Simplified Employment Act, Hungary

About

Country: 
Hungary
Sectors: 
All
Target Groups: 
employers/purchasersworkers/suppliers

 

In 2010, the Hungarian government introduced the Simplified Employment Act (2010/LXXV) to facilitate seasonal and casual employment notifications, reports and payments. The regulations of the Act can be viewed, and are viewed at political level, to be an anticipatory measure to tackle undeclared work. Official data shows that those employers who normally notify the authorities anyway are the most likely to use the new system. However, it is still unclear whether it will regularise the Hungarian labour market.

 

Background

The undeclared economy came into the limelight in the mid-1990s. Economists estimate the rate of undeclared economy to be 10–30% of the national economy. Many think that the undeclared phenomenon was deeply engrained into people’s consciousness; ‘skirt the norms became the norm’, declared ex-Prime Minister Ferenc Gyurcsány in 2007.

Hungary has been traditionally an agricultural country with a high number of seasonal workers. In the past incomes of employees were quite low but were at an equal level for most of people. To ensure a better income, the former regime allowed (or tolerated) people to earn money in the black economy. This tradition is disastrous for a successful fight against the black economy. Several governments have introduced measures to tackle the problem. Most were related to increasing pressure and control on employees, thus they had a deterrence approach, which seeks to increase the actual or perceived likelihood of detection and penalties; others were about controlling companies. There were only a few incentives encouraging employers and employees to state undeclared employment.

Objectives

Simplified Employment Act

The Simplified Employment Act has been enacted to simplify the complicated, slow and dysfunctional administrative burdens for seasonal employment. Results from the National Labour Inspectorate’s inspections had shown that there was a high rate of incorrectly filled forms, and failures of meeting deadlines among employers’ and employees' contracts and registrations at labour authorities. For example it was necessary for every single seasonal worker to fill in two copies of an official attendance sheet every day with 18 categories on it.

Specific measures

The administrative burdens started from the very beginning of the open labour market in the early 1990s, but also the EU accession has led to increased regulations and administration requirements. Debates around those burdens were continuous without substantial changes until 2010.

As a first step to ease employment, the so called ‘casual employee booklet’ for administration of employment in an atypical but legal form (HU0609019I) has been ceased as of 1 April 2010 (http://www.agrarkamara.hu/AMagyarAgr%C3%A1rkamarah%C3%ADrei/tabid/118/Default.aspx?udt_495_param_detail=4677).

As a second step the Simplified Employment Act was introduced on 1 August 2010 and last amended on 29 December 2011.

The regulation of the Act can be considered, and is considered at political level, as an anticipatory measure to tackle undeclared work in Hungary.

It frees both employee and employer of the administrative burdens, as employment status has to be stated in a mutually agreed simplified work contract (enclosed to the Act) and can be declared by a simple text message (SMS) or electronically via the so called client gate system (Ügygélkapu Magyarország, https://ugyfelkapu.magyarorszag.hu/) after being registered once in the system. It distinguishes only two categories of simplified employment: seasonal agricultural work, including seasonal tourism services and other casual/temporary work (i.e. domestic work).

In the first case the employer has to pay taxes of HUF 500 (€1.75), in the second case HUF 1,000 (€3.5) on a daily basis. By entering two codes into the text message or into the client gate system all obligations can be fulfilled at once, namely notification, reporting and payment.

The Act regulates the maximum working hours per year and in effect highlights discrepancies to the Labour Code.

A controversial paragraph concerns entitlements to social benefits. During simplified employment the employees do not have overall and regular social security; they are only entitled to accident health care services and job seeking allowances, but have no health insurance and only a restricted later pension claim for the period of this kind of employment.

Actors involved

  • The Ministry of National Economy (Nemzetgazdasági Ministérium, NGM) – legislative role.
  • State Secretary for Employment Policy (Foglalkoztatáspolitikáért Felelős Államtitkárság) – roles in information and consultation.
  • National Tax and Customs Administration (Nemzeti Adó- és Vámhivatal, NAV, http://www.apeh.hu/) – taxation, tax administration.
  • Hungarian Labour Inspectorate (Nemzeti Munkaügyi Hivatal, http://www.ommf.gov.hu).

Outcome of evaluations: lessons and conclusions

Achievement of objectives

National Tax and Customs Administration data states that between April and May 2010 505,621 simplified employment cases were registered at the tax authority from which 417,937 concerned ad hoc/casual employment, 15,877 seasonal agricultural employment, 6,393 tourism employment, 761 at non-profit organisations; and 10,326 in the field of plant cultivation with specific regulations. In all 499,987 simplified employments endured shorter than five days and 2,169 longer than five days.

In July 2011 there were 512,000 simplified employments, which was twice as much as in July 2010 (254,000) according to NGM data. Also more employers were using simplified employment in July 2011 (370,000) than in July 2010 (26,000). The NGM has permanently observed the application of the Act and further simplified the process by deleting some of the data required in the simplified work contract, and in some cases abolished attendance sheet and payroll.

Impact indicators

Between 1 August 2010 and 31 December 2011 tens of thousands worked seasonally and casually for around 12.5 million working days. HUF 8 billion (€28 million) flowed into the state’s treasury (http://hvg.hu/gazdasag/20120312_alkalmi_munkasok_bevetel).

Obstacles and problems

The regional differences in internet penetration is one problem, and the willingness to notify authorities is another. In particular, smaller agricultural companies/farms in any case do not have access to the internet, which makes it difficult to register.

The authorities have widely announced the opportunity of simplified employment. Employers who normally notify the authorities anyway are the most likely to use the simplified employment. There are no figures available as to whether the Simplified Employment Act led to a reduced number of regularly employed people or to a higher number of legally employed people (or both).

There are still opportunities for the employer to trick the authorities and the inspectorate – for instance text messages may not be sent on time, or the wages and rest times may be abused.

A further problem is the lack of impact studies before and after the introduction of the Act and only some news and some data from the Ministry comes to light concerning simplified employment directly.

Lessons learned

The simplification of administration apparently increased the likelihood of employers fulfilling their obligations; where something is simple and easy it is not necessarily wrong or less informative. Simplified employment requires a minimum of administration and financial commitment from employers but it adds up to a larger sum in the state’s budget, much more than generated by undeclared employment. In the long run it might be a social time bomb that people employed through the Simplified Employment Act have only a restricted pension claim, while the problem of health care insurance also needs to be solved.

Transferability

The main potential is to the possibilities for online databases and data sharing, though the obligations connected to employment (notification, reporting and payment) on both the employer and employee sides are still complicated and slow.

One common database for the National Employment Service (Nemzeti Foglalkoztatási Szolgálat, NFSZ), the National Health Insurance Fund (Országos Egészség Pénztár, OEP), the Central Administration of National Pension Insurance, the Hungarian Labour Inspectorate (Nemzeti Munkaügyi Hivatal, OMMF) and the National Tax and Customs Administration (Nemzeti Adó- és Vámhivatal, NAV) is desired to ease legal employment processes and to have control on institutional operations.

In general this kind of electronic registration can be used in every sector and also in other countries, but it should be examined carefully whether the centralisation of data provides privacy for employees.

Contacts

Commentary

Uncovering and tackling undeclared employment is a long-standing project in the Hungarian policy landscape, in economics and in the social benefits system. Some steps have been taken and some ideas developed to measure and to solve the problem.

The main concern regarding all measures is hidden in the term 'undeclared employment'. Authorities only set penalties for the employers who are registered, so unless a company becomes known it will never be in any statistics or be targets of inspections. Therefore the simplified employment a good initiative for the ones willing to report and to accept visits from the authorities and the paperwork to have an opportunity to employ employees or to be employed legally.

However it should be considered that there are some unsolved issues within the Simplified Employment Act: the privacy problem, long-term social security for casual workers, and the threat of changing regular contracts into casual contracts.

Bibliography

The Simplified Employment Act, 2010. évi LXXV., http://www.munkaugyiforum.hu/munkaugyi-segedanyagok/egyszerusitett-foglalkoztatasrol-szolo-torveny-2010-augusztus-1-tol

Briefing of the Governments Spokespersons, Sándor Czomba and Zoltán Balog (2010): http://www.kormany.hu/hu/nemzetgazdasagi-miniszterium/foglalkoztataspolitikaert-elelos-allamtitkarsag/az-allamtitkar/beszedek-publikaciok-interjuk/czomba-sandor-es-balog-zoltan-kormanyszovivoi-tajekoztatoja

News at the client gate system (2010): https://hirkozpont.magyarorszag.hu/hirek/apehfoglalkoztatas20100626.html?highlight=egyszer%C5%B1s%C3%ADtett%20foglalkoztat%C3%A1s

https://hirkozpont.magyarorszag.hu/sajtokozlemenyek/ngm20100806.html?highlight=egyszer%C5%B1s%C3%ADtett%20foglalkoztat%C3%A1s

https://hirkozpont.magyarorszag.hu/hirek/munka20110902.html?highlight=egyszer%C5%B1s%C3%ADtett%20foglalkoztat%C3%A1s

http://www.piacesprofit.hu/gazdasag/vonzo_egyszeruseg_az_egyszerusitett_foglalkoztatasban.html

Zsuzsa Rindt, Ildikó Krén, Solution4.org

 

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