International social security update: US and Hungary

The social security agreement between the U.S. and Hungary came into force on Sept. 1, 2016. Companies with employees moving between these two countries should review implications of the agreement.

What does this agreement cover? The bilateral social security agreement between the US and Hungary will ensure that employees and their employers are subject only to the social security legislation of one country.

It will also allow employees seconded from one country to the other to remain subject to the social security system of their home country and exempt from the payment of contributions in the host country, providing certain conditions are met.

The agreement also allows individuals to aggregate periods of insurance in both countries for the purposes of determining eligibility to benefits.

What needs to be considered for seconded workers between the two countries? With effect from Sept. 1, 2016, it will be possible to obtain a Certificate of Coverage (CoC) for employees seconded between the two countries, providing certain conditions are met. This will confirm that social security contributions will remain payable in the home country, and the employer and employee are exempt from paying social security in the host country.

A CoC can be obtained with the approval of the home country for secondments of up to five years. For extensions beyond five years, a further CoC can potentially be obtained, dependent on the mutual consent of the authorities from both countries.

Employees currently on a secondment that began prior to this agreement coming into force are also eligible to obtain a CoC. However, the five-year period for their CoC will commence from the start date of the agreement (Sept. 1, 2016).

How does this new agreement affect an employee's entitlement to benefits? An employee will normally build up entitlement to benefits in accordance with the contributions paid to that country and the local legislation governing such benefits.

However, where necessary, this agreement will allow employees to aggregate periods of social security coverage in both countries in order to determine the eligibility to certain benefits.

What actions should be taken in light of this new agreement?
  • Review your current and planned assignee population, and obtain CoCs where relevant.
  • Check your payroll arrangements in both countries in light of the above to ensure that contributions are being paid in the correct country from Sept. 1, 2016.
  • Ensure that the terms of secondment of any affected employees are updated, and issue relevant communications to these employees.

How can Grant Thornton help? Grant Thornton's International Social Security team can provide guidance on how this new agreement should be applied in respect to your workforce

This article is from Grant Thornton UK LLP, a member firm of Grant Thornton International Ltd.

Richard Tonge

Managing Director
Global Mobility Services
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Linette Barclay
Managing Director
Human Capital Services
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Bob Langham
Tax Director
Human Capital Services
T +1 949 878 3340

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