International social security rules: where does the UK stand following the new EU framework agreement?

TaxTalk - September 2023

read timeRead time: 24 mins

New social security legislation for internationally mobile workers applies from 1 July 2023. This is important because in an international environment where an employee spends some time working from their home which is in a different country to their employer there are strict rules around where social security should be paid.  The new Framework Agreement extends the amount of time an individual can work in a different country to that of their employer and still maintain their social security contributions in the country of their employer.

However, not all countries have signed up to the new Framework Agreement including the UK and to be able to benefit from the new Agreement both countries must be signed up to the agreement, or the old rules will apply.  

Social security, or National Insurance as it is referred to in the UK, often gets side-lined when a company operates internationally. Many companies offer employees secondments for a temporary period as part of a career plan, or find themselves looking internationally for the appropriate talent.

The different Income Tax regimes are often considered, and policies drawn up to ensure fair treatment across an employee population but this is not always the case for social security.

Social security rules are completely independent of tax rules and treaties, so it’s important to always consider it in its own right.

The general rule is that social security is payable where you work. However, what if you work in a number of different countries throughout the year? What if you go on a short-term secondment overseas for, say, six months? Or a long-term assignment for three years?

It’s no surprise that this is where it gets complicated. Pre-Brexit and pre-COVID there was common legislation across Europe. It was possible, given the right circumstances, to apply to remain in your home country social security system, provided the criteria were met.

The rest of the world has separate arrangements.

One of the reasons people want to continue paying into the same social security scheme is that most countries require a minimum number of contributions before an individual qualifies for benefits such as a state pension. In the UK this is 35 years.

If a globally mobile person pays into many different social security schemes throughout their career, it may be that there are insufficient contributions to a single scheme to qualify for any benefit. So it is effectively ‘money down the drain’. Reciprocal agreements do exist between the UK and some countries which allow contributions made for periods of residence in those countries to be treated as if they were UK national insurance contributions for both state pension and survivor’s benefits, but the rules are complex.

What were the EU regulations pre-COVID?

Previously, the EU regulations for social security meant that if an employee lived in a different country to where their employer was located, they could work up to 25% of their total working time in their country of residence and still remain covered by social security in the employer’s country of residence.

Following COVID and the various relaxations of the rules during the pandemic, the EU authorities considered the increased amount of cross-border working and the resulting complexities that faced employers, employees and, of course, the social security authorities.

They looked at the existing legislation with a view to making it a better fit with current working practices. The result was a new framework agreement to which countries (including the UK) were invited to sign up.

What has changed in the new framework agreement?

Many of the familiar provisions, such as the ability to remain in the home country social security system for assignments of up to 24 months, as well as provisions for multi-state workers, remain.

The primary change under the new agreement is that ‘teleworkers’ (see below) can spend up to 50% of their working time working remotely from the EU member state in which they are resident but they will remain subject to social security in the EU member state in which their employer is based. This change represents a doubling of the allowable time. This arrangement only applies between countries that have signed up to the new framework.

What is a teleworker?

For the purposes of the agreement, a teleworker is someone who uses an IT connection to do their job. Their role can be performed independent of location within a member country other than where their employer is registered.

How does the agreement work?

The 27 member states of the European Union plus Norway, Iceland, Liechtenstein, Switzerland, and the UK were all invited to sign the framework agreement. The agreement provides an opt-in to employers and employees, allowing them to continue making social security contributions in the country of the employer when an employee works from home in another country less than 50% of the time.

The new agreement will only apply if both countries involved have adopted the framework agreement, and if the following conditions are met:

  • The employee has one employer or multiple employers with a registered office in the same country

  • The employee habitually works in the country of the registered office of the employer and teleworks in the residence state; and

  • The employee’s teleworking time is less than 50% of their total working time.

If the conditions are met, the social security legislation of the employer’s country of residence will continue to apply.

To opt-in and make use of the facility, an A1 (the document that states the applicable social security legislation) must be requested in the country where the employer is based within three months of the start of activity.

However there is currently a welcome grace period whereby  A1 applications filed before 1 July 2024 can have retroactive effect from 1 July 2023. This is to help employers plan and put in place the necessary policies.

Note that the A1 document remains limited in time to a maximum of three years. However a new request can be filed for an extension.

Which countries have signed up so far?

The framework agreement entered into force on 1 July 2023. At that date the following countries had signed up: Austria, Belgium, Croatia, Czech Republic, Finland, France, Germany, Liechtenstein, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden and Switzerland.  

Invited countries may still sign the framework agreement but it will run from the time of signature and it will not apply retroactively. Countries that have committed to signing at a later date are Estonia, Hungary, Ireland, and Lithuania.

A number of countries have not currently signed up, including Italy and the UK. This creates additional complexity for employers in creating policies and managing employee requests for hybrid working arrangements.

What about the UK?

So, the UK is not part of this new framework – what does that mean?

The general pre-COVID rules governed by EU regulation apply for the coordination of social security systems and continuous cross-border telework arrangements where the UK is one of the countries involved.

Essentially if an employee spends more than 25% of their total working time in their home country of residence, social security contributions will be required in the resident country of the employee and not the employer.

Whilst the UK has not signed up, HMRC are keeping the position under review.

If you would like further information on issues raised in this article, please contact Louise Fryer.