Social Security and Cross Border Teleworking as of 01 July 2023
With the objective to modernize the organization of flexible work, recently a Framework Agreement has been published on the social security position of cross-border teleworkers in the EU.
For a long time now, we have legislation coordinating social security between EU and EFTA countries. Based on the current directive, the following applies:
- Coverage is in only one country
- Main rule is coverage by the work state
- An exception applies in case of a secondment of up to 2 years
- An exception applies in case of working in the home country for an employer in a different work country. In that case home country coverage applies when the 25% rule is met (refer below)
- Further exceptions can be possible based on mutual agreement between member states. On this basis, the maximum secondment term can be extended to 5 years, for example.
25%-rule
It is good to remember that employees who work in another EU country than the EU country of their employer are – as a general rule – subject to the social security system in the country where they live instead of in the country of their employer, if they work at least 25% of the time in their home country. This is called the 25%-rule. For example, if a company in Rotterdam has an employee with Belgian nationality who works on full time basis in home office in his apartment in Antwerp, this employee is subject to the Belgian social security system. The Dutch employer will need to run a payroll in Belgium to make sure the required Belgian social security contributions are paid for this cross border teleworker.
Covid
Due to the Covid-19 pandemic many employees who normally would work at the office had to work from home. Some of them became cross-border employees: their employer was located in another EU country than the country where they started working from home office. Due to this fact many EU countries introduced temporary policies that prevented that such cross border teleworking would lead to a change in applicable social security legislation from the country where the employer is established to the country where the teleworker is working.
So currently the abovementioned employer in Rotterdam does not need to worry about paying social security contributions in Belgium for the Belgian employee who started working from home in Antwerp since the pandemic. These contributions can continue to take place in The Netherlands.
Situation as of 01 July 2023
However, these temporary policies will end on 01 July 2023. This means that in principle as of that day the regular so-called “25%-rule” from before Covid will apply: If this Belgian national employee works or will work 25% or more of his time as a cross border teleworker from Antwerp, Belgian social security legislation will apply, and the Dutch employer will need to start paying social security contributions in Belgium.
EU Framework Agreement
It is clear that cross-border telework is here to stay, and many stakeholders have advocated that this 25% rule is too rigid. For this reason, a group of experts from several EU countries have drafted the so-called Framework Agreement. This Agreement builds further on the mutual agreement provisions in the EU directive.
This agreement provides conditions under which an employee who will be working in another EU country than where his employer is registered can – on their joint request – nevertheless remain covered under the social security system of the employer. Briefly summarized:
- The employee has to be a teleworker;
- This teleworker is an employee of an employer in another EU member state than the EU member state of residence;
- Both the EU member state of the employer as well as the member state of residence of the teleworker have signed the Framework Agreement;
- The teleworker works more than 25% but less than 50% of his work time in the country of residence: the rest of the time he works in the country where the employer is located;
- an A1-certificate is mandatory, and this needs to be applied for in the country where the employer is located.
So if in the example of the employer from Rotterdam with his Belgian employee, Dutch social security can apply when the conditions of the Framework Agreement are met.
Uncertainties on Scope
Although the Framework Agreement is a step into the right direction to widen the possibilities for more flexible cross-border working, many situations will not be covered by this Agreement, and for this reason we feel that it will turn out to be much less beneficial than many maybe had hoped for.
First of all, it is important to realize that the Framework Agreement is voluntary: the EU member states are not obliged to sign this Framework Agreement: if the EU country where the employer is located will not sign, the Framework Agreement does not apply and you will fall back to the 25% rule. Same applies if the EU country where the teleworker holds residence does not sign. Note that at the moment of writing of this article only 10 EU countries have signed the agreement, and that for example large EU countries like France and Spain did not sign (yet).
Also, although the Framework Agreement gives a definition for telework, it leaves open quite some space for interpretation. We foresee that the individual EU member states will not use a uniform interpretation of the term teleworker. Some countries will use a restrictive interpretation of the teleworker definition, while other countries may be liberal. Obviously, the more rigid the interpretation, the fewer people will benefit from the Framework Agreement.
We for example expect that various EU countries may take the position that teleworkers who do not only work in the country of residence and the country of the employer, but also need to perform (occasional or structural) business meetings in a third (EU) country, will fall outside of the scope of the Framework Agreement. We expect the same for employees who, when working in their home country, do not only work from home but also need to work ‘on the road’, like sales managers.
Furthermore, it is important to realize that for the Framework Agreement to be applicable, in any event the telework in the country of residence has to be less than 50% of the total working time. It is unclear how the different EU countries will, when evaluating this 50% norm, count in days spent in the home country due to for example parental leave, sick leave or overtime work.
Conclusion
To make sure that employers will as of 01 July next remain to meet their social security contribution obligations towards their cross-border employees, it will firstly be important to clearly map out the activities they (will) perform abroad: if they are working in the country of residence only or also in a third country, if they only work from home or also ‘on the road’, how often they work from home, etc.
This way it can be identified if the employees may fall under the scope of the Framework Agreement or not, and what steps need to be taken to safeguard that social security contributions are paid in the right country.
EMG is happy to assist you with this assessment.
Written by Bas Hoepelman and Nino Nelissen
EMG, your partner in Global Mobility
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