The COVID-19 pandemic accelerated the expansion and popularity of remote working, including cross-border teleworking. In response, social security leniency (the no-impact position) was introduced at EU-level during the pandemic, broadly to ensure that changes in working patterns resulting from COVID-19, such as increased working time spent in the country of residence where this is not the usual country of employment, would not affect the applicable social security legislation. After several extensions, this measure is expected to end on 30 June 2023.

In the aftermath of the pandemic, however, teleworking is clearly here to stay, creating a need amongst both businesses and employees for a more flexible arrangement at European level. In this regard, an “ad hoc” group, composed of 42 experts from 20 jurisdictions (primarily EU member states but including Liechtenstein, Switzerland, and the United Kingdom) was established within the Administrative Commission in September 2022 to develop a more pragmatic approach to cross-border teleworking. The group has now reached agreement on a way of working for the future and this article provides an overview of the content of the agreement.

The group initially defined cross-border teleworking as work performed independent of location, within a member state other than that of the registered seat of the employer, and that is usually performed via an IT connection.

Following article 16 of Regulation (EC) No. 883/2004 on the coordination of social security systems, based on which competent authorities may provide for exceptions by common agreement in the interest of certain persons or categories of person, the ad hoc group has drafted a framework agreement which member states may choose to sign once approved by the Administrative Commission.

The pragmatic approach in the draft framework agreement provides that the social security legislation of the member state of the registered seat of the employer would continue to apply (provided an article 16 agreement is explicitly requested to that effect) to employees:

1. With only one employer (or multiple employers with a registered seat in the same member state);
   
2. Who work exclusively within the member state of the registered seat of the employer and, via teleworking, in their residence state; and
3. Where both conditions (i) and (ii) are fulfilled, for whom teleworking comprises less than 50% of the total working time.
   

The draft agreement therefore concerns very specific or limited situations of teleworking and would be applied only by member states who sign the agreement.

If a request for an article 16 agreement is received, the social security authority of the member state in which the employer is established would need to check that all of conditions (i) to (iii) above are satisfied and that both member states have signed the agreement, and if so, provide a form A1 (statement of applicable legislation).  

For all other cross-border remote work situations, the normal coordination rules on either simultaneous employment or secondment would continue to apply, unless there are specific grounds justifying an article 16 deviation in an individual case.

As the no-impact position will in principle not be extended beyond 30 June 2023, employers need to prepare for any possible change in the applicable social security legislation. Potential actions include:

1. Map the current and future working regimes for cross-border teleworkers.
   
2. Perform a multidisciplinary risk analysis, taking account of the specific impact on labour law, social security law, individual income tax, and corporate income tax.
3. Design and decide on a tailor-made business strategy with a realistic timeframe. Check if cross-border teleworkers fulfil the above conditions and, if desired and agreed upon with the employee, apply for an article 16 agreement to avoid a change in the applicable social security scheme once the social security tolerance ends on 30 June 2023.
   
4. If it is decided not to submit a request for an article 16 agreement, potentially resulting in a switch to the social security scheme of the residence state, conduct an impact analysis to assess the implications for net remuneration and social security benefits (e.g., sickness coverage, pension).
5. Implement the required changes (e.g., to payroll procedures, employment contracts, forms A1).

Deloitte will keep you informed on further developments and can assist with requests for article 16 agreements for cross-border teleworkers.