21 January 2016

Wage costs represent significant part of the corporate expenditures. While employers are interested in decreasing these amounts, it is hardly reconcilable with employees’ interests to achieve higher salary. Given that salary is one of the most important motivating force, besides complying with the Labour Code, employers should avoid demotivating their workforce. In this short summary we gathered 5 tips how you can reduce your company’s labour costs without demotivating your employees and violating the Labour Code.

cost effective salary planning, Hungary, wagePay for performance

You can establish the salaries on a performance basis or by the combination of time and performance basis. In this case the employer shall determine performance requirements based on preliminary and objective surveys and calculations and the amount of the salary depends on the fulfilment of these requirements.

In case the employee’s salary is paid only on the basis of performance, the employer shall determine a guaranteed salary in an amount at least half of the base wage.

Other type of the performance pay is the premium or bonus: in that case a base salary is established, in addition the employer may determine premium tasks (e.g. the success of a project) and the employee will be entitled to the premium if the premium task has been fulfilled.

Time-off, flexible working hours

In case of overtime work the employee is entitled to overtime pay, which is hourly 50 % of the base salary determined for one hour: that means that for overtime work the employer pays 150% salary.

However based on the parties’ agreement in writing the employee may be entitled to time-off instead of overtime pay. The duration of the time off may not be less than the ordered overtime-work and the employee is entitled to base salary for the period of the time-off. The time-off shall be allocated during the month following the month when the overtime work was performed or upon the parties’ agreement at latest by the 31th December of the following year.

Another way to avoid overtime pay can be the determination of flexible working arrangements, since in this case the employer shall not keep records about the overtime work.

Reduce wage supplements

Upon agreement of the parties’ in writing the base salary may include the wage supplements for working on Sunday, on public holidays and for night work and the special payment for shift work.

For example if the employee shall work during the night, the parties may establish a higher base salary in view of that. In that case the employee will not be entitled to wage supplement for night work.

It is important to mention that the overtime pay cannot be included in the base salary.

In addition to the above, the parties can determine a fixed monthly payment (‘lump sum’) that covers the wage supplements, including overtime pay.

It is important to mention, that both, the inclusion of certain wage supplements in the base wage and the creation of lump sum for all wage supplements shall be proportional.

Provide benefits in kind (‘cafeteria’)

Although the salary shall be determined and paid in Hungarian Forints (save if the work is performed abroad), the employer may provide benefits in kind (e.g. food voucher, public transport pass). Providing ‘cafeteria’ is beneficial for the employer, since the benefits provided to employees in kind have a favourable taxation.

It is important to mention that the favourable taxation of in-kind benefits is limited yearly in a certain amount, that is why it is advisable to consult with a tax specialist before determining the amount of cafeteria.

Use temporary agency work

In many cases at a material level the temporary agency work can be more favourable than employing own employees. It is the case when the workload is fluctuating and workforce is needed only periodically.

Furthermore the temporary agency work may reduce the administrative burden of the employer, since the temporary-work agency is responsible for hiring, firing and payroll activities.