Our work shows that choosing the wrong legal relationship is one of the riskiest mistakes an entrepreneur can make. A wrong choice can later result in a serious tax shortfall and a fine during a NAV audit. Our aim is to help you understand the basic differences between the two forms of entity so that you can choose the safest and most appropriate solution.
The classic form: the employment relationship
This is the most widespread and strictly regulated form of employment in Hungary, governed by the Labour Code. The parties are the employer and the employee, and their legal relationship is laid down in an employment contract.
Its main characteristics are:
Subordination and subordination: the employer determines the tasks, the place and time of work. The employee is obliged to follow the employer's instructions.
Obligation to be available: the employee is obliged to be available and to work for the employer during the working hours specified in the contract.
The employer provides the tools: the company provides the tools (e.g. laptop, software, office).
Regular pay: a worker receives a fixed, regular payment (typically monthly) for his or her work.
When should you choose this form?
When you need a „classic” employee: someone who comes into the office (or works from home but with fixed hours), whose daily tasks are set by the company management and who is an integral part of the day-to-day running of the organisation.
The flexible solution: the Contract of Agency
This form is not regulated by the Labour Code, but by the Civil Code. This is not a question of subordination and subordination, but of a civil law agreement between two equal parties - the principal and the principal - which is set out in a contract of assignment.
Its main characteristics are:
Subsidiary relationship:
The agent contracts to perform the task, not to be available. He performs the task at his own discretion and independently.
Focused on a specific task: the agent undertakes the careful completion of a well-defined task (e.g. developing a website, running a marketing campaign).
Using your own tools: the trustee typically works with his own tools.
Commission fee: remuneration is for the performance of the task, not a regular salary.
When should you choose this solution?
When we need an external, independent expert to carry out a specific, well-defined project or task. For example, a graphic designer to design a logo, a lawyer to draft a contract or an IT specialist to implement a system.
The biggest danger: the bogus employment relationship
The most serious risk is when an activity that is in fact an employment relationship is attempted to be administered by means of an agency contract, typically in the hope of lower tax charges. This phenomenon is known as a sham employment relationship and is a priority for the NAV.
During an inspection, the authority does not look at what the contract is called, but at the actual content, i.e. the actual circumstances in which the work is carried out. The main aspects that are examined are:
Who gives the instructions for the daily tasks?
Who determines the working hours and the place of work?
Whose equipment is used to do the work?
Does the principal invoice only one principal on a regular basis?
Is the remuneration regular and fixed, similar to a salary?
If the answers point in the direction of an employment relationship, the NAV will reclassify the legal relationship and retroactively impose unpaid taxes and contributions on the company, together with a substantial fine.
Choosing the right legal relationship is not only an administrative issue, but also a serious financial and legal one. A wrongly concluded contract can cause problems years later, which can undermine the stability of the business. Our advice is always to adapt the form of the contract to the real working conditions, not the other way round.
Before you make a decision, it is worth considering the considerations described above. If a job has the classic characteristics of contingent employment, then in all cases the safe and correct way forward is to establish an employment relationship.
If you are unsure about the right form or need help with tax and payroll tasks related to different legal relationships, please contact us. We can help you navigate the maze of legislation and find the most appropriate and secure solution for your business.