Termination of employment- 15+1 useful information
In addition to the legal implications of the notice period, we explain in detail how it affects payroll and what strategies can be used to ensure that payroll processes run smoothly during a period of change. Our aim is to show how payroll expertise can help you manage the notice period effectively and take advantage of new career opportunities.
Our article will discuss:
- The concept of the notice period
- The relationship between the notice period and the length of the employment
- The length of the notice period
- Payroll accounting for the notice period
- Frequently asked questions about the notice period
The concept of resignation
The law distinguishes between the end and the termination of employment.
In the case of termination, the employment ceases by way of a legal declaration of the parties (both parties in case of mutual agreement or one of the parties in case of resignation or dismissal).
The employment may be terminated:
- by mutual agreement: When both the employer and the employee agree on the termination of the employment.
- by way of dismissal or resignation (ordinary termination with notice): When both the employer and the employee are entitled to terminate the employment; the employer must then give reasons for the termination.
- by way of termination with immediate effect (extraordinary termination): When one of the parties terminates the employment with immediate effect due to the other party’s serious breach or other major cause; in such a case, the terminating part – also including the employee if he or she terminates the employment – must provide reasons for the termination.
Immediate termination without justification is permitted in the following two cases:
- during the probationary period, either party may terminate the employment; and
- before the expiry of a fixed-term contract, only the employer may terminate without providing justification.
How is the length of the notice period determined in general?
In the case of termination, the Hungarian Labour Code (Sections 68–69) specifies in detail the length of the statutory notice period, when it begins, and the obligations associated with it. The objective of the notice period is to ensure that the employee has sufficient time to prepare for the end of the employment relationship and to seek new job opportunities.
As a general rule, the notice period is 30 days. When the termination is initiated by the employer, the length of the notice period increases in line with the number of years the employee has spent with the company.
a) by five days after three years- 35 days
b) by fifteen days after five years- 45 days
c) by twenty days after eight years- 50 days
d) by twenty-five days after ten years- 55 days
e) by thirty days after fifteen years- 60 days
f) by forty days after eighteen years- 70 days
g) by sixty days after twenty years- 90 days
The basic notice period may be extended up to six months if the parties agree otherwise.
Type of termination
Employer‑initiated termination
If the employer terminates the employment, the termination must be provided in writing and must clearly state the reasons, in a way that makes the grounds for termination unambiguous. The length of the notice period must be granted in line with the employee’s years of service with the company, as set out above.
What is the ‘release from work’ period in the event of dismissal by the employer?
During the notice period, the employee is still required to carry out his or her normal work duties and must be paid for the work done during the notice period. However, if the employer initiated the termination of the employment, the employee must be released from work for at least half of the notice period – this is called the ‘release from work’ period.
When the termination is initiated by the employer, the employer may release the employee from the obligation to work during the notice period. This release from work may be granted in no more than two separate parts and must take into account the employee’s request.
The employer must pay the employee compensation in the form of absentee pay (basic salary + average supplements, average performance pay) for the release period, unless the employee is not entitled to receive a salary for that period.
The release from the obligation to work gives the employee an opportunity to look for a new job and to attend job interviews during the notice period, when he/she does not have to work.
Severance pay in the event of dismissal by the employer
It is important to note that when the employer initiates the termination, the employee is entitled to severance pay — except in the following cases:
- if the employee qualifies as a pensioner at the time the termination is issued, or
- if the reason for termination is related to the employee’s conduct in connection with the employment relationship, or to the employee’s abilities for reasons not linked to their health.
The severance pay is calculated on the basis of the absentee pay and the length of time the employee has worked at the given company. No severance pay is due after less than three years’ in the employment.
The amount of severance pay is calculated as follows:
- After at least 3 years of employment, one month’s,
- After at least 5 years of employment, two months’,
- After at least 10 years of employment, three months’,
- After at least 15 years of employment, four months’,
- After at least 20 years of employment, five months’,
- After at least 25 years of employment, six months’ absentee pay is due.
If the employer terminates the employment before the employee reaches the statutory retirement age applicable to them, the severance amounts must be increased as follows:
- After at least 3 years of service: by one month’s absence pay
- After at least 10 years of service: by two months’ absence pay
- After at least 20 years of service: by three months’ absence pay
When is the salary to be paid in the event of dismissal?
The employer must pay to the employee his/her salary and other emoluments, as well as issue all statements and certificates required by the relevant rules or provisions of law applicable to the employment, on or before the fifth business day after the last day at work in case of termination of the employment by notice, or on the fifth business day after the termination of the employment otherwise.
In what cases is the employer not allowed to dismiss an employee?
The employer may not terminate the employment relationship by notice in the following cases:
- during pregnancy, provided that the employee has informed the employer;
- during maternity leave;
- during paternity leave;
- during parental leave;
- during unpaid leave taken for the purpose of caring for a child;
- during the period of actual voluntary reserve military service;
- during the statutory period of medical treatment related to assisted reproduction for women, but for no longer than six months from the start of such treatment, provided that the employee has informed the employer;
- during the period of up to five working days per year when the employee is exempted from work to provide personal care to a seriously ill close relative or to a person living in the same household.
The termination of employment by mutual agreement
If the employment is terminated by mutual agreement, the parties are free to agree on the termination of employment, subject to the relevant provisions of law.
Termination by mutual agreement provides an opportunity for the parties to jointly determine the date of termination of the employment, the amount of severance pay, if any, as well as the dates when the employee is released from work.
Notice period in case of termination by mutual agreement
In case of termination by mutual agreement, a number of other terms can be freely agreed upon, including the amount and method of payment of the severance pay. From a legal point of view, it is difficult to challenge a termination by mutual agreement, as the agreement does not need to state the reasons for the termination, it does not have to specify the notice period, and does not require the application of severance pay.
Employers often try to force employees to terminate the employment by mutual agreement. It is important to emphasise that employees should only agree to termination by mutual agreement if it is genuinely in accordance with their wishes. It is of utmost importance that employers should give employees sufficient time and an opportunity to decide if they wish to terminate their employment by mutual agreement.
Severance pay in case of termination by mutual agreement
Employers are generally motivated towards termination by mutual agreement, as they will have fewer compulsory payments to make to the dismissed employee than in the case of a traditional dismissal. Even if severance pay is agreed upon, this can usually be more favourable in comparison with the case when the employer dismisses the employee.
Ordinary termination by the employee (resignation)
Under the provisions of the Labour Code, if employees resign of their own volition, they are entitled to only 30 days’ notice; even they have worked for the company for many years.
However, there have also been changes to the rules on notice periods in the case of employee resignations. If an employee resigns, the maximum notice period is 30 days, unless a different period is agreed in writing in the employment contract. Under the current provisions, the maximum length of the notice period that can be agreed upon is 6 months.
If the employee terminates the employment relationship, the employer is not required to release the employee from their obligation to work during the notice period.
Immediate termination
Immediate termination represents the most stringent form of ending an employment relationship and may only be applied by the employer in exceptional cases where there is serious justification.
According to the Hungarian Labour Code (Section 78), this may occur if the employee:
a) significantly breaches an essential obligation arising from the employment relationship, either intentionally or through gross negligence.
Examples include:
- the unauthorised disclosure of confidential information
- serious violations of occupational safety rules
- unjustified refusal to work
- theft, fraud, or any other conduct seriously harming the employer’s interests
b) behaves in a manner that makes the continuation of the employment relationship impossible.
This typically applies in situations where trust has been irreparably damaged or the employee’s conduct makes further cooperation unacceptable for the employer.
Deadlines for immediate termination
The right to immediate termination may be exercised:
- within 15 days from the date on which the party becomes aware of the grounds for termination,
- but no later than one year from the occurrence of such grounds,
- or, in the case of a criminal offence, until the statute of limitations for prosecution expires.
Immediate termination without justification
Immediate termination without justification is allowed in two cases:
- during the probationary period, by either party;
- before the end of a fixed-term employment relationship, exclusively by the employer.
Termination during the probationary period
The purpose of the probationary period is to allow both the employer and the employee to assess whether the working relationship is suitable. The Labour Code provides significant flexibility during this period, making termination considerably simpler than after the probationary period has ended.
How may an employer terminate during the probationary period?
During the probationary period, the employer may terminate the employment with immediate effect and without justification (Section 79 (1) a) of the Labour Code).
This means that:
• no reason needs to be provided,
• no notice period applies,
• the termination takes effect at the moment it is communicated,
• the employer’s decision is not dependent on whether the employee has committed any fault.
Immediate termination of a fixed-term employment relationship
A fixed-term employment contract may be terminated with immediate effect and without justification only by the employer. In such cases, the employer must pay the employee twelve months’ absence pay, or—if the remaining duration of the fixed-term contract is less than one year—absence pay for the remaining period.
Termination during sick leave
Termination during sick leave is often a source of misunderstanding in Hungarian labour law, although the Labour Code provides relatively clear guidance. The law establishes a temporary prohibition on the commencement of the notice period, but this does not mean that the employer is never allowed to issue a termination during sick leave.
According to Section 68 (2) of the Labour Code: the notice period may not begin during a period of incapacity for work.
This means that if the employee is on sick leave, the notice period does not start until the incapacity ends.
While the employer may communicate the notice of termination, the notice period will only start once the sick leave has concluded.
The Labour Code and the notice period
If you would like to read more about the Labour Code, you can do so by following this link on the specific legal background to the notice period.
Payroll accounting for the notice period
There are many mistakes that can be made in connection with the payroll accounting for the notice period:
It is important to know that, when calculating the notice period on the basis of the length of employment, periods when the employee did not receive any pay for at least 30 days should not be taken into consideration, except for the following periods:
- maternity leave and unpaid leave taken for the purpose of caring for a child,
- the period of actual reserve military service not exceeding three months.
It is important to note that the notice period in the case of a fixed-term employment contract is limited to the expiry of the fixed term, which is a logical requirement as there is no point in extending the notice period beyond the period of the originally planned employment.
It is also important to note that salary already paid cannot be claimed back, except when the employee was released from the performance of work definitely and the circumstances giving rise to ineligibility to salary occurred only after such releasing from work.
Of course, this is only part of the payroll difficulties, as individual situations and employment contracts may raise further issues.
In order to avoid any inconvenience, it is worth hiring a payroll company to do the job for you!
Frequently asked questions about the notice period
What are the types of terminating employment?
- Ordinary termination (dismissal or resignation);
- termination with immediate effect;
- termination by mutual agreement.
How does the notice period depend on the length of time spent in employment with the given company?
The notice period is 30 days for less than 3 years, and increases based on the number of additional years of the employment.
What is the release from work period in the event of dismissal by the employer?
For at least half of the notice period, the employee must be released from work, for which time they are entitled to absentee pay.
In what cases is severance pay due in the event of dismissal by the employer?
Severance pay is due in case of dismissal that is not related to the employee’s conduct or health and the employee has minimum 3 years length of employment.
When is salary due in the event of dismissal?
The employer must pay the salary on the employee’s last day at work or in any case not later than on the fifth working day thereafter.
In what circumstances can an employer not dismiss an employee?
In the event of pregnancy, maternity leave, leave take to care for a child, voluntary military reserve service, and reproductive treatment.
What are the features to start a termination by mutual agreement?
The parties are free to agree on the terms of the termination, including the date of termination and the payment of severance pay, in case the interests of the employer and the employee can be reconciled.
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