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Motivation of white-collar workers

Company groups, Corporate law, Employment, labour law, Medium-sized companies, News / / , , , , , ,

In the first part of our series of articles, we looked at the motivational options available to companies for their physical employees (blue-collar workers). For intellectual employees (white-collar workers), the same options as described above can be applied, but companies may also be interested in other reward possibilities.

It has always been a challenge for employers to retain the talented (executive) management of the company and encourage them for better performance and thus improve the company’s profitability. At the same time, the motivation system works well only, if the business leaders also consider these colleagues as an asset of the company and are willing to “give a slice of their cake”. This is because these executives contribute greatly to the corporation’s success.

“He/she doesn’t look at the firm as his own.” “I paid him/her a high salary for years, yet he/she left us and went to the competition.” We have come across countless times such and similar statements as a consultant. But why would an owner, an entrepreneur expect, whether with an international background or leading a family business, the managers to give their hearts and souls for the company and put their personal life and leisure back, when they do not benefit proportionately from the company’s success? Of course, mapping out the real proprietorship challenge is not a purely legal task. Nonetheless, there are several corporate, commercial, and employment law agreements to motivate management. Not only the owners, but also people who develop the organization by being responsible for HR, coaching, as well as the company’s tax or finance managers should be aware of those solutions.

The following few examples make the benefit system transparent, thus being predictable and strengthening the employer brand, increasing loyalty within the business and encouraging higher performance of key personnel.

Shareholdership – with limitations

Whether a legal person operates in the form of a limited liability (Kft.) or as a private company limited by shares (Zrt.), it has the option to grant shareholdersip with different legal rights with the purpose of recognizing colleagues who play a key role in the profitability. Such solutions do not need to provide equal or proportionate rights (for example, in terms of voting rights or dividend entitlements) and may be for a definite period (i.e. duration of legal relationship with the entity).

Other favorable options

Whether in an employment or contractual relationship, the owner of a company always can formulate favorable rules in relation to employment, and thus, among others, implement tax-efficient performance incentives at the company such the following ones:

  • increased or reduced notice period in proportion to seniority;
  • insurance, health insurance, private health care packages
  • a higher amount of severance payment, based on the number of years spent at the company;
  • “alumni” benefits (either directly or through a fund, insurance company) available after the termination of the employment relationship with the company;
  • benefits provided to the employee’s family,
  • providing longer unpaid leave (sabbatical leave).

The planning and systematization of the above-detailed benefits may have an impact on tax administration, and thus, on the total cost of the benefits. It is therefore worth structuring the benefit plan carefully from a tax perspective, considering the given circumstances.

The loss and replacement of a middle or senior manager imposes a significant financial burden on businesses. That is because not only the time and cost of recruiting the right person should be considered, but also the alternative costs of handing over processes, integrating a new colleague, rebuilding the entity’s reputation, the loss of the company’s know-how, customer base and building long-term loyalty. It is therefore in the fundamental interest of firms to rethink how they can reward the work of their valuable co-workers and support their loyalty through transparent and predictable remuneration systems.

Incentive schemes for blue-collar workers

Company groups, Employment, labour law, Medium-sized companies, News / / , , , , , ,

 

INCENTIVE SCHEMES FOR BLUE-COLLAR WORKERS

The increased demand for labour, the emigration of skilled manual workers – either to a company in a neighbouring city or across the border – places a significant burden on companies’ HR colleagues. There is a recurring need to develop appropriate incentive schemes that increase the appreciation of high performing colleagues and help retain employees.

According to our experience, a compensation system will only be viable, if it is based on well estimated employee needs and a comprehensive knowledge of the options available under labour law. In this article, we would like to draw attention to solutions that go beyond the (also significant) remuneration policy.

Wages and Compensation

 The most trivial correlation is that if an employee earns more, he/she is more likely to stay with the company. In our experience, a proper salary model is undoubtedly an important tool, but not the only one, as employees already take into account other incentives in addition to their wages, which are effective if the conditions are tailored to the employer and the job and diversified according to e.g. presence, performance, quality. The social needs of employees (e.g., tax-free allowances, holiday allowances, etc.) are increasingly important. Employers must be very precise and accurate in defining compensation to avoid labour law and tax risks, for example the classification of compensation as wage, which can lead to serious tax payments and penalties later.

Transparency

 It is important that the employees understand the benefit and that compensation was objective. If, for example, an allowance is based on the company’s results, it must be comprehensible to all employees concerned without the need to read the company accounts. A transparent system leads to greater employee loyalty and increases trust in the employer.

Transparency is often used as a synonym of objectivity at companies, even though the two terms do not have the same meaning. Objective and subjective benefits differ as in the latter case the employer has at least some discretion over the actual payments. However, it is important for both systems to be drafted in a clear and comprehensive way – in our view, this is in the interest of both parties. An example is the combination of group and individual bonuses in the case of a manufacturing company. A dual bonus system ensures that employees not focus only on their own performance, but also on the performance of the team as a whole – that results in making them better off financially, but also in achieving other HR policy objectives (cohesion, team spirit, loyalty).

Predictability

A principle that makes a reward system successful and is closely linked to transparency is predictability. For blue-collar workers, it is of major importance that their livelihood is secure not only immediately, but also in the distant future. It is therefore worthwhile to set short- and medium-term goals in a structured way.

Communication

Entities very often ignore the importance of communication. Whether we are talking about verbal feedback or incentive schemes, positive feedback is much more effective than punitive – disincentive – regulation. In case of physical workers, it is equally important that the company’s core values are expressed to them properly (also in the daily cooperation), and that they can expect the same from the coworkers. It is pointless to proclaim that an employer protects personal rights if it monitors premises illegally. However, it is also important to be aware of the legal aspects of the timing and content of communications, as in many cases these qualify as binding commitments to the employer for the future.

Opportunity for promotion

Ambitious and talented employees should be constantly monitored and provided with the opportunity for development, promotion or training. That will help to retain the most loyal people in the long term. For employers, however, it is of paramount importance to include appropriate labour law guarantees in the agreement with such employees.

As a conclusion, Hungarian labour law provides a very wide range of incentives for blue-collar workers, which not only provide additional benefits for employees, but can also guarantee companies the retention of a secure workforce. However, knowledge and understanding of the basic challenges and the most optimal labour law and tax aspects of possible HR solutions are essential for successful implementation.

Should you have any questions regarding the above, feel free to contact us.

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Sustainability reporting obligations

Company groups, Corporate law, Medium-sized companies, News, Start-ups, Trade affairs / / ,

 

COMPANIES COULD FACE NEW SUSTAINABILITY REPORTING OBLIGATIONS

Introduction

After a long period of time based on the warning signs of the environment, we may have come to realize at an individual level that the existence of the natural conditions around us is not self-evident. It is clear that rampant exploitation has serious natural consequences, and that our daily lives cannot be continued in their present form for long, as they are not sustainable. There are many national and international efforts to protect the environment, as well as awareness and willingness to act at an individual level is growing. Of course, enterprises are not to be left out of this list, as their importance is demonstrated by the fact that the revenue generated by some group of companies can rival the GDP of certain countries.

There is no requirement for companies to report on sustainability in a similar way to accounting reporting. Nevertheless, we see that more and more companies have some form of corporate social responsibility. One example is the widespread use of CSR (Corporate Social Responsibility). In order to make this commitment conscious, transparent and accountable, the European Commission presented a proposal in April 2021 (hereinafter: “Proposal”) to amend corporate sustainability reporting.

New Proposal

The Proposal seeks to reform the Non-Financial Reporting Directive (NFRD), which amends the Accounting Directive. The main objective is to require companies to report in a similar way to accounting reports. The Proposal would change the current system of voluntary commitments and obligations under the NFRD, which only affects a limited number of companies, as follows.

According to the plan the reporting obligations would affect approximately 30% more persons concerned and the known text also specifies in more detail the subject matter and the method of providing information.

The report should be presented in a standardized electronic format, ensuring quick and easy access, same file format, comparability and paperlessness.

One of the most important innovations of the Proposal is that it requires reporting according to uniform standards. This is of particular importance as it will allow companies’ reports to be retrieved chronologically and to be comparable with those of their competitors.

Another innovation is that the content of the report will also be subject to appropriate auditing to ensure its independent and objective validation.

Summary

Although the Proposal is still pending adoption and would only be phased in over a number of years, its practical implementation is of paramount importance. It gives cause for optimism that it will take corporate social responsibility for our environment to a new level. It will undoubtedly impose a significant additional burden on those concerned in the beginning, however it is in the interest of all of us in the long term.

Sustainability expectations will be transparent for companies that they need to meet. Another benefit is that companies will be able to benchmark themselves against their competitors on the basis of harmonized reporting standards. And those that have already committed to sustainability will be able to reduce the unfair advantage of their exploitative peers and even gain a competitive advantage. All of this suggests that there are many benefits to be gained from fulfilling reporting requirements, in addition to compliance, so it is worth making a gradual and conscious effort to prepare starting from now.

Should you have any questions regarding the above, feel free to contact us.

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Changing company law rules

Company groups, Corporate law, Medium-sized companies, News, Start-ups / / , , , , ,

As of 1 January 2022, the Civil Code has been amended on several points. In this article, we have summarised the issues that affect our clients the most.

Regulations affecting the organisation

Changes affecting the supervisory board
Although at first glance it seems that the previous provision on the supervisory board, that not less than a majority of votes may be required, has been deleted, it is still valid under the general rules and it is important that the companies concerned continue to comply with this rule.
A clarification has been made in the legislation: where the supervisory board member is a legal person, a natural person must be appointed to effectively perform the duties.

Repeated meeting of the supreme body
The quorum of the decision-making body shall be constituted when more than half of the votes that may be cast are represented by a person entitled to vote. If the quorum is not present at the general meeting of members of the limited liability company (Kft.) or the general meeting of the private company limited by shares (Zrt.), a new meeting shall be held. In the past, the Civil Code provided for a mandatory minimum and maximum period of time between the initial and the reconvened meeting, which was not practical and made decision-making unnecessarily difficult.
To remedy this, as of 1 January, the statutory time limits are discretionary, i.e. a repeated general meeting may be called for a date other than the date set in the Civil Code.

Composition of the Board of Directors of a Zrt.
The chairman of the Board of Directors of the company has so far been elected by its members. However, as from the first day of the year, this power of decision is only conferred on the members of the Board of Directors if the General Meeting has not exercised it.

Changes concerning limited liability companies

Deferred cash contribution
Although the wording of the legislation changes significantly, it mainly clarifies an objective that has been achieved in practice so far: members may make a cash contribution out of their dividends. Thus, if a member has an outstanding cash contribution, the dividend will first “make up” for this and, if there is still a dividend fund after the settlement, the members may decide on the actual payment of the dividend. It is important to underline that the new rule will only apply to company proceedings commenced after 1 January 2022, so companies applying the previous, partially more favourable rules will not have to change their articles of association due to the amendment of the Civil Code.

One member – several shares
A change is that the Civil Code now states that a member can own more than one share (a so called quota) in a company. Another new rule is that splitting is possible at any time with the consent of the general meeting. The new provision may be of importance in cases where there is an encumbrance (e.g. pledge, other option) on each share, as it will now be possible to separate the obligations on the shares, even though they are concentrated in one company.

Undercapitalised status
One of the rules on undercapitalisation is that if a company’s equity capital falls below the subscribed capital defined for the company form for two consecutive financial years, the supreme body must decide on a capital replacement or, failing that, on a transformation, dissolution without legal success or merger. Such an undercapitalised situation typically occurs when a company has a high level of registered capital or has been making large losses for a long period of time. The clarified wording makes it clear that in all cases two full financial years covering twelve months must be taken into account to determine the undercapitalised status, so in case of so-called ‘split’ financial years, the first shorter financial year need not be examined in such context.

Additional payment
An additional payment is typically a legal instrument used to temporarily resolve a capital shortage situation. It allows the owners of a company to inject capital into the company specifically to restore solvency. Until now, the capital injection were regulated at the rules of limited liability companies, but from 1 January 2022, general and limited partnerships, and companies limited by shares will be able to use this option. The amended text stipulates that the supreme body may decide that the additional payments not necessary to make up for the loss do not have to be repaid to the members – in a decision which, in our view, can be taken or even modified even after the additional payment has been ordered. It is a reasonable new provision that in case of a one-person limited liability company, no amendment to the deed of foundation is required to make the decision to make a top-up payment.

Should you have any questions regarding the above, feel free to contact us.

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SZÉP Card Rules Changed from the 1st of January

Employment, labour law, Company groups, Medium-sized companies, Start-ups / / ,

As of the 1st of January 2022, the maximum amount of the support that can be granted as fringe benefits for certain sub-accounts of the SZÉP card is HUF 450,000 per person per year and the maximum amounts that can be granted per sub-account are as follows:

As of the 1st of January 2022, the maximum amount of the support that can be granted as fringe benefits for certain sub-accounts of the SZÉP card is HUF 450,000 per person per year and the maximum amounts that can be granted per sub-account are as follows:

  • for the accommodation sub-account, the maximum amount that can be used for accommodation services according to the respective government decree is HUF 225,000 per year,
  • for the catering sub-account, up to HUF 150,000 per year for catering services in hot food catering establishments (including workplace catering) according to the respective government decree,
  • the leisure sub-account may be used for leisure, recreation and health care as defined by the relevant government decree, up to HUF 75,000 per year.

The interchange between the different sub-accounts of the SZÉP card has been extended until the 31st of December 2022, so that services can be paid for from any sub-accounts.

The amounts available on the sub-accounts can also be used for food purchases (except alcohol and tobacco products) between 1st of February 2022 and 31st of May 2022.

That part of the total amount transferred to the sub-accounts that does not exceed the annual recreational allowance is considered as a fringe benefit, which is HUF 450,000 for all employers (the maximum was temporarily HUF 800,000 per person in the second half of 2021, which was reduced to HUF 450,000 as of 1 January 2022). The excess benefit over this amount is taxable as a specific benefit not considered as a fringe benefit.
The employer must pay 15 % personal income tax and 13 % social contribution tax on the amount of the fringe benefit (the social contribution tax reduction applies from 1 January 2022). (In the second half of 2021 there was a temporary social contribution tax exemption for SZÉP cards. This social contribution tax exemption ceased as of 1 January 2022.)

In summary, the tax base for the payer of the SZÉP-card benefits is the following:

  • the total amount of the income in the case of fringe benefits,
  • In the case of certain defined benefits other than fringe benefits, 1.18 times the income as defined above (excess part).
  • Thus, up to HUF 450,000, the total tax burden on the payer/disburser entity is 28% of the benefit.
  • For SZÉP card benefits above HUF 450,000, the tax burden on the payer/disburser entity is 33.04% falling on the amount exceeding HUF 450,000.

Should you have any questions regarding the above, feel free to contact us.

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New guidelines of the EDPB on data controllers and data processors

Company groups, Data protection, Medium-sized companies, News, Start-ups / / , , , , ,

The European Data Protection Board (“EDPB” or “Board”) has adopted the final version of guidelines no. 07/2020 on the concepts of controller and processor in the GDPR on its meeting of 7 July 2021, which renews and replaces the previous guidance no. 1/2010 of the Article 29 Data Protection Working Party on the same subject.

The definition of roles of data controller and data processor has been and continues to be the most controversial issue of data protection law, both during and prior to the entry into effect of the GDPR, as the assumed role determines the obligations and thus the corresponding responsibility. For this reason, the new EDPB guidelines are essential for all actors involved in data processing activities.

  1. Identifying the data controller

According to the GDPR, the person determining the purposes and means of the processing of personal data shall be considered the data controller. Among the elements of the concept, the new guideline explained the means of data processing in most detail, implementing a sharper distinction compared to the previous guidance.

In the opinion of the Board, when identifying the data controller, the means of data processing shall be understood only as the essential means, which are the following:

  • type of personal data which are processed
  • duration of the processing
  • the categories of recipients with access to the data (including transfers of data)
  • the categories of data subjects

The EDPB also emphasizes that actual access to personal data is not a requirement to be considered the data controller.

  1. Identifying the data processor

According to the GDPR, the data processor is the person who performs the processing operations on behalf of the data controller. The EDPB identified two explicit and one implied condition for the identification of the data processor. The two explicit conditions are as follows:

  • The data processor is a separate entity from the data controller;
  • The processing operations are performed solely on behalf of the data controller and the data are not processed for any purpose or interest other than those of the data controller.

In addition to the above, the third implied condition is that the discretion of the data processor includes the choice of non-essential means of data processing, such as the location of data storage, the software and methodology used for data processing operations.

There must be a written contract between the data controller and the data processor regarding the data processing, the absence of a contract constitutes an infringement of the GDPR on part of both actors.

The EDPB emphasized that the GDPR also imposes stricter obligations on data processors compared to the previous regulation. In addition, in the data processing agreement, the data controller may indirectly hold the data processor responsible for the performance of the data controller’s obligations under the GDPR, therefore, in order to limit the data controller’s liability, the most important thing is to select a responsible data processor, and conclude a processing agreement which duly takes into account all responsibilities.

  1. A person under the direct control of the data controller or data processor

Compared to the concepts of data controller and data processor, the role under the direct control of the data controller or data processor set out by Article 29 of the GDPR is less frequently discussed, but in practice the majority of natural persons perform data processing operations in this capacity.

This category includes a person who is not separate from the data controller or data processor. For example, neither the managing director nor a department of the company can be considered a separate entity from the company.

This category also includes a person who, although carrying out processing operations on behalf of the controller, has no independent decision-making power over these operations at all. Directly under the direct control are mainly workers and employees, but it is important to note that from the point of view of data protection law, not only workers employed under the Labour Code should be considered as employees, but also, where appropriate, staff employed under a service or agency contract.

When identifying direct control, in addition to the type of legal relationship, it is therefore necessary to examine the decision-making rights of the individual, his or her integration into the organization of the data controller or data processor, and the control exercised by the data controller or data processor.

For persons under direct control, the GDPR contains a single requirement that personal data may not be processed contrary to the instructions of the data controller. It is also possible and recommended in case of the persons under direct control to impose the obligations of the GDPR, as well as to sanction any conduct that infringes data protection law, in a contract or internal regulations.

Should you have any questions regarding the above, feel free to contact us.

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On the rules of travel in case of immunity

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On 29 April 2021, by Gov. Decree No. 203/2021. (IV. 29.) (hereinafter: “Gov. Decree”) the Hungarian Government has made it possible for those with immunity against the new coronavirus to travel abroad and return to the country without being subject to epidemiological travel restrictions. The Gov. Decree entered into effect on the day it was announced, on 29 April 2021 at 11 p.m.

On 29 April 2021, by Gov. Decree No. 203/2021. (IV. 29.) (hereinafter: “Gov. Decree”) the Hungarian Government has made it possible for those with immunity against the new coronavirus to travel abroad and return to the country without being subject to epidemiological travel restrictions. The Gov. Decree entered into effect on the day it was announced, on 29 April 2021 at 11 p.m.

Exemption from travel restrictions was not previously part of the third phase of lifting restriction, however, as we have indicated, further regulation was expected on the issue.

The change will exempt those who:

  1. have an immunity certificate issued in Hungary, in accordance with Gov. Decree No. 60/2021 (II. 12.) on the certification of immunity against the coronavirus.
  2. have a immunity certificate issued in a country with which Hungary has concluded an agreement on the recognition of immunity. At the present, Hungary has such an agreement with Serbia, Montenegro, Slovenia and Bahrein.

In the case of countries with which Hungary has not concluded an agreement, the person entering cannot be exempted from travel restrictions on the grounds of immunity, regardless of whether he or she has been vaccinated.

For the sake of clarity, currently Slovenia is the only country in the European Union Member State with an agreement.

The rules of business purpose travel have not changed

Should you have further questions feel free to contact us.

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On the third phase of lifting restriction

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On 26 April 2021, by Gov. Decree No. 194/2021. (IV. 26.) (hereinafter: “Gov. Decree”) the Hungarian Government has decided on the third phase of lifting emergency restrictions, which will become effective on the day after reaching overall 4 million administered first dose vaccinations.

1. The curfew shall be amended to start at midnight instead of 11 p.m.

2. Those with immunity certificate or under the age of 18 will once again be able to visit cinemas, theatres, sporting and cultural events, sports facilities, museums, libraries, zoos, accommodations, and also the indoor premises of catering establishments (hereinafter jointly referred to as “reopening stores”).

Employees of reopening stores may be exempted from the obligation to wear a mask at the discretion of the employer if they have an immunity certificate. In addition to occupational safety risks, employers must also consider the associated data protection risks, since exempting employees from wearing a mask requires collecting data on the fact of immunity, which is a data related to health, therefore sensitive data.

3. It is important to note that only some of the restrictions are lifted, and the following rules remain in force for the time being:

– The announced Gov. Decree does not amend the regulation of travel restrictions.

– It remains obligatory to wear a mask in public areas, immunity certificate does not grant an exemption from this rule.

– For the time being, the immunity certificate does not grant an exemption from the curfew either.

– Private events can be attended by a maximum of 10 people.

– Organizing or attending music and dance events is prohibited.

Further regulation is expected in the lifting of restrictions.

Should you have further questions feel free to contact us.

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Stricter lockdown rules and extended economic protection arrangements

Company groups, Medium-sized companies, News, Start-ups / / ,

By the Gov. Decree No. 104/2021. (III. 5.) (“Gov. Decree”) the Hungarian Government has decided to implement stricter lockdown rules, which shall apply from 8 March 2021.

The most important changes are summarized below:

In public and in public places, everyone shall wear a mask. Further, everyone shall keep a social distance of 1.5 meters from others.

Closure of retail stores and service provider

In total 30 categories of retail stores and service providers may be open between 8 and 22 March 2021. All other retail stores and service providers must be closed.

Rules regarding remote work

The Government is asking, however not compelling employers to apply home office work. Although, the Labour Code does not regulate home office work, from our point of view this phrase used by the Gov. Decree includes all types of remote work.

Accordingly, in case the employer is able to ensure the healthy and safe working environment at the contractual workplace, working at the employer’s premises is still possible and lawful.

Rules in connection with education

Kindergartens and schools shall be closed until 7 April.

It cannot be excluded that the rules in connection with education will be extended to the period following 7 April 2021.

Economic protection arrangements

Gov. Decree No. 105/2021. (III.5.) includes the economic protection arrangements related to the above stricter lockdown rules from which it is worth highlighting that the undertakings conducting the activities affected with the current closure as actual primary activity may also apply for the sectorial wage subsidies for March 2021 as well as are not obliged to pay social contribution tax (“szoc.ho”) upon the salaries paid to their employees for March.

The measure of the wage subsidy is 50 % of the employee’s gross salary, and the eligibility criteria is that the employee’s salary must be paid for the period affected by the closure as well as the employment relationship must be maintained, i.e. may not be terminated with notice or with mutual agreement until 30 April 2021.


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Extension of protective measures in Hungary

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Extension of protective measures applicable during the period of state of emergency

I. According to the Government Decree 27/2021. (I. 29.), the Government has once again declared a state of emergency in the entire territory of Hungary from 8 February 2021, which is expected to last until 23 May 2021 according to the Act I of 2021 on the Prevention of the Coronavirus Pandemic, which entered into force 22 February 2021. During this period, the Government may decide on additional extraordinary measures by decree. 

II. The Government decreed on the extension of protective measures applicable during the state of emergency by Government Decree 80/2021. (II. 22.). Under the Decree, the emergency measures are expected to remain in force until 23 May 2021.

Please note, that depending on the change of the epidemic situation, the state of emergency may be extended by the Government or re-announced at a later date, additional restrictions may be introduced, or certain restrictions may be maintained even after the state of emergency.

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