the duration of the subsidy, or any time within two years after that. If the reduced working time does not exceed half of the working time being in effect before the modification (e.g., the reduced daily working time is three hours, provided that the employee previously performed work in general full daily working time), the parties can but are not obliged to agree on “individual development time”. 

Importantly, the employer and the employee must – or with the above exceptions can – agree on both the reduced working time and the “individual development time”, meaning that the employer cannot reduce the working time unilaterally. This does not necessarily mean that the employment agreement has to be amended, because according to the Governmental Decree – to reduce the administrative burden – the administrative body’s decision on awarding the State subsidy amends the employment agreement for the duration of the subsidy with regard to the reduced working time and the “individual development time”.

The basis for calculating the State subsidy is the employee’s monthly net base salary effective on the date of filing the application. The amount of the State subsidy is 70% of the proportionate base salary due for the reduction in working time subject to the below restrictions. 

The amount of monthly net base salary that can be considered for the State subsidy is equal to twice the minimum net salary in Hungary (currently HUF 214,130). So even if the employee’s monthly net base salary is more than HUF 214,130, the State only subsidises a maximum of 70% of 75% of HUF 214,130, which means a subsidy of HUF 112,418 net monthly per employee. The subsidy is granted for a period of three months. The State subsidy is tax free for the employee, and only the salary due for the reduced working time and the “individual development time”, as well as the relevant social security contributions, must be paid by the employer.

Nonetheless, the employer must ensure that the total amount of the salary and the State subsidy equals at least the employee’s base salary which was in effect on the date of filing the application for the subsidy, and that they pay salary for the “individual development time”, except if the parties are not obliged to agree on “individual development time”. In our view, this means that the employer must supplement the State subsidy if the employee’s monthly net base salary is more than HUF 214,130, and as a result in practice the employee will receive the monthly net base salary which was in effect on the date of filing the application provided that the parties must agree on “individual development time”. 

The employer must be able to evidence and demonstrate in the application for the State subsidy that the reason for reduced working time is directly connected to the state of emergency and the COVID-19 pandemic, and also that the retention of employees is in the interests of the national economy. 

Finally, the employer must undertake not to terminate the employment of the affected employee (with certain exceptions) for the duration of the State subsidy plus one additional month.

The employee’s net monthly base salary on the day of filing the application is HUF 300,000. The parties did not deviate in the employment agreement from the general rules of the Hungarian Labour Code on general full daily working time, namely the employer employs the employee 8 hours a day. The employer and the employee agree on reducing the daily working time to 2 hours. Thus, the employee will receive 25% of his/her previous salary (i.e., net HUF 75,000) from the employer. The Hungarian State will subsidise 70% of the employee’s 75% unpaid salary due to the reduced working time. The amount of the State subsidy is 70% of 75% of net HUF 300,000, but maximum HUF 112,418. Therefore, the employee will receive net HUF 75,000 from the employer (in our view, in this case the employer is not obliged to supplement the employee’s salary in order to prevent the reduction of the employee’s base salary) and the maximum of HUF 112,418 from the Hungarian State as a subsidy.

Applying for the State subsidy 

The competent government office (in Hungarian “fővárosi és megyei kormányhivatal”) may grant the State subsidy to the employee based on a joint application by the employer and the employee, meaning that employers cannot apply for the State subsidy unilaterally.

Persons eligible to apply for the State subsidy are also defined: the definition of “employer” set out by Government Decree 105/2020 (IV. 10.) does not align with the “employer” definition specified in the Hungarian Labour Code since the former is somewhat broader (e.g., it includes operators of social institutions). The definition of “employee” on the other hand is narrower compared to the Hungarian Labour Code since it excludes disabled employees.

Applications must be submitted electronically by employers to the government office competent for the registered seat or business establishment of the employer, and also signed by the employee. Submissions can be made from 16 April throughout the period of the state of emergency, or within one month after the end of the state of emergency by way of an application form available on the National Labour Service website.

The government office’s decision to grant the State subsidy cannot be appealed, however the employer and the employee may submit the application one more time. 

What are the changes in legislation concerning reference periods?

Government Decree 104/2020 (IV. 10.) allows employers to unilaterally order the reference period for a maximum of 24 months.

Before the above mentioned changes, reference periods longer than four or six months could only be ordered by collective bargaining agreements. However, as of 11 April, employers may decide to apply such extended reference periods unilaterally.

The application of the 24-month reference period may help to manage the period of decreased customer orders or partial or full shutdown by allowing employers to schedule reduced working days or rest days for this period, and later the employer can schedule more or longer working days as allowed under the applicable laws.

Therefore, once production is up again, instead of overtime, employers can schedule regular working time for the balance of the reference period.

Finally, the legislator has also stated that the end of the state of emergency shall not concern the ordered (longer) reference period. However, in our view, such longer reference period may only be ordered while Government Decree 104/2020 (IV. 10.) is in effect, i.e. during the state of emergency.

Péter Sziládi and Karim Laribi, Junior Associates from Bird & Bird’s Budapest office, contributed to this article.

Last reviewed: 24 April 2020