Working from home: action required
Recently, it became clear that the European Commission was working on a so-called framework agreement that makes it possible to work from home up to 50%, without an employee becoming socially insured in the country of residence. Last week, more details were published about the new important social security framework agreement. Please find herewith more information regarding this framework as well as some other key attention points when implementing or updating a working from home policy considering the framework.
Social security framework agreement
What caused the framework agreement?
During the corona pandemic, employees started working from home frequently. Therefore, the ‘no impact policy’ was introduced. In short: this policy made sure that working from home does not affect the social security position of an employee working from home in a country other than where the employer is located. The European regulation on social security has set the main rule for employees who work in two or more Member States. They are socially insured in their country of residence in case they work a substantial part of their time (>25%) in their country of residence. Employers may then also have obligations in the respective country.
The ‘no impact policy’ has been extended several times and will expire on June 30, 2023. From July 1, 2023, the new framework agreement will apply.
When and for who is the agreement applicable?
The agreement is applicable for cross-border teleworkers, i.e. employee’s living in country A and working in and for an employer in country B. With the new framework agreement, a more flexible solution is available that allows a higher threshold for work from home in the country of residence for cross-border teleworkers.
The new framework agreement provides an option for employers and employees to opt-in to the social security scheme in the country where the employer is situated when an employee works in the country of residence between 25% - 49,9% while the remaining work time is spent in the country of employer. In case your employee also has business trips to other countries, please reach out to us as this may impact the eligibility for the opt-in.
When do you need to opt-in to this agreement?
The framework agreement is set to enter into force on July 1, 2023. Currently, the framework agreement is awaiting signatures from all EEA countries, Switzerland and the U.K. If any of the mentioned countries sign the framework agreement later than July 1, the agreement will enter into force at that time and it will not apply retroactively. The expectation is that at least the Netherlands, Belgium and Germany will sign before July 1, 2023.
As it is an opt-in agreement, it is essential to apply for an A1-certificate for the relevant employees. In this case, the application needs to be filed in the country where the employer is registered. The deadlines for an A1 application based on the framework agreement are very strict. Retroactive applications will likely be rejected.
Two exceptions for a retroactive application will be possible:
- In case the request includes a retroactive period up to 3 months and social security contributions have been paid in the country of the employer during this period; and
- Applications filed until 1 July 2024 may include a retroactive period up to 12 months during which social security contributions have been paid in the country of the employer.
In case you want the regular rules to continue to apply (social insurance in the country of residence if more than 25% working from home), you do not have to opt in to this new agreement, however it remains important to apply for an A1-certificate. This also applies for postings. After all, an A1-certificate is proof that your employee is/remains socially insured in a specific country and that there is no obligation to pay social security contributions in the other (work) country.
If you have employees who are (partially) allowed to work from home, you should not only pay attention to the social security consequences. Another point of attention concern your employee’s tax liability and the consequences for you as an employer, for which different rules apply. An example of this is given below.
A cross-border teleworker who works from home may constitute a permanent establishment or permanent representative of their (foreign) employer. If there is a permanent establishment or permanent representative, this could result in – from a corporate income tax perspective – registration, tax liability and filing obligations for the employer in the country of residence of the employee.
It must be assessed on a case-by-case basis whether working from home results in a risk of having a permanent establishment or permanent representative in the employee’s country of residence, whereby the following aspects may be important:
- The type of activities of the employee and the business model of the employer;
- Do these activities require office space or not;
- Does the employer make an office available in the Netherlands for frontier workers;
- Does the employer reimburse the employee for working from home;
- Is working from home something the employee wishes to do or does the employer require the employee to do so;
- When working from home, is the employee involved with concluding and negotiating contracts;
- Is the employee a statutory director or manager of the company?
It is therefore important in cross-border working from home situations to be aware of the risk that this may constitute a permanent establishment or permanent representative and as far as possible to take this into account when defining your working from home policy.
When employees start to work from home on a more permanent basis in a cross-border situation it is also important to assess whether there are points that need to be considered in respect of the applicable labor law. The implications and/or obligations arising from the labor law of the country of employment or country of residence may vary greatly for both the employee and the employer.
In EU cross-border situations it is therefore important to determine which labor law applies, so that the implications and any obligations are clear for the employee and the employer. The main rule is that the labor law of the country governing the employment contract applies. However, if no choice of law was made, the employee’s usual place of work may then play a role. Depending on the facts and circumstances (including degree of working from home), it may be that the employee’s usual place of work is their country of residence.
Considerable importance is also given to protecting the employee. For example, the choice of governing law must not result in the employee losing their employment protection. This means that despite the fact that the labor law of the country of employment was explicitly chosen to govern the employment contract, the mandatory provisions of the labor law of the employee’s country of residence may nevertheless apply in certain circumstances. It is therefore important to also analyze the labor law implications on a case-by-case basis.
We are happy to think along when implementing or updating your working from home policy or answer any questions you have in this regard.