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Employment supervision audits to replace labour inspections in Hungary

This year brought a change in the area of labour inspections also. The role of labour authorities was taken over by employment supervision authorities from the beginning of March 2021 and, as a result, labour inspections were replaced by employment supervision audits. Instead of the former labour inspections, employers can now expect employment supervision audits.

The newly emerged practice of inspections will be followed by new legal regulation and a decree on execution but the legislator applied changes and stricter regulation at several points. The Employment Supervision Authority inspects compliance by the employer with the minimum requirements prescribed by the legal regulations governing employment relationships. 

Relative to the practice of law applied so far, the most important changes in employment supervision are as follows

1. Sanctions of non-registered employment

In the case of non-registered employment, if the infringement has not been longer than one month, the authority will determine a date one month before the start of the infringement as the starting date of the legal relationship. Therefore, as a sanction of non-registered employment, the existence of the legal relationship for a period of at least 30 days will be determined retroactively. The announcement of employment due to the establishing of the legal relationship by the authority will have to be made for full-time employment in all cases. This new rule provides for a presumption, and a non-rebuttable one to boot, as the employer will not have any opportunity to prove that the employment in fact started less than 30 days earlier. 

Another interesting thing about the new regulation is that beyond establishing the existence of the legal relationship for the purpose of legal sanctions, the employment supervision authority also creates the legal relationship between the parties. 

2. Client in respect of the Employment Supervision Authority

The client is the employer undergoing an authority inspection or against which an authority procedure is initiated as well as employers with an establishment in Hungary or foreign employers having data reporting obligation based on Community regulations (e.g. the employer in another member state of an assigned employee). 

3. Sanctions beyond the main rule of limitation

In contrast to the main rule of limitation, sanctions may be applied even three years after the infringement is committed if the infringement started three years earlier is still in place at the time of commencement of the authority inspection or if the court acting in an administrative case or the supervising body instructs the authority to carry out a new procedure. 

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4. Inspection of the fulfillment of obligations undertaken for a subsidy

The authority is also responsible for the inspection of the fulfillment of the obligations undertaken in relation to employment support subsidies. 

In addition to supporting a whitening of the labour market, by applying stricter sanctions and from a social security perspective, the new effective regulation put employees in a better position and it also raises questions by, for instance, creating a legal relationship between the parties for a period of one month at least in case of "black employment". 

This creates a special situation as the relating insurance relationship will also start earlier and, for this reason, the following must also be considered in these cases. For example, the legal relationship declared by the authority: 

  • may, beyond certain benefits, have an effect on earlier employment relationships, 
  • changes the date of establishment of the employment relationship, therefore, this date will become the starting date of employment instead of the actual starting date of the legal relationship, 
  • may generate a self-revision at the employer due to tax and contribution payment obligations, 
  • may even concern the previous year and the establishing of the legal relations retroactively for the previous year may be a factor calling for the amendment of the personal income tax return. 

The questions raised will be answered by time and the everyday practice applied by experts - in line with the current legal environment. 

New elements of employment supervision rules

  • An employment supervision inspection may only be started ex officio. The employer as a client may still not request its inspection by the authority. 
  • The authority may carry out a site inspection without any special permit and prior notice obligation. In addition to the rights specified in the Act on General Public Administration Procedure, during the audit, the authority also has the right, for instance, to view and make copies of the recordings made by security equipment. For the verification of the identity of the persons concerned by the inspection, the authority has the right to perform identity checks and is also entitled to request information necessary for the audit from these persons and to hear them as witnesses. 
  • If the actual employer cannot be identified, the employment supervision authority has the right to determine the employer based on a presumption (until proven otherwise). This means that the employer will be the person responsible for the coordination of the activities according to the contract in place between the parties performing activities at the workplace. If there is no such person, the employer will be the person actually managing the activities at the workplace and if such a person cannot be identified either, the employer will be the entity at the site of which the work is performed. 
  • If an infringement is determined, in addition to the sanctions that may be imposed for standard administrative infringements, the employment supervision authority may prohibit further employment and impose a labour penalty. 

The conditions of orderly labour relationships changed also

The Act on Public Finances specifies orderly labour relationships as an important condition of eligibility for state budget subsidies and that is why this status must be maintained and protected. 

The employer does not satisfy the conditions of orderly labour relationships if any of the following non-compliances arise or is sanctioned by the authority with penalties: 

a) the state tax authority or the employment supervision authority sanctioned the employer for non-compliance with the obligation of the announcement of the establishment of a legal relationship for employment defined in the Act on Tax Procedure or in the Act on Simplified Employment,

  • b) the employment supervision authority sanctioned the employer
  • ba) for violation of the regulations relating to the age conditions relating to the establishment of a legal relationship for employment and on the prohibition of child labour,
  • bb) for violation of the regulations relating to the remuneration of work provided in the legal regulation governing employment, 
  • bc) for violation of the rules relating to the registration of employee leasing activity or 
  • c) the employer was sanctioned for non-compliance with the requirement of equal treatment according to the Act on Equal Treatment and the Promotion of Equal Opportunities in the two years preceding the date of application for central budget subsidy with a penalty imposed in a non-appealable, enforceable, published administrative decision (in the form of a final decision of the court in the case of administrative litigation).
  • d) the employer is sanctioned by the authority due to employment of a third country citizen without a work permit or the employment without a combined permit issued under a combined permit procedure for the performance of trading activity as defined in the Act on the Entry and Residence of Third-Country Citizens in the two years preceding the date of application for central budget subsidy in a non-appealable and enforceable, published administrative decision (in the form of a final decision of the court in the case of administrative litigation. 

* The inspection authority is appointed in accordance with the provisions of Government Decree 116/2021 (III. 10.) and Government Decree 320/2014 (XII. 13.) with inspection tasks still performed by the employment supervision authority, the minister responsible for employment (currently: the Minister for Innovation and Technology) and the relevant departments of the government bureaus. 

Sources:
• Act CXXXV of 2020 on Employment Promoting Services and Subsidies and on Employment Supervision
• Government Decree 115/2021 (III. 10.) on the Activity of the Employment Supervision Authority

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