New EU Rules Mean Cross-Border Telework May Be More Attractive

The EU rules for social security are based on the lex loci laboris principle, which means that a person is covered by social security in the country where they are physically working. This principle applies in several situations, including when a person is working in more than one country.

For example, someone living in Belgium and working in the Netherlands for a Dutch employer can work up to 25% of their time in Belgium and continue to be covered by social security in the Netherlands. If this person works more than 25% of their time in Belgium, Belgian social security will apply. This means that the Dutch employer is obliged to comply with the Belgian law on social security as if they were established in Belgium, including registration in Belgium, payment of social security contributions in Belgium, etc.

As a result of the Covid-19 global health emergency, the EU suspended the application of several legislative instruments, including the EU rules for coordination of social security. In scenarios such as those described above, a person could work 100% of their time in Belgium without triggering a change of social security coverage.

This suspension of rules for social security is still in force but is set to expire on June 30. So, are we are going back to the old rules and the 25% threshold on July 1? Not exactly.

The European Commission has mandated a working party to provide a temporary solution that would allow more work in the country of a person’s residence without this causing a change in which country’s social security legislation applies. The working party has proposed a multilateral framework agreement for social security that would provide an opt-in for employers and their employees, in which an employee can work in the country of residence between 25% to 49% (less than 50%) of their time and still maintain coverage under the social security legislation in the country of the employer.

Entry Into Force

The framework agreement is currently awaiting signature with the competent authorities in European Economic Area countries, Switzerland, and the UK. Should the UK sign the framework agreement, it would apply only to persons covered by the EU-UK withdrawal agreement, not to those covered by the new EU-UK protocol on social security coordination.

The agreement will enter into force on July 1, will last for five years and automatically be extended for another five years unless statutory rules are changed by that time to reflect the content of the framework agreement.

The agreement isn’t preconditioned with all countries signing, so it will enter into force on July 1 for those countries that sign it by that date. If a country signs the agreement at some point after July 1, it will enter into force for that country from the date of signature.

Scope

The multilateral framework agreement for social security covers “cross-border telework.” Cross- border telework in the context of this agreement means a person is working in their country of residence using technology with ongoing access to an employer’s IT environment. “Manual activities,” such as construction work for example, are excluded from the agreement.

Under the current rules in the EU regulation for social security, it is possible to work up to 25% of working time in an employee’s country of residence and continue coverage under social security in the employer’s country. The framework agreement will provide an option in which the threshold of 25% will be increased to work “less than 50 percent” in the country of residence using technology with ongoing access to an employer’s IT environment.

This means that all other persons who don’t fall within the definition of cross-border telework won’t be able to benefit. If a person lives in one country, works for an employer established in another country, and works regularly in several countries, it won’t be possible for them to benefit from the agreement.

Application for A1 Certificate

The employer or employee must file an application for an A1 certificate for social security coverage to the competent authority in the employer’s country. The authority will issue the A1 certificate when the conditions are met under the framework agreement, and notify the employee’s country of residence of their decision.

As this is an opt-in, it’s necessary to apply for an A1 certificate under the framework agreement within a given time frame. If an application isn’t duly filed with the competent authority, the employer and employee won’t be able to benefit from the agreement.

With specific exceptions, the application won’t be approved if it concerns a retroactive period of work. It is therefore essential that an application for A1 certificate is filed immediately.

A Breakthrough?

It’s expected that every EEA country, Switzerland, and the UK will sign the agreement, but there is no guarantee that this will actually happen.

Austria recently implemented bilateral agreements for social security for frontier workers with its neighboring countries. These agreements stipulate that it is possible to work from the country of residence 25% to 40% of the time and maintain coverage under social security in the employer’s country. This is an opt-in as well. This move could indicate that Austria is unwilling to accept the threshold “less than 50 percent” and only will go up to 40% of work in the country of residence.

The framework agreement is currently presented as a major breakthrough, although some consider enthusiasm premature. Its scope covers a specific group of workers, while people who work regularly in the EEA area and Switzerland will have to comply with the 25% threshold and won’t benefit from this agreement.

Had the agreement focused on work from the country of residence and how much work is done, irrespective of how much an employee works in other EEA countries and Switzerland, it would have benefited more mobile workers and would likely promote more mobility in the region.

Although the framework agreement is limited and can be improved, it should not be undermined. 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 work by the end of 2024.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Daida Hadzic is KPMG Head of Quality for Global Mobility Services (EMA).

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