Short-time working (Kurzarbeit)

Tax & Legal Alert | PwC Hungary | April 28, 2020

Government Decree No. 142/2020. (IV.21.) has amended the rules of Government Decree No. 105/2020. (IV.10.) on Kurzarbeit in Hungary. Our memorandum provides a summary of the amended rules.

We should like to draw attention to the fact that the amended rules enter into force on 29 April 2020.  It is expected that by this date, the (amended) forms and information required for state subsidy will also be available on the website of the Public Employment Service.

Government Decree No 105/2020. (04.10.) (“Decree”) regulates the conditions for supporting  short-time working during the state of emergency. The subsidy is available to employers falling within the scope of Act I of 2010 on the Labor Code (“Labor Code”). (The Decree excludes foundations, associations, non-profit organizations and other maintenance institutions mainly receiving budget support). The subsidy is also available for multiple employment, to employers required to pay wages.

The subsidy is not available for employees who, in divergence from their original employment contracts, pursuant to Section 53 of the Labor Code, have been temporarily ordered to work in other jobs or at other places of work workplace. Nevertheless, according to the amended Decree the subsidy is available for remote work, home office and temporary workers.

The subsidy may be granted, inter alia, at the joint request of an employer and an employee, to the employee if:

• the employer has been established for at least six months;
• the employee has been employed by the employer at least since 11 March 2020 and is not serving their notice period;
• the employee is working short time in order for the employer to prevent redundancies (i.e. instead of the termination of the employment contract);
• the employer has orderly employment relations (this is regulated by the implementing rules of the public finances act; in short, it means that the employer has not committed any severe employment offences recently);
• the employer demonstrates that the economic reason of short-time working is in direct and close connection with the state of emergency;
• the employer has not been granted any job creation or retention incentives or R+D employee grant in respect of the affected employee;
• if the employer certifies that retaining the employee is a national economic interest related to the employer’s economic activities.

Economic interest is not an unknown terminology in the system of grants. It means that the employer did not have mass redundancy and it complied with the relevant labour provisions.

Receiving the subsidy is conditional on an agreement between an employer and its employee about short-time working. Short-time working means any part-time employment with at least 25 % but not more than 85 % of the employee’s previous working time. Within this range, any percentage of reduced working time can be determined.

Pursuant to the amended Decree, if an employer’s reduced working time exceeds half of the working time served before the amendment, in addition to the reduced working time, the employer prescribes a so-called individual development time for the employee, which is thirty percent of the time lost (i.e., the difference between regular and reduced working hours).

Individual development time, as its name suggests, must be spent on development related to an employee's job or an employer's activities. It is an important requirement that for the period of individual development time, the employee is also entitled to wage, which the employer has an obligation to pay.

If an employee’s reduced working time exceeds half of the working time served before the amendment, in addition to individual development time, the employer has an obligation to maintain provision of the benefit corresponding to the employee's base salary before the amendment until the state provides the subsidy. The subsidy is aimed at supporting base wages lost due to short-time working.

According to the amended Decree, if an employee’s reduced working time does not exceed half of the working time served before the amendment, i.e. the original working time is reduced by 50% or more, the employee and the employer may agree on individual development time, but it is not mandatory to conclude an agreement on the provision of individual development time. Accordingly, the employer is not required to pay the relevant wages. Another special rule is that if an employee’s reduced working time does not exceed half the working time served before the amendment, the joint  amount of the employee’s wage and the subsidy is not required to reach the amount of the employee's base salary during the subsidized period. In other words, without an agreement on individual development time, an employer is not required to supplement its employee's wage up to the amount of the employee’s original wage.

Determining the amount of reduced working time is very important because it cannot change during the subsidized period. If it is still necessary to change the amount of working time, it must be notified within two working days, after which the subsidy will no longer be provided.

The rate of the subsidy is 70% of the part of the base salary less the personal income tax and individual contribution applicable on the day of the declaration of the state of emergency (11.03.2020) in proportion to the lost working time.

The maximum term of the subsidy is three months. The subsidy is paid directly to employees by the public employment service in arrears on a monthly basis.

The subsidy cannot be paid for unpaid leave.

During the subsidized period and for an additional month, the employer has an obligation to maintain the employment of its employee requesting the support; therefore, pursuant to the amended Decree, the obligation to maintain the number of employees is no longer applicable to the total statistical number of employees but is reduced to employees affected by the subsidy.

During the subsidized period, an employer is not entitled to order extraordinary work (overtime) for employees affected by the subsidy.

According to the amended Decree, it is not necessary to conclude an employment contract amendment on short-time working as the original employment contract is modified for the subsidized period as of the date of the resolution in accordance with the application. However, we recommend that an employment contract amendment be concluded  since under the Hungarian labor rules, certain conditions in an employment contract may only be modified by a mutually signed contract modification (except for statutory amendments, such as the mandatory minimum wage).

A subsidy procedure is initiated at the joint request of an employer and its employee. The request must be submitted during the state of emergency or within one month after its termination, electronically, using the template published on the website of the National Employment Service.

The subsidy can only be claimed for a period following the submission of a request; accordingly, retrospective claims are not possible.  Within eight days from the receipt of the request, the Government Office examines if the conditions are satisfied/appropriately substantiated and decides whether to approve or reject the application for subsidy. In the event of rejection, the request may be resubmitted once, but a decision rejecting the request may not be appealed or challenged before the court.

If at the same site several employees intend to apply for the subsidy, they must submit their request at the same time, and the subsidy may only be granted for the same period. As a general rule, only one application may be submitted per site. If an employee works at more than one locations, care must be taken to ensure that the employee is listed only at one site.

The subsidy may no longer be granted if an employee’s employment relationship is terminated or an employer fails to fulfil its obligations under the subsidy, if reduced working hours are modified during subsidized period, or if an employer fails to satisfy the legal requirements for the provision of the subsidy.

An employer has an obligation to pay (repay) the subsidy on behalf of its employee if it does not fulfil its obligation to maintain the number of employees during the subsidized period and the month following this period, i.e. if it terminates its employee’s employment during this period by dismissal or mutual agreement. The amended Decree clarifies that an employer is not required to repay the subsidy if the employment relationship is terminated because of the termination of the employer without succession, the employment relationship is terminated by the employer with immediate effect or it is terminated by the employee.

An employer is also required to repay the subsidy if it orders extraordinary work for a subsidized employee during the subsidized period, or if during this period the employee’s wage does not reach their base wage even with the subsidy included.

An employee is required to repay the subsidy if the conditions applicable to employees are not met (i.e. if the employee is not available for their personal development time, fails to return to their original job after short-time working, or does not undertake work during short-time working).

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If you have any questions regarding the above, please contact:

Márta Zsédely
marta.zsedely@pwc.com

László Szűcs
laszlo.szucs@pwc.com