At the outset of the relationship one of the biggest challenges our clients are facing is how to ensure that social security obligations in both countries are being met. By allowing employees to work in other EU member states, UK employers may increase their compliance burden, particularly as social security triggers differ on a case by case basis so any changes (such as changes to working pattern or location) should be identified and assessed on an ongoing basis.
At the moment, if an employee is working more than 25% of their time in the member state where they live, they will be subject to social security contributions in that state. Employer contributions follow those of the employee and so a UK based employer may have to pay social security contributions outside the UK, if the employee spends more than 25% of their time working from another EU member state in which they habitually reside. The rules that apply up to the end of the transition period mean that an employee can receive an A1 certificate to avoid double contributions (for both the employee and employer), i.e. to avoid paying UK NICs and social security in the other EU member state.
After the transition period ends, the rules for employees working in multiple states will revert to the bilateral social security agreements that the UK has with individual member states, if any. These agreements were typically put in place at a time when employees did not work in multiple countries at the same time and so usually do not have specific provisions for multi-state workers. In addition, social security agreements are not as common as double tax treaties and the UK has agreements with fewer than half of the EEA member states. Where there is no bilateral agreement or the bilateral agreement does not cover an employee’s particular circumstances, the domestic rules apply. This means that employees (and employers) could face double contributions.
Other obligations may also be triggered as a result of this new way of working, including potential obligations to notify relevant government bodies in the member state in which the employee is working that the employee has changed their work location and difficulties in ensuring adequate benefit coverage. Whilst employers may be familiar with some of these obligations when placing employees on overseas assignments, we are finding that sometimes these considerations “slip through the net” when you have an employee working from home in another country on a more informal basis; particularly if that employee may not even appreciate that they should be notifying their employer if they anticipate that the location of their home office will change.
There may also be issues when terminating these relationships. For example, whilst an individual might be employed by a UK employer and employed under an English law contract, they may nevertheless accrue employment rights in the country in which they live, and they may have the right to sue their UK employer in that country. This can cause significant logistical problems when trying to dismiss an employee as employers will effectively have to consider the rights the employee may have in both the jurisdiction in which they live and the UK and adjust their usual processes accordingly.
It is therefore important for employers to take advice first before agreeing to these types of arrangements, and making employees aware that they need to request a change in physical location from their employer in advance (even where they already work from home), so that they have full visibility over the issues that may need to be addressed over the course of the employment relationship.
We have produced this guide on the key factors to consider when dealing with employee requests to work overseas temporarily.