What Severance Pay Rules Must Employers Follow in Hungary?

Which Employees Qualify for Severance Pay?

• Employees whose employment is terminated by the employer for reasons other than misconduct or employee-initiated resignation.
• Employees dismissed due to reasons related to the employer’s operations, such as redundancy, restructuring, or closure.
• Employees with at least three years of continuous service with your company, as required by the Labour Code for basic severance.
• Employees whose fixed-term contracts are ended early by the employer for business reasons, not for employee fault.
• Employees who are within five years of retirement age and meet the service requirement, who are entitled to increased severance.
• Employees not excluded by law, meaning no severance is due where termination is for serious breach, mutual agreement without severance clause, or expiry of a fixed term.

What Are the Legal Timelines for Paying Severance?

Under the Hungarian Labour Code, all final payments, including any statutory severance, must generally be settled by the last working day or within a few days of the termination date, together with the final wage. In practice, your company should calculate and pay severance at the same time as issuing the termination letter or no later than the date the employment relationship ends. Delaying payment until a later payroll cycle increases the risk of legal claims and default interest. To stay safe, align internal processes so HR, payroll, and finance approve and release severance in the final paycheck. Always document the calculation and payment date on the payslip and termination documents.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Hungary, you risk labour inspections, employee claims, and additional financial exposure. Employees can challenge the termination and the severance calculation before the labour courts, which may award unpaid amounts plus interest and, in some cases, compensation for unlawful dismissal. Non-compliance can also damage your employer brand and complicate future restructurings.

• The labour authority may impose administrative fines for breaches of the Labour Code.
• Courts can order payment of outstanding severance plus statutory default interest.
• Unlawful termination findings may lead to compensation or, in rare cases, reinstatement orders.
• Legal disputes increase legal fees, management time, and settlement pressure.
• Repeated non-compliance can trigger closer scrutiny of your wider HR and payroll practices.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record does not remove the need to follow Hungarian severance rules, but it changes who is on the legal hook day to day. In a compliant EOR model, the EOR is the formal employer in Hungary and is responsible for applying the Labour Code, calculating severance, and paying it on time. Your company, as the client, still drives business decisions like restructuring or role elimination, which can trigger severance obligations. If you instruct an EOR to terminate without proper grounds or notice, you may bear the commercial and indemnity risk under your service contract. A good EOR will push back on non-compliant instructions and guide you toward a lawful termination strategy.

Be 100 Percent Compliant in Offering Severance with Playroll

Hungarian severance rules are structured but unforgiving if you misjudge eligibility, service length, or the legal reason for termination. Playroll helps your company map each termination scenario against the Hungarian Labour Code, confirm whether severance is due, and calculate the correct number of months based on seniority and any enhanced entitlements. Your team gets clear documentation, compliant letters, and payroll-ready figures so you can execute sensitive exits with confidence.

With Playroll as your global employment partner, you reduce the risk of disputes, inspections, and surprise liabilities tied to severance errors. Our local experts and Employer of Record infrastructure keep track of legal updates, collective agreements, and market practice, then translate them into simple workflows for your HR and finance teams. That means smoother restructurings, predictable costs, and a better employee experience when roles must come to an end.