If your global recruitment efforts are leading you to look to novel locations, you might find the worker that you need in the country of Hungary. In addition to skilled Hungarian residents, Hungary is also home to EU nationals that don’t need a visa to live or work there. Either way, the challenge will be finding a way to hire a worker that meets their expectations and your business needs.
You can hire the worker as an employee, but that does require quite a bit of effort or the use of a third party to run a local payroll. The other alternative is to hire them as an independent contractor, either for short-term projects or full-time roles.
Here are some of the benefits of hiring contractors:
- No long-term financial/HR commitment by the company
- Cost-effective when compared to paying employee benefits and entitlements
- Contracting is a B2B relationship, outside of typical labour laws
- A good way to give a recruit a ‘probationary’ period before hiring
- Can hire for short projects or on a repeat basis
- More flexible to scale up or down, or if different skill sets are needed as the company grows
Even if they would like full-time employment, you can hire them as a contractor initially to see how it goes. This guide will explain your options for hiring and paying contractors as well as any compliance risks.
How to hire and pay remote contractors in Hungary
The method you select for hiring contractors in Hungary will depend on their preferences or business model.
Hire and pay them as a freelancer
Many contractors will work as self-employed freelancers, often with multiple clients. This is a simple way to pay the worker as long as you can arrive at a way to confirm performance and project completion. It is best to start with smaller milestones and payment amounts until trust is established with new contractors.
Pay them through their limited company
Experienced contractors may have set up their own limited company in Hungary for the business and tax advantages. This does not affect your company, and you will contract directly with the limited company giving you some assurance of business stability. The limited company will ‘lease’ the contractor to you and will have to comply with local business registration.
Use an umbrella company in Hungary
One ideal method when hiring a new contractor is to use an umbrella company. The umbrella company is an intermediary to the contract, which works with both parties on payment and performance confirmation. You would forward payment to the umbrella company which will disburse it to the contractor, after withholding taxes and contributions.
This gives both you and the contractor the assurance that there is oversight of the contract, and that the local umbrella company would facilitate any disputes or disagreements. There is a fee for the service that could be shared as both parties do benefit.
Compliance risks when hiring remote workers in Hungary
Hiring contractors have a different compliance burden than hiring employees, but there are still two areas to be aware of.
Misclassification risk: employee vs. contractor
Many countries are focused on making sure that contractor relationships meet the right criteria and are not disguised employment. It may seem like remote workers are less susceptible to this risk, but the rules apply equally. Even with a foreign company, authorities could still learn about your hiring a contractor, and most misclassification claims come from worker complaints.
The criteria in Hungary to be considered an employee include:
- Paying a fixed salary
- Company control of daily/weekly schedule
- Use of employer equipment
- Offering the minimum employment benefits
If your contractor relationship has these employee-like attributes, the courts of Hungary are free to ‘re-characterize them as employees. This will result in fines and payment of back social contributions for your company to keep the worker. Otherwise, you would have to end the relationship.
Permanent establishment risk in Hungary
A permanent establishment is triggered when a foreign company is creating revenue in Hungary through sustained business activity. That revenue could be subject to corporate tax since it is earned locally. However, this is unlikely to occur with a remote Hungarian worker in most online roles (IT, customer service, marketing, etc.).
But if your contractor is in a sales role in Hungary and frequently concludes contracts with local customers on your behalf, that could result in PE and corporate tax on earnings. It is less likely with a contractor than with a full-time employee but still is worth being aware of the possibility.
How Contractor Taxation helps you hire remote workers in Hungary
Contractor Taxation has a global network of umbrella companies, including in Hungary, who are ready to hire the contractor and administer all the tasks related to taxes, payments and contributions. As a company looking to hire remote workers in Hungary, you can recommend to the new hire that an umbrella company be used to assist with the relationship.
Advantages of using an umbrella company include:
- Facilitates all client payments, contractor tax withholding and any social contributions
- Issues a payslip each month, based on confirmation of project/time completion
- Can sponsor work permits for expats
- Helps set up the contract between the contractor and client
- Moderates any disputes with your contractor
Most contractors will be open to this, as it reduces the risk of non-payment with a new client and relieves them of the administrative burden of self-employment.
Please contact us if you are interested in hiring a Hungarian or ex-pat worker for your company as a contractor