Employment relationship clarification procedure in Hungary

Starting 1 July 2025, Hungary will implement a new procedure aimed at clarifying employment relationships and addressing cases where employers fraudulently evade taxes and social security contributions. The initiative is designed to protect employees while also reducing the administrative burden on employers.

Under the new system, instead of initiating a full-scale tax audit, the Hungarian Tax Authority will first issue a formal notice to employers in case of discrepancies, giving them the opportunity to correct errors voluntarily. If an employer fails to take corrective action within 15 days of receiving the notice, they may be subject to a fine of 100,000 HUF per affected employee. However, it is important to mention that the primary goal of this new measure is not punishment, but the proper registration of employment relationships. Since November 2021, the Hungarian Tax Authority has been proactively identifying inconsistencies, regularly notifying employers of any detected discrepancies. In 2025 alone, more than 50,000 notices were sent concerning the declaration periods from December 2024 to April 2025. Although the new rules officially take effect in July, employers still have the opportunity for voluntary corrections.

Given these developments, employers are strongly encouraged to verify that they have fulfilled all their obligations related to employment registration and social security contribution declarations, as enforcement procedures are expected to begin during the summer. Under the current legal requirements, employers must report both the start and end dates of employment relationships and submit social security contribution declarations covering the entire period of employment. The Hungarian Tax Authority routinely cross-checks employment registration data with the submitted contribution records to identify inconsistencies. These discrepancies often arise from unreported employment terminations or missing declarations. While many of these issues are due to unintentional clerical errors, the Hungarian Tax Authority cannot make corrections without input from the employer. Therefore, to avoid penalties and ensure compliance, it is recommended that all employers begin reviewing and updating their employee records as soon as possible.