During the COVID pandemic, most employees worked from home. Due to its many advantages, like less commuting time, a lot of employees still work a portion of their hours at home.
However, when an employee works from a different country from the one their employer is based in, the employee may be covered by the social security of the country in which they are residing. This results in an administrative burden and extra costs for the employer.
Current EU rules on social security determination
EU-regulation 883/2004 determines which country an employee is covered by for their social security. An employee can only be covered by the social security system of one country exclusively.
When an employee works in more than one country, including a substantial part (at least 25%) in their country of residence, they are covered by the social security system of their country of residence.
Before COVID, most employees worked exclusively in the country where their employer was established. They went to the office of the employer and performed their duties in that office.
Employees shift to working from home
Since the pandemic, however, a lot of employees have started working from home for part or all of their hours. However, as explained above, the employee is covered by the social security system of their home country so long as they do at least 25% of their employment activity in their home country.
When the employee is covered by the social security system of their home country, the employer may also have obligations in that country, like registration and setting up a payroll in order to pay social security contributions in the employee's country of residence. This is a reason why employers are not that enthusiastic about working from home, in case the employee lives in another country.
During the pandemic, EU countries wanted to avoid any changes from a social security position for employees who were obliged to work from home due to restrictions. Therefore, it was agreed that the days upon which employees worked from home during the pandemic would not be taken into account when it came to determining their social security position.
These work days will continue to be ignored in regards to the social security position of the employee until July 1, 2023. Afterwards, new rules regarding social security determination in the EU will be put into place.
The new social security rules
A conceptual Framework Agreement is being drafted in Europe. The agreement is due to come into effect on July 1, 2023. Under the agreement, an employee will remain covered by the social security system of the country in which their employer is based, as long as the employee does not work more than 50% of their working time from their home country.
If an employee spends half of their time working from the employer’s country and the other half in their home country, then they would be covered by the social security system of the country where their employer is based.
If the employee works more than 50% of their time in their home country, then they will be exclusively covered by the social security system of that country, not the employer’s country.
In order to make use of the Framework Agreement, it is necessary that the country where the employee lives and the country where the employer is established have signed this agreement. If both countries have signed it, then an application for an A1 certificate can be filed in the employer’s country.
Example: German resident working for a Dutch-based company
This makes more sense if we put it into an example. Let's say an employee lives in Germany but is employed by a Dutch B.V. with an employment agreement for four days per week. Before COVID, the employee worked 100% of her time in the Netherlands and was covered by the Dutch social security system. During COVID, however, the employee had to work from home.
After the pandemic, the employee would like to work two days a week from her home in Germany and the other two days at her employer’s office in the Netherlands. The employer allows the employee to work from home.
The employee will thus remain covered by the Dutch social security system, based on the fact that she will not work more than 50% of her time in her home country. However, this only applies if the Netherlands and Germany have both signed the EU's Framework Agreement. Consequently, an application for the A1 certificate should be filed with the Dutch authorities.
Still have questions about your or your employee’s social security position? Then don't hesitate to
contact BDO! Their professional team is on hand to answer any questions you might have regarding social security in international situations.