How to Hire Independent Contractors in Hungary in 2025

Hiring independent contractors in Hungary in 2025 offers flexibility and access to top-tier talent, but it also requires careful legal and operational planning. Hungarian authorities closely scrutinize contractor arrangements to prevent misclassification, making it essential to structure agreements properly and maintain a clear distinction between contractors and employees.

This guide provides a practical overview of what companies need to know before hiring independent contractors in Hungary, including legal requirements, contract structuring, and key compliance risks. It explains how to draft enforceable agreements, outlines what to include in service or works contracts, and highlights common red flags that could trigger penalties or reclassification.

Whether you're a foreign business engaging Hungarian talent or a local company working with freelancers, this guide will help you navigate the process confidently and avoid costly mistakes.

What Should You Know Before Hiring a Contractor in Hungary?

Hiring independent contractors in Hungary involves more than executing a service agreement. While Hungarian law permits independent contracting, labor and tax authorities apply a substance-over-form approach, meaning the actual nature of the working relationship takes precedence over contractual labels. If the contractor performs services in a manner that closely resembles an employment relationship, the engagement may be reclassified as disguised employment, triggering legal and financial consequences.

Independent contractors in Hungary generally operate as sole proprietors (egyéni vállalkozó) or through private limited companies (Kft.). They are legally responsible for their own tax filings, social security contributions, and invoicing, and must maintain a level of operational independence from the client. Red flags for reclassification include working fixed hours, receiving direct supervision, and using the client’s internal tools and infrastructure.

Foreign companies may engage Hungarian contractors without forming a local entity. However, depending on the duration, regularity, and integration of services, there may be Hungarian tax reporting obligations, and in some cases, a risk of creating a permanent establishment (PE) under Hungarian corporate tax law. Proper structuring, clear documentation, and adherence to contractor independence are essential to mitigate these risks.

What are the legal requirements for hiring a contractor in Hungary?

To legally hire an independent contractor in Hungary in 2025, the contractor must be registered as a sole proprietor (egyéni vállalkozó) or operate through another lawful business form and obtain a tax identification number (adószám) from the National Tax and Customs Administration (NAV).

Contractors are individually responsible for paying their own personal income tax, social security contributions, and any applicable VAT, depending on their legal form and revenue thresholds. The hiring entity typically has no tax withholding or social contribution obligations, unless the relationship is reclassified as employment.

Crucially, the contractor must maintain functional and operational independence. This means retaining control over how, when, and where the work is performed. To avoid reclassification as an employment relationship, the engagement must not exhibit characteristics typical of employment—such as fixed working hours, supervision, mandatory office presence, or integration into internal teams and workflows. Contracts must clearly reflect the non-subordinate nature of the relationship, and day-to-day practices must align with the terms to withstand scrutiny by Hungarian labor or tax authorities.

How to specify the terms of a contract?

In Hungary, contractor relationships are typically governed by either a service contract (megbízási szerződés), used when the emphasis is on the performance of ongoing tasks or professional services, or a works contract (vállalkozási szerződés), which applies when the focus is on delivering a clearly defined result or output. These contract types are regulated by the Hungarian Civil Code (Act V of 2013), and the distinction affects liability, risk allocation, and remuneration principles. Regardless of the contract type, a legally sound agreement should clearly define the following elements:

• The scope and nature of the work or services;
• The duration of the contract or an expected timeline for deliverables;
• Payment terms, including the invoicing method, frequency, and any applicable taxes (e.g., VAT);
• Intellectual property rights, including ownership of work products and any licensing terms;
• Confidentiality provisions and data protection obligations, particularly in light of General Data Protection Regulation (GDPR) compliance;
• Termination clauses, including grounds for termination and notice periods.

Although contracts may be drafted in English, it is highly advisable, particularly in cases where local enforcement or administrative compliance is anticipated, to prepare a Hungarian version or at least include a certified translation. Hungarian courts and authorities primarily rely on the Hungarian language in legal proceedings, and in the event of a dispute, the Hungarian version will likely take precedence unless otherwise stipulated.

What are the risks associated with misclassification in Hungary?

In Hungary, the misclassification of independent contractors as employees carries significant legal and financial risks. Authorities such as the National Tax and Customs Administration and the Labor Inspectorate Authority closely scrutinize independent contractor relationships. These authorities adopt a comprehensive assessment, analyzing not only the explicit contractual terms but importantly, how the working relationship functions in practice. If the nature of the engagement resembles employment rather than a business-to-business arrangement, it may be reclassified regardless of the label used in the agreement.

Consequences of misclassification include retroactive liability for unpaid taxes and social security contributions, administrative fines, and potential claims from the individual for employment-related entitlements such as paid leave, minimum wage, severance, or notice compensation. The liability period may extend back up to five years, and enforcement has become stricter under recent labor and tax compliance reforms.

Authorities typically focus on indicators such as whether the contractor works exclusively for one client, follows detailed instructions, receives regular payments without invoicing, or is integrated into the client’s organizational structure. These factors suggest economic dependence and subordination, which are characteristic of employment under the Hungarian Labor Code.

To avoid these risks, companies should carefully structure contractor engagements to reflect true independence in execution, remuneration, and business risk. Routine internal audits and legal review of contractor arrangements are strongly recommended to ensure alignment with Hungarian labor and tax regulations.

A Contractor of Record Service, like Rivermate, helps international companies engage contractors in Hungary safely and compliantly. From contract structuring and classification support to local tax guidance and payment facilitation,

How to Determine the Cost of Hiring Independent Contractors?

Hiring independent contractors in Hungary offers flexibility and cost advantages over traditional employment, especially for international clients. However, the total cost extends beyond the contractor’s rate. Currency fluctuations, international transfer fees, and invoicing in Hungarian Forint or Euros can affect actual expenses. Direct hiring may also involve setup costs for legal and tax compliance, such as VAT registration, which can add hundreds to thousands of euros upfront.

In Hungary, self-employed contractors typically manage their own taxes. Standard personal income tax is a flat 15%, with social contributions approximately 32–34%. Actual tax burdens vary significantly depending on their chosen legal structure, whether sole proprietorship, the simplified fixed-rate KATA (simplified taxations system) regime, or operating through a limited company (Kft.), which involves corporate tax (9%) plus additional personal taxes on dividend distributions.

To avoid misclassification, contracts must clearly establish the contractor’s independence, including control over work, tools, and the freedom to work with other clients.

What factors influence the salary of contractors?

Contractor rates in Hungary vary significantly based on seniority, specialization, and prevailing market conditions. Highly skilled specialists, such as senior software engineers, EU regulatory compliance experts, or experienced legal consultants, usually command premium fees due to their niche expertise and limited local availability. Conversely, roles requiring generalist skills or junior-level experience tend to have more competitive pricing.

Additional factors influencing contractor rates include contract duration, exclusivity requirements, urgency of deliverables, and language proficiency. Professionals frequently collaborating with international clients or possessing advanced English-language capabilities and robust project management skills typically negotiate higher compensation. This is particularly true within export-oriented sectors such as IT, legal services, and consulting.

How does taxation affect contractor payments?

Contractors in Hungary independently handle their tax and social contribution responsibilities, typically managing registrations and compliance directly with Hungary's tax authority (NAV). Beyond personal income tax and social contributions, contractors who surpass the VAT registration threshold must also manage value-added tax obligations (currently 27%).

When engaging Hungarian contractors, foreign clients generally aren't obligated to withhold taxes. However, it's essential that agreements clearly specify whether the stated rates are inclusive or exclusive of taxes and VAT. Clearly defining these terms prevents misunderstandings, helps avoid potential disputes, and mitigates risks related to tax liability or contractor misclassification.

What are the typical payment structures for contractors?

Hungarian contractors typically favor structured and clearly outlined payment arrangements, explicitly agreed upon within formal service or work contracts. Commonly used models include fixed-price projects, hourly billing, or monthly retainers for recurring services. Payments are generally executed via international bank transfers, with payment terms commonly ranging from 7 to 30 days after invoice issuance.

To prevent misunderstandings and ensure smooth financial operations, contracts should explicitly define invoicing frequency, currency, payment terms, and specific delivery milestones. Additionally, many international clients prefer receiving digital invoice copies to streamline their compliance and tax-reporting processes.

How to Ensure Compliance with Employment Laws in Hungary?

Ensuring compliance with Hungarian employment laws is critical when working with both employees and independent contractors. In 2025, Hungary continues to maintain strict labor protections, especially concerning worker classification, contracts, and tax obligations. Whether you're a foreign company engaging local professionals or a domestic business expanding your workforce, understanding and aligning with local regulations will help avoid penalties, legal disputes, and reputational risk.

What are the key employment laws to consider?

Hungarian employment relationships are primarily regulated by the Labor Code (Act I of 2012), which sets out comprehensive rules concerning the rights and obligations of both employers and employees. This legislation applies exclusively to employment contracts and does not extend to independent contractors or business-to-business engagements, which are governed instead by the Civil Code (Act V of 2013). However, the distinction between employment and contracting must be clearly maintained in both form and substance, as misclassification may trigger retroactive liability under labor and tax law.

Key employment standards under Hungary’s Labor Code require that all employment contracts be concluded in writing and specify core terms such as job function, base salary, and place of work. The law also mandates that additional employment conditions, such as working hours, notice periods, and benefits, be provided in writing within 15 days of employment commencement.

The Code sets standard working time at eight hours per day and forty hours per week, with defined limits on overtime and mandatory daily (minimum 11 hours) and weekly (minimum 48 consecutive hours) rest periods. Employees are entitled to a minimum of 20 working days of paid annual leave, which increases based on age and family status. Parents, for example, receive additional leave per child.

Employers are also obligated to withhold and remit personal income tax, social security contributions, and health insurance premiums on behalf of their employees. In case of termination, the Labor Code prescribes minimum notice periods, rules on severance pay, and detailed procedures to ensure legal dismissal, particularly where performance, redundancy, or conduct is involved. Any termination must comply with formal justification requirements, especially for indefinite contracts.

Moreover, Hungarian employment law enshrines the principle of equal treatment and non-discrimination based on gender, age, ethnicity, religion, disability, or other protected grounds. These protections apply not only to hiring and dismissal but also to promotion, compensation, and workplace conditions. Employers are subject to oversight by the Hungarian Labor Inspectorate and may be held liable for violations of anti-discrimination and equal opportunity laws.

How to avoid misclassification of employees and independent contractors in Hungary

Misclassification (treating an employee as an independent contractor) is a significant compliance risk in Hungary. Both the Hungarian Tax Authority and labor courts assess the actual substance of the working relationship, regardless of the contract’s title or structure. If the engagement resembles employment in practice, it may be reclassified, triggering retroactive tax liabilities, penalties, and potential employment claims.

To mitigate risk:

• Ensure the contractor operates independently, without direct supervision, subordination, or integration into your organizational hierarchy.
• Avoid imposing fixed working hours, mandatory physical presence, or internal tools (such as company email addresses, badges, or software systems).
• Limit exclusivity requirements, genuine contractors typically serve multiple clients and manage their own workload.
• Structure engagements around defined deliverables or project-based outcomes, not open-ended, recurring duties typically seen in employment.
• Use clearly worded service agreements that reflect a commercial, business-to-business relationship, avoiding employment-like terminology or obligations.
• Conduct periodic reviews of contractor relationships to ensure alignment with legal standards and to document functional independence in practice.

What documentation is necessary to maintain compliance?

Maintaining proper documentation is essential for ensuring compliance with Hungarian labor, tax, and social security regulations. For employees, the Labor Code (Act I of 2012) mandates the retention of a written employment contract that outlines key terms such as job duties, salary, and work location. In addition, employers must maintain job descriptions, time and attendance records, payroll documentation, leave and benefits records, and evidence of tax and contribution filings. These documents must be preserved in accordance with statutory retention periods and made available for inspection by labor and tax authorities upon request.

In the case of independent contractors, governed by the Civil Code (Act V of 2013), compliance hinges on maintaining a legally robust paper trail to demonstrate the independence of the business relationship. This includes a signed service contract (megbízási szerződés) or works contract (vállalkozási szerződés) that clearly defines the scope of work, payment terms, and the non-subordinate nature of the engagement. Contractors must issue valid VAT-compliant invoices, including their tax identification number (adószám), and clients should retain proof of payment, typically executed via bank transfer for traceability.

Further, as mentioned above, contractors must be registered with the NAV and hold appropriate business licenses or sole proprietor registration certificates. It is also advisable for clients to maintain clear records demonstrating that the contractor operates with autonomy and is not subject to hierarchical control or functional integration into the client’s workforce, as this supports a defense against potential misclassification claims.

Thorough documentation not only safeguards the business in the event of an audit by NAV or the Hungarian Labor Inspectorate but also serves as a best practice for risk management, contractual enforcement, and maintaining transparency in business relationships.

What is the Process for Hiring International Workers in Hungary?

Hiring international workers in Hungary involves a structured legal process that varies based on the individual’s nationality. Citizens of the European Union (EU), the European Economic Area (EEA), and Switzerland are entitled to work in Hungary without a work permit, pursuant to the EU’s freedom of movement provisions. While no work authorization is required, these individuals must register their residence with the competent Hungarian authorities and the employer is required to notify the relevant labor office upon commencement of employment.

In contrast, third-country nationals, those who are not citizens of the EU, EEA, or Switzerland, must obtain appropriate work and residence permits, such as the Single Permit or EU Blue Card, prior to commencing employment in Hungary. These permits generally include the right to reside in Hungary for over 90 days. Upon arrival, they must register their address with the National Directorate-General for Aliens Policing and obtain a residence permit card confirming their legal status.

For third-country nationals (non-EU/EEA/Swiss citizens), employment is subject to prior authorization. The standard pathway is the "joint permit procedure", which combines both the residence permit for the purpose of employment and the work permit into a single application. This application must be initiated either by the employer or by the employee (with employer support), and is submitted to the OIF. The typical processing time ranges up to 70 calendar days, although it can vary depending on the applicant’s nationality, document completeness, and whether any security screening applies.

A key component of the process is the labor market test (also known as a "position availability verification"), which requires the employer to demonstrate that no Hungarian or EU/EEA national is available to fill the position. This requirement may be waived for certain job categories included in the list of shortage occupations maintained by the Hungarian Ministry for National Economy. Additionally, some simplified procedures may apply for nationals of certain preferred third countries (e.g., Serbia or Vietnam), pursuant to bilateral agreements or streamlined hiring schemes.

Employers must also ensure compliance with wage, working conditions, and tax reporting obligations once the worker is employed. A valid employment contract, in Hungarian or bilingual form, must be concluded, and appropriate notification must be made to the Hungarian tax authority and the National Health Insurance Fund (NEAK) for social security registration.

What are the visa requirements for international contractors?

Independent contractors are treated differently from employees under Hungarian immigration law. If a third-country national intends to carry out freelance or contractual work in Hungary, they must apply for a residence permit for the purpose of gainful activity.

This type of residence permit enables the applicant to engage in self-employed work either as a sole proprietor (egyéni vállalkozó) or by establishing and operating their own Hungarian legal entity (typically a Kft**.** – korlátolt felelősségű társaság, or limited liability company).

Key requirements for the application include:

• A valid contract for services with a Hungarian or foreign client;
• Evidence of business registration with the competent Hungarian authority (e.g., Hungarian Company Registry or the Registry for Sole Proprietors);
• Proof of sufficient financial means to sustain the business activity and personal subsistence (bank statements, business plan, etc.);
• Health insurance coverage valid in Hungary;
• A registered address in Hungary for residence reporting and notification purposes.

For EU/EEA nationals, no visa is required. However, if their stay exceeds 90 days, they must register their residence with the immigration authority (OIF), and provide evidence of adequate income, healthcare coverage, and accommodation in Hungary. This requirement is not a residence permit in the sense applied to third-country nationals, but rather a mandatory administrative registration to confirm long-term residence rights under EU law.

What should you include in an employment agreement with Hungarian workers

As noted, under Hungarian labor law, employment agreements must be concluded in writing and signed prior to the commencement of work. Verbal employment contracts are invalid, and failure to document the relationship in writing constitutes a breach of statutory employer obligations. The agreement must comply with the minimum standards set by the Labor Code and any applicable collective bargaining agreements.

At a minimum, the employment contract must include the identities of the employer and employee (full legal names and addresses), the employee’s job title, and the base wage. In practice, to avoid ambiguity and ensure compliance, employers typically include additional terms such as a detailed description of duties, the starting date of employment, the place of work (including remote or hybrid arrangements if applicable), and the work schedule (full-time or part-time).

Other key terms that should be clearly defined include probationary periods (which may not exceed 3 months under Section 45 of Hungarian labor law), remuneration structures (including bonuses, commissions, or fringe benefits), annual leave entitlements, termination clauses, notice periods, and any reference to applicable collective agreements.

In addition to the employment contract, Hungarian labor law requires employers to provide employees with a written information sheet within 15 days of starting work, as specified in Section 46 of the Labor Code. This document must include details such as working hours, wage payment terms, leave entitlements, termination procedures, job function, and the identity of the wage-paying entity. While this obligation is legally distinct from the contract, it may be fulfilled within the employment agreement if all details are clearly stated.

Partner with Rivermate to ensure compliance, avoid misclassification, and streamline contractor engagements in Hungary with confidence.

As a trusted global Employer of Record, Rivermate simplifies cross-border hiring, payments, and legal compliance so you can focus on growing your business. Get started with Rivermate today.