The new regulation on remote work abroad provides employees with more security in terms of social insurance
As of July 1, 2023, a new international agreement has come into effect regarding working from home in foreign countries. Specifically, it addresses the issue of cross-border telecommuting under the provisions outlined in Article 16(1) of Regulation (EC) 883/04.
Here's some context: During the COVID-19 pandemic, European Union countries, with a focus on Germany, were keen to minimize the social security implications of working from a foreign home office due to border closures. This was done even when a legal framework was not in place. These special provisions were valid only until June 30, 2023.
Even beyond the pandemic, remote work, hybrid work, and working from home in foreign countries continue to be popular options. However, in cases involving multiple countries, there is a risk of unintentionally triggering social security obligations in the country where the employee resides.
New Multilateral Framework Agreement
To preserve the mobility of workers and streamline administrative processes for businesses, it became necessary to adapt the conflict rules outlined in EU Regulations on social security No. 883/2004 and 987/2009 to the evolving world of work.
This agreement serves as a short-term solution for shaping the provisions immediately following the conclusion of the transitional phase that follows the pandemic-related special regulations, set to expire on June 30, 2023. Under this pandemic special regulation, an increased level of activity in one's country of residence does not result in a change of social security regulations.
Exception to the 25 per cent rule
The recent multilateral framework agreement introduced by the European Commission on July 1st can be considered an exception to the 25 percent rule. Previously, an employee could only stay within their home country's social security system while working remotely abroad if their work in the country of residence didn't account for less than 25 percent of their total weekly working hours.
Under the new regulation, remote work (including both home office and mobile work) in the country of residence can now range from 25 percent to less than 50 percent of the total working time for the employee to continue being subject to the German social security system.
To illustrate, let's take the example of a software developer employed in Germany who resides in the Czech Republic. They can now allocate up to 40 percent of their working hours to the Czech Republic and still remain under German social security regulations. However, it's important to note that the application of this framework agreement can be requested for a maximum of two years and must be renewed thereafter.
Additional Conditions for the New Regulation:
- The work must be carried out for an employer located in the same country where their business headquarters are situated.
- The home office or remote work activity must take place in the employee's country of residence.
- No third country should be involved in the arrangement.
Currently, the following countries have ratified this framework agreement:
Germany, Switzerland, Liechtenstein, Croatia, Czech Republic, Austria, Netherlands, Slovakia, Belgium, Luxembourg, Malta, Norway, Poland, Portugal, Spain, Sweden.
Disadvantages for Employees in the Remaining EU States and for Self-Employed Individuals
As long as the other EU member states have not ratified the framework agreement, some employees may face disadvantages. Additionally, the scope of the multilateral framework agreement is tailored to the significant group of "traditional" cross-border commuters who typically worked in their employer's office in another country before the expansion of teleworking. The agreement was designed to be as straightforward as possible to encourage many member states to sign it. Therefore, it does not apply to individuals who usually engage in activities other than cross-border telework in their country of residence and/or who typically work outside of their country of residence or the country where the employer is based (e.g., in a branch in another country).
Furthermore, it does not cover self-employed individuals. Civil servants or employees of public employers based in Germany are also not covered by the multilateral framework agreement.
If the conditions of the framework agreement are not met, the application is treated as a regular request for an exceptional agreement. This decision is discretionary and depends on the examination and evaluation of both involved member states. The signatory states have committed not to reject requests for cross-border telework solely based on the anticipated unlimited duration of telework, for cases not covered by this framework agreement.
Important Note: This framework agreement exclusively pertains to the field of social security and does not address tax law issues!