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Legislation implementing the Whistleblowing Directive is published

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On 25 May 2023, Act XXV of 2023 on Complaints and Whistleblowing and on the Rules Relating to the Reporting of Abuses (“Complaints Act” or “Act“) was published in the Hungarian Gazette, implementing the Directive 2019/1937 on the protection of persons reporting violations of EU law, i.e., the “Whistleblowing” Directive (“Directive“) into the Hungarian law. The Act has introduced the internal whistleblowing system, which allows employees (including future and former employees), contractors and owners to report information on any abuse to the system in place at the company.

Who is required to set up an internal whistleblowing system and when?

The Complaints Act will be introduced in two steps.

From 24 July 2023, the following companies will have to comply with the rules:

  • companies with at least 250 employees;
  • service providers covered by the AML Act, such as estate agents, accountants, auditors, tax advisors, lawyers, head office service providers.

Companies with at least 50 but no more than 249 employees will have to comply with the provisions of the Act from 17 December 2023. An additional relief for such medium businesses is the possible creation of a common internal whistleblowing system, reducing the administrative burden.

What are the basic obligations for employers when setting up internal reporting channels?

  • Appointment of a responsible person: companies that set up an internal whistleblowing system must designate an impartial person or department, or contract with an external organisation, a whistleblower lawyer, to operate the system.
  • Making a policy: in view of the Act, it may be essential to review existing policies and possibly amend related internal procedures (e.g. the data protection policy).
  • Disclosure: To ensure that persons entitled to report abuse are aware of the internal whistleblowing system, companies should provide adequate information on the procedures.
  • Record keeping: in order to enable the company to decide whether to disregard a notification on the grounds that it has already been examined or that it was received after the time limit specified in the Act, it is necessary to keep accurate records of all notifications received.

What are the consequences, if someone does not meet the requirements?

Compliance with the obligations related to the operation of the whistleblowing system will be monitored by the Hungarian employment supervisory authority. The authority may take the following decisions:

  • issue a warning,
  • oblige the employer to remedy the infringement, the shortcoming or the failure to fulfil the employment obligation,
  • prohibit the continued employment of an employee who has committed an infringement until the infringement has been corrected, if the infringement or its likely consequences are serious and the infringement cannot be remedied within a short time.

When setting up and operating an internal whistleblowing system, all businesses should pay particular attention to strict data protection rules. Failure to comply with data protection rules can result in financial penalties in the event of action by the national authority for data protection.

What are the potential challenges of the new requirements?

Studying the Act raises a number of practical questions, but we believe that solutions can be found. Below are a few issues that every company should consider.

Not all notifications must be checked by the employer, and there may be several cases where an investigation can be waived, such as:

  • the notification was made by an unidentified notifier,
  • the notification was not made by the person entitled to do so,
  • a repeated application was handed in by the same applicant with the same content as the previous application, or
  • the harm to the public interest or to an important private interest would not be proportionate to the restriction of the person’s rights concerned by the notification resulting from the investigation of the notification.

The employers also have to question, whether it is necessary to notify another authority or to take any further action, either when a criminal offence is suspected or in a less obvious case where a request to the competition authority is justified.

Companies must be prepared for the challenges of protecting trade secrets and data protection when registering and recording whistleblowers and incident reports. Too little information collected can impact the success of an investigation, while too much information can raise privacy concerns. So there is a need to find a middle path where sufficient, but not too much information is available to companies. The quality of the information flow should also be taken into account in the communication with the whistleblower and the persons affected by the notification, as the Act imposes a number of information obligations on companies, but the detail level of the notification issued is not indicated.

Under the Complaints Act, companies are obliged to refrain from taking any detrimential action to the whistleblower, if it is related to the complaint. Such adverse action may include, inter alia:

  • termination;
  • a demotion or refusal to promote;
  • delegation of tasks;
  • negative performance assessment or job references;
  • failure to renew or early termination of a fixed-term employment contract.

If a company applies any of those measures to an employee and the employee challenges them in court, the company must be able to prove that there was another legitimate reason for its decision.

Several groups, mainly with an international background, have already set up internal whistleblowing systems following the entry into force of the Directive. As the published text of the Act sets out requirements that are stricter, Hungarian subsidiaries that already have a whistleblowing regime in place will need to review their procedures.

If you have any questions about the above, please do not hesitate to contact us.

Practical problems with cookie data management

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Introduction

In today’s digital world, methods and technologies for collecting and processing personal data (e.g. cookies) are extremely widespread because they allow data controllers to learn essential information about us. For example, after a single search for a shoe on the Internet, we are almost inevitably confronted with advertisements for the same or similar shoes on other platforms.

The relationship between data controllers and individuals is fundamentally unequal, as average users are typically unaware of the many ways in which their personal data are handled. To balance this, Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector (“ePrivacy Directive“) and Regulation 2016/679/EU on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (“GDPR“) were adopted to ensure privacy and the protection of personal data. These EU laws set out minimum requirements for data controllers to compensate for asymmetric relationships.

NGOs such as None of Your Business (“NOYB“) are helping to ensure that these rights are effectively enforced. As a result of NOYB’s work the European Data Protection Board’s Cookie Banner Taskforce has published its newest report. In this, the Taskforce has identified 7 main cookie management practices which it considers to be inadequate in the light of the relevant legislation. These are briefly summarized below in order to help website operators to adapt their practices and users to be more aware of them:

No reject button on the first layer: It does not meet the requirements for consent if the information window on cookies that require consent only offers the option “accept” or “more information”, but without containing a button to reject the cookies.

Pre-ticked boxes: Indeed inadequate to pre-tick the boxes from the available options that the data controller prefers when setting cookies.

Use of a link: The accept button for cookie-related data management typically pops up automatically on all pages, but some data controllers provide the rejection option only through a separate link, making it difficult for users to make a voluntary choice and putting pressure on them.

Deceptive button colours and contrast: For valid consent it is also an important factor how the possibilities are visually represented. Indeed, if the colour or contrast of the buttons displayed is misleading for the data subject (e.g. if, in addition to the clear display of the accept button, the contrast between the colours of the reject and additional options button is so minimal that the text is almost unreadable), the consent given will most likely be considered invalid. Of course, this should always be considered on a case-by-case basis.

Misrepresentation of the legal basis: It is not lawful for the site operator to base data processing first on the consent of the visitor or, in the absence of consent, on legitimate interest. In this respect, it is particularly unlawful where the user has no possibility to object to the consent, given that in the absence of consent, the controller will process the data on the basis of his legitimate interest, as this may give the impression that the data subject can only consent to the processing and has no other choice.

Inaccurately classified “essential” cookies: The Taskforce has highlighted in its report, that many data controllers classify cookies as essential or strictly necessary, that in fact shall not be considered as essential.

No withdraw icon: A further requirement for consent is that it should be revocable at any time, in the same simple way as it was given by the data subject. Thus, data controllers should also provide for this possibility in relation to cookies (e.g. by placing a floating revocation button or link).

Summary

As can be seen from the above, data controllers must act in such a way as to ensure that users have access to the right information and are thus put in a position to make decisions. Of course, it is the responsibility of the data subjects to actually inform themselves and thus act and make decisions as informed users with regard to their own data (e.g. by customizing their preferences, leaving the visited pages after use, reading the NAIH’s information notices, the controller’s privacy policy).

The draft Hungarian legislation transposing the Whistleblowing Directive has been adopted

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On the last day of February, the Government submitted a new draft law transposing Directive 2019/1937 on the protection of persons who report violations of EU law, i.e. the “Whistleblowing” Directive (the “Directive”) into domestic law. The aim of the legislation is to allow employees and contractors in companies with 50 or more employees to report abuses and breaches of law in the company without fear of retaliation and to ensure that these reports are investigated by companies according to a pre-defined procedure.

If passed by Parliament, the Bill will enter into force 60 days after its publication, so there is likely to be a short timeframe for compliance to be developed.

Satellite workplace and employees

News, Employment, labour law / / , , , , ,

The term ‘satellite workplace’ or ‘satellite employee’ is becoming increasingly common. In this article, we present these concepts from a labour law perspective.

What is a satellite office and who is a satellite employee?

A satellite workplace is when an employer employs employees living in a geographical location other than the registered seat of the employer in a way that these employees work partly from home and partly from offices run by the employer in a location separate from its main seat, such as rented premises, co-offices, branch offices, in short satellite workplaces. Employees employed in such arrangements are called satellite employees, who, although they belong to the organisational unit of the employer’s headquarters in terms of the employer’s organisational structure, may be physically present in another organisational unit of the employer during the course of their work.

What benefits can we expect?

There are many advantages to running a satellite workplace. For example, when recruiting new employees, the distance between the employee’s home and the employer’s seat may not be a primary consideration.  The model can be used to provide a wider range of employment opportunities for candidates living in locations other than the employer’s headquarter. This allows a larger pool of employees to be selected for the most suitable position, which is a competitive advantage, especially in jobs which are difficult to fulfil.

The employment structure avoids the negative effects of teleworking, such as professional isolation and blurring of the boundaries between work and private life.

Satellite working can also be a solution in temporary situations, when a company wants to expand into a new market or location, or when a project requires certain colleagues to work temporarily in a place differing from the company’s main address.

The perception of satellite employees from a labour law perspective

From a labour law point of view, satellite employees are teleworkers, given that they work at a location separate from the employer’s seat. Teleworking takes place irrespective of whether they work in an office run by the company or provided otherwise.

Under Hungarian law, the teleworking agreement must be included in the employment contract. The employment protection requirements vary depending on whether the work related to a particular job is performed with or without the use of a computing device.

Opportunities for implementation

There are several opportunities for creating satellite workplaces. The company can provide working conditions in its own or in a longer-term leased office space for exclusive use or it can arrange office services with community office providers. The number of satellite employees, the amount of costs that can be absorbed and the planned duration of the whole structure may be factors in choosing the most advantageous option.

Cross-border satellite work

The satellite work model can be envisaged not only within a country but also across borders. There are no barriers to cross-border employment, but there are a number of considerations to be taken into account, including:

  • employment protection rules,
  • tax considerations (tasks involved in setting up an establishment),
  • rate of pay, currency of payment,
  • comparison of costs and savings to be made,
  • equal treatment,
  • business confidentiality and data management, data security requirements.

In summary

Working in a location other than the employer’s seat can address a number of challenges that are increasingly important today, such as the need for companies to choose colleagues from a larger labour market. However, to avoid potential tax and labour law risks and unnecessary costs, it is essential that entities take their decisions with all aspects of satellite employment in mind and carefully consider them.

Information on the changes to the Labour Code in 2023

Employment, labour law, News / / , , ,

Dear Clients,

On 21 December 2022, Act LXXIV of 2022 amending certain employment-related laws was published, which includes, among other things, the amendment of Act I of 2012 on the Hungarian Labour Code (“Labour Code“) effective as of 1 January 2023.

The comprehensive revision is mainly due to the correct transposition of two EU directives, but a number of other provisions changes as well. Among the large number of changes, we briefly highlight the most important new rules.

1.              Changes to employment documentation

1.1.         Changes to the mandatory content of employment contracts

The following will no longer be a mandatory element of the employment contract:

  •        place of work,
  •        starting date of employment, and
  •        duration of employment.

Unless otherwise provided, these are governed by the Labour Code, but if the parties wish to derogate from the main rule of law, they may do so by agreement.

According to the law,

  •        the working time starts on the day following the execution of the employment contract,
  •        the working time is indefinite,
  •        the place of work is the usual place of work for the position.

Another new novelty is that, as a main rule, wages shall be paid by bank transfer, and parties can only derogate from this main rule by mutual agreement.

In the case of fixed-term employment, if the duration is maximum 12 months, the probationary period shall be pro-rated, and after termination, no probationary period may be imposed for a second employment in the same or similar position. Employers should therefore review the standard contracts they use to ensure that they contain the right content for the future.

1.2.       The employer’s notification obligation

The notification obligation of the employer has been tightened: instead of the current 15-day deadline, the employer shall provide the necessary information in writing within 7 days from the starting date of the employment relationship, and in case of change, on the date of change.

In addition, employers will in future be obliged to provide information on their training policy and the name of the authority to which they pay employment-related taxes, currently the Hungarian Tax Authority.

1.3.       Notification before secondments abroad

The legislation states that for secondments of more than 15 days, employees shall be informed of the rules and conditions governing the remuneration applicable in the place of work, the reimbursement of travel, subsistence and accommodation expenses, and the availability of the unified national website (i.e. the OMMF) containing relevant information on the rights and obligations of the employer providing cross-border services and the employees posted.

1.4.       Certificates and declarations relating to new types of leave, exemptions

The amendment to the Labour Code contains a number of new rules regarding vacation, exemptions from work, prohibitions on dismissal, information requirements – as a result of which employers will need to assess the documentation to support entitlements – including parental leave, paternity leave, the duration of care for a relative, and the background documentation for termination without notice.

2.      Exemption from availability and work – extension of cases

The Labour Code already contains a list of cases in which the employee is exempted from his/her obligation to be available and work.

According to the amendment workers are exempted from these obligations if they are caring for a relative who needs care for serious health reasons or personal care for a person living in the same household as the worker, but for a maximum of 5 days. During the period of care, the employee is not entitled to give notice.

3.            Options for parents

3.1.       Paternity leave and parental leave

The amount of leave for fathers will be increased from next year, to a unified 10 working days. Fathers whose children are born or adopted between 2 August and 31 December 2022 will also be entitled to the amended paternity leave until the end of February 2023. For the first 5 working days of paternity leave absence fee, while the for the second 5 working days 40% of the same absence fee shall be paid .

Parental leave has been introduced, which by its very name is granted to both parents. It is granted for 44 working days up to the age of 3 of the child, provided that the employee has been employed for at least one year by the employer. The rules for taking parental leave are the same as those for paternity leave, except that it may be taken up until 30 June 2023. For the period of the parental leave 10% of the absence allowance shall be paid for the whole period.

Both leaves are granted at the employee’s request and the requested date may be postponed by the employer in exceptional cases. However, if it the leave not been granted by the date of termination, there is no cash payment, but the employee may roll over its entitlement.

It is also a common rule that during the period of leave under these entitlements, the employer shall not terminate the employment by dismissal.

3.2.      Possibility of amending employment contracts for parents with children

In addition to the current entitlement, a significant benefit is that an employee can apply until its child reaches 8 years for

  •        change of workplace,
  •        change to working hours,
  •        teleworking, or
  •        part-time employment.

The request shall be made in writing by the employee, stating the reasons, and the employer shall give written reasons for refusing the request within 15 days. The refusal of a request may be challenged in court, but the possibility of an extra-judicial hearing of these proceedings has been removed, so in practice it does not provide a real solution. However, employers are encouraged to keep transparent and accurate records of their labour needs in order to avoid disputes.

4.           Disputes

4.1.       Abuse of rights

The rules on employment law claims based on abuse of rights are amended. The new legislation sets out how the burden of proof is shared between the parties.

The burden is on the claimant (the employee) to prove the facts, circumstances and prejudice on which the claim is based, while the burden is on the decision maker (the employer) to prove that there is no causal link among the above. The significance of the change is that if the employee’s claim of abuse of rights is acknowledged by the court, the employee is entitled to request the restoration of his employment relationship by the court.

4.2.      Reasoning obligation

In exceptional cases, the employer is not obliged to give reasons for termination (e.g. in the case of termination during the probationary period). However, under the new rules, the employer is still obliged to give reasons, if the employee believes that the termination is due to one of the following reasons and requests the reasons for termination. The alleged reasons can be:

  •        working time allowance for care,
  •        paternity leave,
  •        parental leave,
  •        taking unpaid leave to care for a child, or
  •        the submission of applications under the previous point.

In the case of an employee’s request, the employer has 15 days to justify the termination. In practice, this means that the employer shall always be prepared to justify the reason for termination.

The above changes will typically come into force on 1 January 2023, applicable also to already existing employment relationships – although the legislator leaves a certain implementation period for businesses.

If you have any questions about the above, please contact us. Of course, we will also provide you with details of any further changes in the context of a personalised, partner-specific information session.

 

dr. Papp Anna Katalin –

dr. Csabai Marianna –

 

New consumer protective rules of the European Union shall enter into force on 28 May 2022

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From 28 May 2022, Directive 93/13/EEC on unfair terms in consumer contracts will be supplemented by new rules aimed primarily at combating unfair commercial practices prevalent on the internet.
Although the entry into force of the amendments may seem distant, their significance justifies a brief presentation, thus we have summarized the changes below:

The most important change concerns the thus termed coordinated action against unfair commercial practices against consumers in several Member States of the European Union (“EU”), which Member States may apply on the basis of Regulation (EU) No 2017/2394. In the event of a coordinated action, the authorities of the Member States shall impose a consumer protection fine equalling at least the following amount:
  a) at least 4 % of net annual turnover of the business,
  b) if the annual turnover of the business cannot be determined, at least EUR 2 million.

According to the legislative changes implementing the new rules of the Directive in Hungarian law, in the future the following shall also be considered unfair commercial practices:
1. Providing search results in response to a consumer’s online search without clearly disclosing any paid advertisement or payment specifically for achieving higher ranking within the search results.
2. Reselling tickets to consumers if the trader acquired them by using automated means to circumvent limits imposed on the number of tickets that a person can buy or any other similar rules.
3. Stating that reviews of a product are submitted by consumers who have actually used or purchased the product without the trader checking that they originate from such consumers.
4. Submitting or commissioning another person to submit false consumer reviews or endorsements, or misrepresenting consumer reviews or social endorsements, in order to promote products.

In accordance with the amendments, the practice of marketing any products in one EU Member State as being identical to a product marketed in other Member States, while that product has significantly different composition or characteristics, shall be considered a misleading commercial practice, unless justified by legitimate and objective factors.

Furthermore, the scope of material information shall also be extended, the withholding of which also constitutes misleading commercial practice. The following are considered material information:
a) for products offered on online marketplaces, whether the third party offering the products is a trader or not, on the basis of the declaration of that third party to the provider of the online marketplace,
b) If it is possible to search between products online, general information about the main parameters of the search (e.g. how the website determines the ranking of the displayed products and the relative importance of the parameters to each other),
c) If consumer reviews of products are available at the online marketplace, information about whether and how the trader ensures that the published reviews originate from consumers who have actually used or purchased the product.

Businesses operating an online marketplace, a webshop, or otherwise selling online to consumers have nearly a year and a half to ensure that their commercial practices are compliant with the above rules until it enters into force.

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.

Possibilities to support the employee’s studies

Employment, labour law, Medium-sized companies, News, Start-ups / / , , , , ,

It is often that workers educate themselves alongside their employment, whether or not related to their job. Employers tend to support employees in continuing their education, as a broader-minded workforce is also more valuable to them. The question often arises as to how and in what ways employers can support employees to continue their studies. Below we present practical solutions to this issue.

Study contract

The most common is that, under a study contract, the employer provides certain support for the training, while the employee undertakes to continue his studies and obtain a qualification and not to terminate his employment by notice for a certain period of time afterwards.

Subject of the study contract

A study contract may not be concluded for training if the employer ordered the employee to compete it. Except this case, however, it may cover any in-school or non-school training or education. The parties may also conclude an agreement on the acquisition of qualification or the achievement of a specific academic result or average.

Duration of the agreement

According to the legislation, the worker may not terminate his employment contract by giving notice within a period proportional to the amount of the support, but not exceeding five years after the end of the studies. The duration must be proportional not to the length of the training but to the amount of the employer’s support. In other words, the purpose of the employee’s “restriction” is to recoup the employer’s support through the employee’s employment for a specified period. A disproportionately long restriction may result invalidity of the contract.

The form of the support

The form of support provided by the employer in respect of the studies is typically the payment of all or part of the training fees. In addition, or in parallel, support may of course include the purchase of study materials, the payment of travel/accommodation costs, or the employer may ensure the attendance of the employee at training and exams, which typically take place during or affecting working hours. Indeed, support may be provided if the employer grants extra day(s) off for the preparation time necessary for the exams.

Exemption from contractual obligations

It is important to emphasize that the obligation arising from the study contract only applies to the normal termination of the employee, so if the conditions are met, the employee can terminate his employment with immediate effect. In addition, the law also states that the employee is exempted from his obligations if the employer commits a serious breach of contract (e.g.: fails to provide the study support he has undertaken to provide).

The employer also has the right of withdrawal and reclaim if the employee breaches the provisions applicable to him or if the employer terminates the employment relationship on the basis of the employee’s behaviour.

Another important point to note is that if there is a material change in the circumstances of the parties which would make performance impossible or result in unreasonable hardship, the party concerned has the right to terminate the contract with immediate effect.

Other agreements

In reality, the parties may not always wish to enter into a study contract with each other, and there may even be situations where it is not practical or reasonable.

An example is when the employer does not provide financial support but only allows the employee to attend classes or to take a few extra days off. In such a case, the employee’s restriction would only be enforceable for a period equivalent to the leave, in view of the requirement of proportionality, which is hardly realistic. In such cases, it is suggested that the parties consider other arrangements. As to the previous example, an alternative solution could be for the parties to agree on (unpaid) leave for the days of the exams or to (mutually) extend the notice period for a fixed period.

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.

CLVPartners contact us

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.

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