As international companies grow their footprint and tap into new markets, understanding local hiring laws and employment structures becomes vital to building sustainable operations. In this 17-part series, we guide foreign businesses through the legal and strategic aspects of employment in key global jurisdictions.
This installment brings us to Hungary—a strategic Central European hub with a skilled workforce, competitive operating costs, and an increasingly global business outlook. Hungary’s employment landscape prioritizes traditional labor contracts under strict regulatory oversight, but regulated alternatives like self-employment and independent contracting are also available. Whether establishing a local entity or exploring flexible hiring models, foreign companies must navigate a well-defined legal framework to ensure compliance and cost efficiency.
Authored by Gergo Molnar
1. Are there alternatives to direct employment?
Hungarian legislation considers employment according to the Labor Code to be the primary priority. Non-employment has always been secondary and dependent on conditions. Earlier there was a special legal prohibition and a serious sanction for “hided” employment. “Hided” employment was determined when a company concluded contracts with private entrepreneurs or with other “companies/legal entities” for a work which is typically a labor activity (providing services 8 hours a day, applying the rules of annual leave but using a different designation, applying a termination period, using exclusively the employer’s tools, and working at the employer’s office). The Hungarian Tax authority controlled the companies usually in frame of down-raid investigations. This kind of fake employment was very popular because personal income tax, and employment related social security and similar contributions were much higher for and employee. Now there are serious conditions for the alternative solutions, and companies often use the alternative solution on this regulated way. This is usually individual entrepreneur, or companies can hire independent contractors or work with individuals on a self-employment basis.
2. Is it necessary to set up a local entity to hire an employee?
Yes, establishing a local legal entity is typically required to hire employees. Under certain circumstances EU companies are entitled to hire Hungarian employees working in Hungary, but this usually creates a taxation establishment.
3.Direct employment vs. independent contractor: what about costs?
Direct employment costs (e.g., salaries, taxes, benefits) are calculated based on local labor laws (rules for minimum salary, rules of the limits of the monthly working hours, termination period, severance pay). costs for independent contractors or self-employed individuals are often negotiable and may vary depending on the agreement, no need for termination period, and the contracting party usually issues a monthly bill, and pays its tax and social security by itself. There is a so called “small business taxation” that is a lower taxation percentage for companies on the wages, this taxation method aims to hire direct employees.
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