Framework agreement on social security for telework from another state

Summary

The framework agreement regarding telework from another state within the EU/EEA/Switzerland came into effect on July 1, 2023. This agreement concerns employees in a cross-border situation who frequently work remotely from the country where they reside for an employer in another country. According to the new agreement, they can remain socially insured in the country where their employer is established if they work less than 50% of their time in the country of residence and the majority of their time in the employer's country. This allows the employee to increase their time spent in the country of residence without creating obligations for the foreign employer to pay social security contributions in the employee's country of residence. This is a positive measure, but it is only applicable in specific situations and requires specific conditions to be met.

There will be new requirements for employers regarding obtaining A1 certificates. This change ends the exceptions applied during the COVID-19 pandemic and may lead to a change in the country where social security contributions are paid based on the work habits of the employees.

Employers should identify potential risks and review the social security situations of their employees who work remotely from another country.

Background

During the COVID-19 pandemic, many employees were forced to work from home. In cross-border situations, remote work led to the risk of creating obligations for social security in the country of residence. According to the usual EU social security rules, for employees in cross-border situations, the social security legislation of the country of residence applies when a significant part of the work is performed in that country, specifically 25% or more of the total working time and/or received remuneration.

During the pandemic, some member states applied temporary exceptions to ensure that increased remote work did not lead to the application of the social security system of the country of residence. Nevertheless, after the pandemic, hybrid work remained popular even in such cross-border situations. Since the fundamental rules in the EU often require employers to register as insurers in countries where they are not established but where their employees work remotely, employers were uncertain about whether to allow remote work from another country. The temporary exceptions had limited applicability, extended several times until June 30, 2023. During this time, an Administrative Commission was established, with the aim of creating a more structured solution for cross-border remote work.

The New Multilateral Framework Agreement

The multilateral framework agreement (MFA) includes the right to choose to be socially insured in the country of the employer and applies to employees who work more than 25% of their working time in their country of residence but less than 50% of the total working time. In such cases, employers and employees can agree to apply the MFA and apply for an A1 certificate, which will be valid for up to three years (with exceptions for certain countries) and can be extended.

Important conditions:

• The Multilateral Framework Agreement (MFA) applies to employees in a cross-border situation – those who are employed by an employer located in one European state while living and working in another European state. Both states must have signed the MFA (see the list of states below).
• The employee must remain connected to the employer's working environment through a digital link (IT connection) during the performance of their work. Important note: The MFA is not limited to telework from home only. The work can be performed anywhere in the country of residence as long as a digital connection is used.
• The MFA seems to allow limited work activities in other countries, not being the country of residence or employer. Occasional business meetings or client visits to third countries should not preclude the application of the MFA. Further guidance is to be expected.
• The employee should work less than 50% of the time in the country of residence and spend the majority of their working time in the country where their employer is established.
• The MFA is optional: those who want to make use of it should apply for an A1 on the basis of article 16 of Regulation 883/2004. This A1 serves as proof that the social security legislation of the employer state is applicable. The A1 application must be made in consent between the employer and the employee. In the absence of an A1 the regular rules apply (i.e. the 25% threshold).
• The employee must have paid social security contributions in the country of the employer during the relevant period.
• Applications filed before 1 July 2024 can have retroactive effect until 1 July 2023, or the date of signature if the country signs at a later date. After this ’grace period’, an application can only have a retroactive effect for up to 3 months.
• For all situations that do not fall under the MFA, the usual rules apply (i.e. the threshold of 25%) or an ordinary agreement under Article 16 can be requested. Since Bulgaria has not yet signed the MFA, in cross-border situations involving Bulgaria, the usual rules should apply unless the employer and the employee request a mutual agreement under art.16. EY Bulgaria is monitoring the developments on the topic and the possible accession of Bulgaria to the MFA.

MFA does not apply to temporary telework, such as work from abroad during vacation. For such occasional work scenarios, the EU is working on guidelines, which are expected to be published separately.

List of signatory states and entry into force:

Belgium, as the depositary state for the agreement, maintains a list of the countries that have signed the MFA, which can be found here: https://socialsecurity.belgium.be/en/internationally-active/cross-border-telework-eu-eea-and-switzerland

Implications and actions for employers:

Employers must identify the facts and circumstances surrounding individuals who telework from their country of residence to determine if they meet the specific conditions of the MFA and if the MFA is applicable to their particular situation.

Decisions should be made in the context of all risks and internal policies related to cross-border remote work - risks of permanent establishment, personal income tax, and employment law aspects.