Tax benefit of labor market entrants reduced from August 2024

In Hungary, employers are encouraged by a tax benefit to hire people who have not had a job for some time. Regarding people whose employment starts on 1 August 2024 or later, this tax benefit will be reduced.

If you are in the middle of hiring a person like this, you should consider choosing a starting date still in July, so you can still take advantage of the tax benefit of labor market entrants while it is available.

Who are labor market entrants?

Entering the work force may be hard. Recent experience is considered crucial in many positions, so fresh graduates, mothers returning from maternity leave, and people who have not had a stable job for a longer period may find it difficult to find employment.

To remedy this, the government tries to encourage employers to hire workers entering the labor market by offering a tax benefit. Now this benefit gets reduced, and the new rules will apply to employment relationships starting on 1 August 2024 or later.

Social contribution tax

The tax benefit of people entering the work force concerns the social contribution tax (or “szocho” in short in Hungarian), which is the employer’s tax on salaries. Currently it is 13% on the gross salary, and the employer must pay this to the tax authority above the salary.

If a business employs people entering the work force, part of the social contribution tax is waived for some time to make the employment of such people more cost-effective, and as a result, more attractive.

Tax benefit for entering the labor market previously and from now on

The new regulations apply from 1 August 2024. This means that they apply to employment relationships starting on 1 August 2024 or later. If an employment relationship starts on 31 July or before, the old regulations will apply to their taxes throughout the next 3 years.

The changes can be summed up as follows (explained below the table):

	Until the end of July 2024	Starting from August 2024
Eligibility	At most 92 days of work within the last 275 days	At most 92 days of work within the last 365 days
Time frame	The next 2+1 years	The next 12+6 months
Benefit	In the first 2 years: equivalent to szocho after the minimum wage In the 3rd year: equivalent to 50% of szocho after the minimum wage	In the first 12 months: equivalent to szocho after the minimum wage In the following 6 months: equivalent to 50% of szocho after the minimum wage

Eligibility

When determining eligibility for the tax benefit, currently the last 275 calendar days are taken into consideration. The employee will be eligible if they were not employed for more that 92 days in that period.

With the new regulation, the last 365 calendar days will be considered. Since this period is longer, fewer people will be eligible for the tax benefit.

Time frame

The tax benefit of labor market entrants is currently available for 3 years. With the new regulation, it will only be available for only 1.5 years.

Benefit

The tax benefit of labor market entrants is available in 2 stages.

• In the first stage, the employer’s tax is reduced by a sum equivalent to the tax to be paid after the minimum wage.
• In the second stage, the employer’s tax is reduced by 50% of the minimum wage.

Currently, the first stage involves the first 2 years of employment, while the second stage involves the third year.

With the new regulation, the first stage will involve the first 1 year of employment, while the second stage will involve the following 6 months.

Let’s see an example

For example, your new employee is a fresh graduate from university. They used to be a full-time student, so they were not working in employment during their studies. They are entering the labor market only now.

In 2024, the employer’s tax after the minimum wage is HUF 34,684 (ca. EUR 90) monthly. Since the minimum wage is adjusted yearly, savings will increase in proportion to the minimum wage. As the extent of that increase is not known beforehand, in the below calculations we use the 2024 figures.

If the first day of employment is 31 July 2024, you will pay at least HUF 34,684 less as your employer’s tax throughout the next 2 years, and at least HUF 17,342 less in the 3^rd year. In total, this saves you at least HUF 416,208 (ca. EUR 1,040) in the first year, and an additional HUF 624,312 (ca. EUR 1,560) min. over the next 2 years.

If the first day of employment is 1 August 2021, you will pay at least HUF 34,684 less as your employer’s tax throughout the next 12 months, and at least HUF 17,342 less in the following 6 months. In total, just like in the first case, this saves you at least HUF 416,208 (ca. EUR 1,040) in the first year, but only an additional HUF 104,052 (ca. EUR 260) min. over the next 6 months, and nothing more over the following 18 months.

Accounting and payroll services in Hungary

If you are considering the employment of a candidate entering the labor market just now, it might be worth making a decision soon so you can still take advantage of the current, more favorable benefits. Of course, employing the same candidate later may also prove a good investment in the long run if they meet your expectations while you keep providing a motivating work environment.

Helpers Finance provides both accounting and payroll services, with a special focus on small and medium sized businesses in Hungary operating under a foreign owner or executive. With our help, you can always keep track of your budget and make informed business decisions while our team makes sure your company remains compliant with Hungarian regulations.

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