Beware of social security rules for teleworkers in European countries

read timeRead time: 4 mins

Employers that have employees working from Europe need to be aware that the UK has opted not to sign up to the new EU Framework Agreement on social security for teleworkers. We explain the impact of this decision for companies and their EU-based workers.

Social security rules are typically based on the concept that a person pays into the social security system of the country where they are physically working. However, there is a framework of social security agreements around the world to help people who are either working temporarily in a country other than their normal place of work, or who travel and work in a number of different countries.

Following Brexit which took effect on 1 January 2021 and, of course, COVID, the social security rules have been subject to review and change. The rules are very complex but broadly:

  • The UK-EU Withdrawal Agreement applies to people who had residence rights in a country before Brexit and the Agreement preserves the right to EU social security coordination; and

  • For individuals who left the UK after Brexit, the new EU/UK protocol on social security coordination applies in line with the Trade and Cooperation Agreement.

It should be noted that the protocol does not cover EFTA countries: Norway, Iceland, Lichtenstein and Switzerland.

During COVID, there was a relaxation by EU states post-Brexit when the various countries were encouraged to adopt a ‘no impact’ policy, which essentially recognised that an employee may be unavoidably working more in their ‘home country’ rather than the country of residence of their employer. Under existing rules, social security would have been due in the home country for this work, but the various authorities agreed that social security arrangements should stay as they would have been if normal circumstances prevailed i.e. social security continued to be paid in the country of the residence of the employer.

New Agreement

Before the relaxation there was a limit of 25% for people who wanted to work in their country of residence and another country. Essentially, they had to spend at least 75% of their time working in the country of their employer if they were to avoid triggering a liability in their country of residence. They needed to make a formal application for a Certificate A1 from the authorities in the country in which they were physically working.

However, recognising that the concept of working in one country and partially living in another without a secondment agreement is increasingly prevalent, the EU agreed to extend the 25% test for teleworkers to 49%. Each country is required to confirm whether or not it will apply this rule. 

An employee can only use the new teleworker rules when their work is limited to two countries (one of residence and one of work). People who work in multiple countries do not qualify for this treatment and the default continues to apply.

For the purposes of this legislation a teleworker is not someone who conducts their business purely by telephone such as, a call centre worker, but is defined as someone who is working in their country of residence using technology with ongoing access to an employer’s IT environment.

People who do not meet the definition of a teleworker such as, self-employed individuals and those who undertake manual activities such as construction work, will continue to be subject to the standard 25% rule.

Employers must “opt in” to be able to benefit from the new framework in the applicable countries. An application for an A1 certificate must be submitted. If there is no A1 application/certificate then the 25% rule applies. An A1 can be issued for a maximum of 3 years at a time and can be renewed.

No thanks, we’re British

From a UK perspective, HMRC has been fully engaging with discussions around teleworking in the EU Administrative Commission for the Coordination of Social Security Systems alongside other countries with observer status.

A number of EU countries have signed up to the new framework agreement including the Netherlands, Belgium, Germany and Luxembourg. However, HMRC has confirmed that the UK will not be among the countries initially signing up to the new framework agreement on telework.

This means that UK-based, or employed, teleworkers will need to rely on the default threshold within existing post-Brexit social security rules i.e. anyone spending 25% or more of their time working remotely could trigger a change in the competent country for social security purposes

The European Commission has mandated a working party to explore whether the agreement can become a part of statutory law and is expected to conclude and present its findings by the end of 2024.

HMRC is keeping its decision not to sign up to the framework agreement under review.