Remuneration is one of the cornerstones of an employment relationship for both parties. It is not a new practice that employers seek other ways to increase the consideration of workers without modifying the base wage. The so-called "semi-official" solutions can be dangerous for the employer, because an employment ending badly can easily be the beginning of a labour dispute. In our article, we will show you smart salary solutions compliant with the Hungarian labour law.
Base wage from the employer's perspective
As the name implies, the base wage is the starting point of the wage paid. It is a mandatory element of the employment contract and it must be paid in the form of money. For employers, however, raising the base wage may be unfavourable in many ways:
- May not be amended unilaterally
According to the Labour Code (LC.), the terms of the employment contract, so as the base wage, can only be modified bilaterally by mutual agreement. This can be a problem for the employer if they want to raise the employee's salary only temporarily (for example, for the performance of surplus tasks), as they cannot later unilaterally reset the previous wage.
- Wage supplements also increase
Another important role of the base wage that it serves as a basis for the calculation of most wage supplements, such as overtime, shift premium, night work, work on holidays. Furthermore, the absentee fee paid for the period of sick leave or holiday is also calculated considering the base wage. Hence, raising the base wage also increases the amount of wage supplement to be paid, so consider the above before announcing a nice-sounding raise.
What are the other options?
All other benefits (bonus, cafeteria, public transport pass) provided in addition to the base salary and wage supplements are considered as fringe benefits. Despite the fact that the LC. does not expressly regulate these, as an employer, you cannot apply benefits as you like.
In respect of the remuneration of work, the principle of equal treatment must be strictly considered. According to the LC., 'wage' shall mean any remuneration provided directly or indirectly in cash or in kind, based on the employment relationship.
Equal treatment does not mean that all employees shall be provided with the same benefits. For example, a distinction can be made between employees in different groups or departments. In contrast, you cannot treat workers differently based on their "protected characteristics", thus it is unlawful if you announce a bonus program only for female employees, or surprise workers under the age of 30 with a Sziget Festival ticket.
Bonus and reward
Flexible wage development can be accomplished by setting bonus tasks. You can do it with publishing a prospectus, however, we suggest signing a mutual agreement with the employee. According to the judicial practice, you must pay attention to the following in order to have a compliant bonus system.
- Task must be defined and assessed objectively
As we mentioned above, you will not find the regulation of "bonus" in the legislation, so it is particularly important that you define the rules of your bonus system in detail and clear, to prevent misunderstandings. The criteria must be related to the employment relationship and objectively measurable.
Therefore, bonus condition can even be for the employee to be present during most working days. On the contrary, the general formulation of the task, like "good work" or "achievement of expected performance" is inadequate. In such cases, the assessment become subjective on the part of the employer, which violates the rights of the employee.
- employee's right to the bonus
Judicial practice also protects the employee from being deprived of the possibility to achieve bonus. In this regard, the employer may not withdraw from the announced bonus program if the performance of the tasks has already started.
A bonus scheme or reward that has been applied regularly in previous years (thus became a practice) may not be cancelled without a legitimate reason. In addition, the employee may also claim the bonus if the goal could not be met due to external reasons.
It is also possible for the employer to pay a bonus advance during the year, so an instalment can be added to the monthly wage. If the bonus requirements are not met, the advance can be reclaimed.
Based on our article you can see the practical benefits of wage increase with fringe benefits and the uncertainties related to the system. A well-constructed and applied reward system can be an effective wage development tool as well. In order to protect the interests of both parties, we recommend the involvement of legal experts in the process.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.