EMCC European Monitoring Centre on Change

Wage Guarantee Fund

Hungary
Phase: Management
Type:
  • Income support for workers
Last modified: 17 August, 2020
Оригинални назив:

Bérgarancia Alap

Енглески назив:

Wage Guarantee Fund

Coverage/Eligibility

This is available to employees of companies in liquidation, and can be applied for online.

The law does not provide a definition of insolvency, but it refers to the definition of the Act IL of 1991:

  • Bankruptcy proceedings are proceedings in the course of which the debtor petitions, for the purpose of reaching a composition agreement, to have his debts rescheduled or attempts to have a composition agreement concluded;
  • Liquidation proceedings are proceedings executed for the satisfaction of creditors as prescribed by this Act upon the dissolution of an insolvent debtor without legal successor;
  • Voluntary dissolution proceedings are proceedings in the course of which solvent economic organisations, having resolved their dissolution without legal successor, satisfy their creditors.

Companies which meet these specifications are eligible for this instrument.

Main characteristics

Liquidation expenses shall cover wages and other personal costs payable by the debtor, including:

  • severance pay due upon termination of employment and any other benefits established in the collective agreement or in the contract of employment;
  • wages and other benefits to be paid under a temporary agency agreement, for which wages and other benefits are part of the agreement between the temporary agency and user undertaking in cases in which the user undertaking is the debtor.

The following accrued payroll (wage costs) of the undertaking under liquidation may be advanced in wage guarantee proceedings (reimbursed by the wage fund):

  • wage debt of undertaking (as the employer);
  • wage debt of a temporary agency (as the employer) from the fee which is agreed in the contract between the temporary agency and the user undertaking;
  • wage debt of a school cooperative (as the employer) from the fee which is agreed in the contract between the school cooperative and user undertaking.

After initiation of liquidation the company can apply the reimbursement of wages on the day of normal wage transfer.

There is a standard form to be filled in and submitted in three official copies. The authority decides within 8 days about the validity of the application. Transfers are released from the Fund within 15 days of the authority’s decision. The payment is reimbursable by the company but free of interest. The liquidator transfers the wages to the employees within 3 days after receiving the money from the fund.

The actual unpaid wages have to be applied for by the employer, but for each employee, compensation is limited to five times the statistical annual gross average monthly wage in the second year prior to the given year (thus, for a case in 2020, 2018 figures (2 years before the current year) set the limit at HUF 1,649,715, or €4,866, based on the average exchange rate of the first quarter of 2020).  

The fund is financed by the social contribution funds of employees and employers to be paid as a wage supplement, the central budget, EU funds etc.

Funding

  • National funds
  • European funds
  • European Funds
  • Employees
  • Companies

Involved actors

National government
Funding.
Regional/local government
Centrally decided by law, but regionally paid out by the regional labour office.
Public employment services
The request is made by the liquidator to the public employment service (PES); the regional labour office pays out the support to the employees concerned.
Other
Companies, EU (funding).

Effectiveness

The instrument has 100% coverage as all affected employees are compensated. The total annual amount paid to beneficiaries in 2019, according to budgetary data, was HUF 2,263 million, or €7 million, using the 2019 exchange rate. This is much lower than in 2012, the last crisis year, when the amount paid was €22.8 million (based on the annual exchange rate of that year). The first four months of 2020 saw only €1.2 million spent, less than the same period last year (€2.3 million), obviously not yet affected by the COVID-19 pandemic. In 2019 the annual budget plan was raised by 12.5% which, by current rates, amounts to €13.1 million.

Strengths

Relatively fast money transfer for affected employees (within 15 days).

Weaknesses

Compensation is limited, as it cannot be more than five times the statistical annual gross average wage in the second year prior to the given year (HUF 1,649,715 or €4,866, for a case in 2020). The wage guarantee is not available to a wide range of employed (e.g. individual entrepreneurs, employees of non-profit and social organisations, associations, foundations or churches, employees of the Hungarian defence forces).    

Examples

A single major (HUF 1.36 billion or €4.4 million) payout from the Fund happened in 2014, following the 2012 bankruptcy of the Hungarian airline Malév. More than a thousand employees had rightful claims on four months’ worth of wages, only half of which could be provided from company assets. Because of the relatively high wages of the employees and the compensation limit at the time, the Fund could cover more than one or two months’ worth of salaries, or – for some claimants – even less.
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