The Hungarian parliament has adopted the legislation amending taxation regulation, due to which the cafeteria system becomes thoroughly altered. The new law significantly narrows the scope of the non-salary compensations whose tax rate was favourable up till now: from 2019 onwards, the SZÉP-card will remain the only item in this category.
Our newsletter regarding the cafeteria-system deals with the question of whether the employer or the employee is obliged to bear the modified tax burden of these non-salary compensations. The answer partly depends on whether the duty to provide cafeteria items is regulated in the employment contract or is prescribed by an internal rule of the employer. The possible answers are detailed below.
1. The employment contract specifies the duty to provide the non-salary compensation whose public charges are to increase
If the employment contract itself determines that the employees receive e.g. Erzsébet Vouchers as non-salary compensation and the form of compensation remains unchanged, then the wording of the clause about the compensation will decide who has to bear the increased tax charges.
Namely: If according to the employment contract, the employee is entitled to a compensation of gross HUF 8,000 in the form of Erzsébet Vouchers, the employer will simply subtract more charges from the gross amount, so the net amount of the compensation is going to be lower. However, if the employee is entitled to a compensation of net HUF 8,000 in the form of Erzsébet Vouchers, then if the contract remains unchanged, the employee will have to receive HUF 8,000 in Erzsébet Vouchers, but this means that, henceforth, the employer is going to pay significantly more in charges (the same tax rate as for the salary applies for the non-salary compensation).
It is important to note that if the employer wants to provide other kind of non-salary compensation instead of the ones stipulated in the contract (to which from now on the higher charges apply), the employment contract has to be changed, which requires the consent of the employee.
2. The obligation to provide non-salary compensation is set forth in the internal rules of the employer
In this case, the employer is in a more favourable situation, because under some conditions he can change the internal rules unilaterally, so the employer is able to:
- unilaterally introduce a different type of compensation
- shift the higher charges onto the employees
- completely abolish the cafeteria-system.
However, it is important to emphasize that under section 16 (2) of the Hungarian Labour Code an obligation contained in the employer’s internal rules can be altered or terminated with immediate effect to the detriment of the employee only if such fundamental changes occur in the circumstances of the employer, that the fulfilment of the obligation would become impossible or would cause disproportionate harm to the employer. Consequently, if the employer wishes to change the internal rules due to the higher charges of the cafeteria items, he can only do that, if he previously figures how the application of the salary tax rates to the cafeteria items would influence his operation and can prove that this would cause him serious losses.
As a summary we can state that the adaptation of employers to the narrowed scope of cafeteria items requires careful consideration and preparation, during which not only the legal aspects, but also the social and HR-aspects must be taken into account.
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The foregoing summary is intended to raise awareness and does not constitute legal advice.
If you have any questions or need further information, please do not hesitate to contact us.