Employers should consider a variety of issues, including tax, immigration and employment implications, before agreeing to an employee’s request to work from home when “home” is not in their country of residence. The social security protection rules take an important place in this consideration. Social security position is complex and depends on what agreements are in place. The general rule is that employee and employer social security obligations arise in the country in which the employee is physically carrying out their duties. However, there are exceptions with the European Union (EU) being the most notable of all.
Case study #1: European Union
Expatriates or on assignment
In the European Union, employees working abroad may have one of the following statuses: expatriates or on assignment.
As expatriates, employees who perform salaried work in an EU state are subject to the social security legislation of that state (article 11 of Regulation (EC) 883/2004 of 29 April 2004). In other words, in application of the principle of territoriality, they are affiliated to the social security system of their host country. As an exception to this principle of territoriality, employees can continue to be temporarily covered by the social security of their country of origin if they are on assignment abroad (article 12 of Regulation (EC) 883/2004 of 29 April 2004).
Another situation exists as well: “multiple activity”. An employee who works in several member states of the EU, the European Economic Area (EEA), or Switzerland is therefore “multi-active”. The employee may also have one or more employers and work simultaneously or alternately in several states.
With regard to social security, European regulations provide for the principle of uniqueness of the applicable social security legislation: the employee will be considered as carrying out all the activity within a single Member State and will therefore be affiliated to the social security of a single State. It is up to the institution of the employee’s state of residence to determine the social security legislation applicable to the employee (article 13 of Regulation (EC) 883/2004 of 29 April 2004), in accordance with the rules below:
- The employee performs a substantial part of his/her activity in the Member State of residence and is therefore subject to the legislation of that Member State. The part of activity is considered as “substantial” when the duration and/or remuneration is greater than 25% of the total activity.
- The employee does not exercise a substantial part of his/her activity in the Member State of residence, and is therefore subject to:
- the legislation of the State where the company’s head office is located if s/he has only one employer or several employers in the same State,
- the legislation of the Member State other than the Member State of residence, in which the company has its registered office, if employed by two or more companies which have their registered office in two Member States, one of which is the Member State of residence,
- the legislation of the Member State of residence if that person is employed by two or more companies, at least two of which have their registered office in different Member States other than the Member State of residence.
In the context of the current health crisis, European coordination has been put in place because of the unique circumstances to allow employees to remain affiliated to the social security scheme which is currently applicable to them without any formality required.
Case study #2: France
Let’s take the example of an employee insured under the French social security system, teleworking one day per week in Germany (i.e. 20% of the working time, and 80% in France). This employee is considered as performing a substantial part of his/her activity in France, and therefore continues to benefit from the French social security scheme and from the additional schemes in force in the company. In the event of urgent and unexpected care required while staying in Germany, the employee may benefit from cover there by providing their European health insurance card (EHIC).
It is important to note that this cover is provided according to the legislation and conditions in force in the country of stay as if the employee belonged to the scheme of that country. If the employee wishes to receive cash benefits, i.e. daily allowances to compensate for the loss of income caused by sick leave, a doctor’s certificate must be sent to French Social Security within 48 hours. The certificate must be issued by an attending physician in the country of stay (Article 27 of Regulation (EC) 987/2009). A copy should also be sent to the employer.
The employees of our clients who usually work in France and are authorised to telework a few days per week in a member state of the EU, EEA or Switzerland will remain affiliated with the French social security system. However, the change of workplace necessarily has repercussions on the applicable social security scheme.
- A derogation had been put in place in September 2020 between France on the one hand and Germany, Luxembourg, Belgium and Switzerland on the other hand. Until December 31, 2020, teleworking in one of these countries had no impact on employees’ social security coverage, as these countries have mutually agreed not to take into account the period of teleworking related to the health crisis for social security coverage. This exemption has been extended until June 30, 2021 and will apply to four other countries: Austria, Portugal, Italy and Spain. (This information comes from the Cleiss, we are still waiting for an official communication from the Direction de la Sécurité Sociale in order to confirm this point.)
- For countries that are not members of the EU or the EEA, it will be necessary to carry out a case-by-case analysis depending on whether or not there is a bilateral agreement between the EU or the EEA and the said country.
- France has signed bilateral social security agreements with 38 non-EU or non-EEA countries, including for example Cameroon, Chile, Japan and others.
Case study #3: United Kingdom
According to the UK regulations, if an employee is working outside the UK for less than 183 days, this should not affect their tax residency and social security obligations. Meaning that the UK employer should continue to deduct employee’s National Insurance Contributions (NICs) and account for employer’s NICs.
If the employee is working in another EEA country or in Switzerland, the UK employer should also apply for an A1 certificate from HM Revenue & Customs to allow NICs to continue to be paid in the UK and exempt the employee from local social security liabilities. As with other EU states, a UK employee on assignment continues to be covered by the social security of their country of origin, provided that the anticipated duration of such work does not exceed 24 months (article 13 of the Regulation (EC) 883/2004 of 29 April 2004).
As of 1 January 2021 and following Brexit, all existing assignments and A1 certificates which have an expiry date after 31 December 2020 will be honored, provided the situation remains unchanged. The position for new arrangements remains to be seen and will depend on whether there is a trade agreement between the UK and EU which replicates any of these features.
Outside the EEA and Switzerland, the position will depend on whether there is a reciprocal agreement between the host country and the UK.
- In countries where there is a reciprocal agreement, such as the USA, Korea and Japan, it is possible for an employee to remain within the UK system (and not pay local social security contributions) for up to five years if they have a valid certificate of coverage.
- In other countries where no agreement exists, such as China, India and Australia, the UK employer must continue to deduct employee UK NICs and pay employer NICs for the first 52 weeks of the arrangement. Further, there may also be a liability to pay social security contributions in the host country in addition to any contributions that are made in the UK.
The UK has one of the largest collections of double tax treaties, having entered into agreements with over 130 countries.
Case study #4: Singapore, Asia
In Singapore, the equivalent of social security scheme is the Central Provident Fund (CPF) for all Singaporeans and Permanent Residents employed in Singapore. The Central Provident Fund Act (Chapter 36, revised edition 2013) stipulates that every employer of an employee shall pay to the Fund monthly in respect of each employee contributions at the appropriate rates. As such, if a company allows its employees to work from another country temporarily the payment of the CPF contributions and the respective employment laws of Singapore would still apply.
In Asia, there is no common structure of governance as in the case of the EU. Thus, applicable social security laws would differ from country to country depending on various factors such as the established contribution rate, its necessity criteria, the possible applicability of double taxation. More precisely, each country determines its own number of days resided in the country before an employee must pay the social security tax in the country of work.
Thus, companies must assess local requirements before allowing an employee to work remotely. The idea is to ensure that they adhere to regulations regarding social security payments and social insurance coverage, and prevent running afoul of the law or the possible need for double payments depending on the situation, countries involved and the duration of the mission. Feel free to contact us should you wish to have more information !
1.Henner Legal Business Partners
4.Regulation (EC) No 883/2004 of the European Parliament and of the Council of 29 April 2004 on the coordination of social security systems
5.The UK government website https://www.gov.uk/tax-foreign-income/residence
6.Singapore Statutes Online, Employment Act (Chapter 91), revised edition 2009 https://sso.agc.gov.sg/Act/EmA1968
7.Singapore Statutes Online, Central Provident Fund Act (Chapter 36), revised edition 2013 https://sso.agc.gov.sg/Act/CPFA1953#pr7-