Background information

Under Act LXVI of 1994 on the Wage Guarantee Fund, this type of funding is available to employees of companies in liquidation. The law does not provide a definition of insolvency, but it refers to the definition of Act IL of 1991:

• Bankruptcy proceedings are proceedings in the course of which the debtor petitions, for the purpose of reaching a composition agreement, to have his debts rescheduled or attempts to have a composition agreement concluded;
• Liquidation proceedings are proceedings executed for the satisfaction of creditors as prescribed by this Act upon the dissolution of an insolvent debtor without legal successor;
• Voluntary dissolution proceedings are proceedings in the course of which solvent economic organisations, having resolved their dissolution without legal successor, satisfy their creditors.

Content of measure

Liquidation expenses cover wages and other personal costs payable by the debtor, including:

• severance pay and any other benefits established in the collective agreement or the employment contract;
• wages and other benefits under a temporary agency agreement, when the debtor is in a contract with the agency The following accrued payroll (wage costs) of the undertaking under liquidation may be advanced in wage guarantee proceedings (reimbursed by the wage fund):
• wage debt of undertaking (as the employer);
• wage debt of a temporary agency (as the employer) from the agency fee agreed by the contracting company;
• wage debt of a student/pensioner/parent cooperative (as the employer) from the fee which is agreed by the contracting company.

Companies may apply for the funding online, and application decisions are made within 8 days. Transfers are released from the Fund within 15 days of the authority’s decision. The payment is reimbursable by the company and free of interest. The liquidator transfers the wages to the employees within 3 days after receiving the money from the Fund.

The employer applies for the amount of the actual unpaid wages, but for each employee, compensation is limited to five times the statistical annual gross average monthly wage in the second year prior to the given year (thus, for a case in 2022, 2020 figures set the limit at HUF 2,018,080 or €5,746.76, at current rates).

The fund is financed partly by the social contribution funds of employees and employers. The request is made by the liquidator to the public employment service (PES).

Use of measure

The number of applications filed has been decreasing over the past years, according to the Ministry of Innovation and Technology: 1025 in 2018 (of which 91.7% were paid), 854 in 2019 87.2% paid) and 692 in 2020 (86.3% paid).

The total amount paid to beneficiaries in January-June 2022, according to budgetary data, was HUF 712.3 million, or €1.78m, compared with HUF 1.14 billion in the first six months of 2021. In 2021 HUF 1.96 billion was paid out from the Fund for the whole year, down from 3.26 billion in the whole of 2020. In 2021 the annual budget plan for the Wage Guarantee fund was lowered by 11% to HUF 4 billion and it stayed at that level for 2022, too.

A single major (HUF 1.36 billion or €4.4 million) payout from the Fund happened in 2014, following the 2012 bankruptcy of the Hungarian airline Malév. More than a thousand employees had rightful claims on four months’ worth of wages, only half of which could be provided from company assets. Because of the relatively high wages of the employees and the compensation limit at the time, the Fund could cover more than one or two months’ worth of salaries, or – for some claimants – even less.

Target groups

Workers	Businesses	Citizens
Employees in standard employment	Applies to all businesses	Does not apply to citizens

Actors and funding

Actors	Funding
National government Local / regional government Public employment service	Companies Employees National funds

Social partners

Social partners' role in designing the measure and form of involvement:

	Trade unions	Employers' organisations
Role	No involvement	No involvement
Form	Not applicable	Not applicable

Social partners' role in the implementation, monitoring and assessment phase:

• No involvement
• Main level of involvement: Unknown

Involvement

No involvement reported.

Views and reactions

It is a relatively fast money transfer for employees (within 15 days), but compensation is limited, and a wide range of employed are excluded, for instance individual entrepreneurs, employees of non-profit and social organisations, associations, foundations or churches, employees of the law enforcement bodies and the Hungarian defence forces. It would be desirable to include trade unions in the wage guarantee procedures to achieve better coverage (Sipka and Varga 2021).

Sources

• 22 October 1991: Act XLIX of 1991 on bankruptcy and winding-up proceeding (njt.hu)
• 02 November 1994: Act LXVI of 1994 on the Wage Guarantee Fund (net.jogtar.hu)
• 20 March 2014: A pénzük negyedéhez juthatnak a volt malévosok (Ex-Malév staff can get 25% of their money) (index.hu)
• 17 September 2017:  ERM database on restructuring related legislation - Wage guarantee in case of insolvency (www.eurofound.europa.eu)
• 21 October 2021: The Importance of the Wage Guarantee Fund in the Framework of Labour Law Protection (A Bérgarancia Alap jelentősége a munkaügyi jogvédelem keretei között (doi.org)