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Published: 1 month

Can people under 25 really earn more than older workers?

The tax credit for under-25s, introduced two years ago, is still the subject of debate: some argue that it has had a motivating effect and has activated young workers, while others have experienced a significant generational wage gap. In addition, how employers face the problem of a sudden drop in salary at the age of 25, which also "fuels the fire" in terms of turnover and wage demands within the company, is a challenge. Can career starters under 25 really take home higher salaries than their older, more experienced colleagues? What measures should be taken to ease the pay squeeze and what should be avoided? The HR services group Humán Centrum has compiled a collection of the most common experiences and practices to date.

25 év alattiak szja-kedvezménye: hogy lehet enyhíteni a bérfeszültséget?-

According to the latest data from the Hungarian Central Statistical Office (KSH), average gross wages grew by 14.2% last year, which is a rapid increase, but as inflation was even higher, the real wages of workers fell: real wages in Hungary fell by almost 3%. At the same time, recent Eurostat data showed that Hungary, after Romania, saw the largest increase in labour costs in the last quarter of 2023.

The exemption from the social security contributions for under-25s has shaken up the labour market

Employers have found themselves in an increasingly difficult position: while trying to meet their staffing needs, they also have to contend with existing wage tensions and the ever-increasing wage demands of workers. This is being further strained by the introduction in 2022 of a tax credit for young workers (the "tax exemption"), which has reshaped the labour market in a number of ways. Under the provision, young people under the age of 25 can benefit from a tax base exemption, meaning they do not have to pay personal income tax if their earnings do not exceed HUF 576,601 gross per month.

"At Mind-Diák Cooperative, we have seen that this tax law regulation has had a number of positive effects: it has stimulated the labour market and made job-seeking among students and trainees under 25 more active, as their gross salary can now be equal to the net salary they receive," emphasised Rajmund Dénes, Director of the Humán Centrum Group. He added that the number of students working is also steadily increasing, as shown by the Education Office's 2023 research on the situation of recent graduates, which showed that more than three quarters of higher education students work alongside their studies, and 78% of recent graduates worked while at university or at least during some stages of their studies.

The other side of the coin

Rajmund Dénes also drew attention to a less discussed but more significant negative consequence of the social security tax credit: it has somewhat reversed the usual pattern of wage formation, according to which workers take home more money in proportion to their age and the amount of work experience they have acquired. According to the expert, it is therefore not uncommon for a young person to be paid the same or even more than an older colleague in the same job. However, in most cases this is a temporary situation, as young people in this age group are still typically in student or trainee jobs, often only for a short period, such as during the summer holidays or two or three days a week. "There are also examples of trainees who continue their career in a company as a full-time employee and - after the age of 25 - still earn less than as a student," added Rajmund Dénes. According to the Director, it is common experience that some trainees commit themselves and start working full-time in the company where they have completed their traineeship. But when they leave the student status, they also expect a raise in salary, and if they don't get it, they easily decide to change, which is a generational trend. "If the employer wants to avoid the wage tension that comes with tax credits, then a reduction in gross pay may seem like a tangible solution. One direct way to do this is to freeze the wages of young people alone - but this measure could also work in reverse and increase the existing wage tension between generations", stressed Rajmund Dénes.

The stakes are high: careful planning of student wages is important

The expert said that if there is no possibility to financially compensate the wages of the older age group or fresh graduates who have already turned 25, a solution could be to offer various fringe benefits that can help to even out the pay gap. Examples include: extra leave (e.g. fixed 25-day leave), SZÉP cards, more home office days, home office support or the provision of various company equipment (e.g. telephone, laptop, reimbursements).

It is true that the tax credit allows young people to look for better paying jobs, but its success is still limited by their education and existing work experience, which must match the job requirements. However, if the employer can provide the extra resources needed for training and the student or trainee is successful, it can find a valuable, permanent workforce in the long term, even after the employee is no longer exempt from the tax. However, it is important to take this into account from the outset when planning student wages and to set wages so that they remain competitive after the change of status.

"This is where the various national wage surveys can provide some guidance. We regularly review labour market data by geography, industry and company size. In 2024, we looked at nearly 7,000 job advertisements including salary data, which employers also used to assess what their competitors are offering to attract professionals. But recently, more and more jobseekers are also looking for accurate information on the jobseekers' side, so that they can formulate realistic salary requirements during the selection process," the expert points out.

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