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New legislation to reduce the competitive disadvantage of compliant businesses

In February 2021 the State Secretary of Labour of the Ministry for Innovation and Technology announced a new measure to fight black employment. The amendment of the Act on the Service and Support to Subserve the Employment, and on the Supervisory of Employment (Act) is already in effect since 1 March 2021.

According to the amendment, employers who failed to report employees will be obliged to retroactively report those employees to the National Tax and Customs Administration of Hungary. The Employment Supervisory Authority is also entitled to oblige the defaulter employer to register the employment for at least one month,

The new rules prescribe the payment of social security contributions for employees, who were previously unreported, e.g. they will be eligible for social security services and for pension service time, accordingly. This measure should whiten further the Hungarian economy and ensure additional income for the state budget.

On the other hand, the amendment could reduce the vulnerability of the employees (in labour law, the workers usually are in a disadvantageous position compared to the employers) and should also support compliant employers that duly pay their taxes and contributions with regards their workers, since the retrospective reporting and payment obligations should eliminate the competitive advantage of the defaulting companies.