New Guidance on Social Security Treatment for Teleworkers 

A new Framework Agreement on teleworking has been published on the government’s website. It is providing detailed conditions under which a teleworker or a cross-border employee can be covered by the social security system of their employment country, if certain conditions are met. In this article, we will delve into the new Framework Agreement and discuss its conditions and consequences for teleworkers. 

Background  

Within the EU/EEA and Switzerland, the European Regulation 883/2004 on social security determines the applicable country for an individual’s social security coverage. The general rule is that an individual can only be covered in one country, typically the country where the work is performed. However, special rules apply to employees working in two or more Member States. If an employee performs activities both in the country of residence of the employer (the work country) and in the country of residence of the employee (home country), the employee is covered in the country of residence if the employee spends a substantial amount of the time working there. “Substantial part” means the employee works for at least 25% of the total working time in the home country. 

During the Covid-19 pandemic, most EU countries adopted a “non-impact position” regarding social security legislation for employees who were unable to work according to their usual work pattern due to the circumstances. Subsequently, Member States sought possibilities to establish new social security agreements for teleworkers. 

What is teleworking?  

Teleworking generally refers to a work arrangement where employers allow employees to perform their tasks away from a centralized or standard workplace. The new Framework Agreement applies exclusively to employees who perform telework. For the purposes of this Agreement, telework is defined as: 

• Activities that can be performed from a location other than a centralized or standard workplace; 
• Activities that may be performed at the employer’s premises (subject to an arrangement between employer and employee); 
• Activities carried out in a Member State other than the place of business (work country); 
• Activities that rely on information technology to stay connected to the employer or working environment. 

Social security treatment: What’s new?  

The government has recently published a new Framework Agreement, effective from July 1st, 2023, which applies to Member States that have signed the Agreement. Besides the Netherlands, Germany, Switzerland, the Czech Republic, Liechtenstein, and Luxembourg, other countries such as Belgium, Austria, Slovakia, Ireland, Lithuania, Estonia, Norway, Malta, Portugal , and Poland have indicated their intention to sign the Framework Agreement. Nevertheless, the United Kingdom will not be joining in the foreseeable future. 

According to the Framework Agreement, employees can telework in their state of residence (home country) for up to 50% of their total working time without any impact on their social security position. In other words, employees must physically work at least 50% of their total working time in the Member State where their employer is established (work country), in order to remain under coverage in the work country. 

Consequently, if an employee works in their Member State of residence (home country) for more than the threshold number, social security liability will arise in that Member State, unless the Framework Agreement applies. As a starting point, the coordination rules for multistate workers apply. This means: 

• If an employee works less than 25% in their Member State of residence (home country), the Framework Agreement does not apply, and the employee remains subject to the social security system of the Member State where their employer is located (work country). 
• If an employee works between 25% and 50% (less than 50%) in their Member State of residence (home country), the Framework Agreement applies, and the employee remains subject to the social security scheme in their home country, assuming that the work is considered teleworking. 

It’s important to note that both the employer and employee must opt for the deviating rules of the Framework Agreement to be eligible to use it. If they do not opt-in, the regular coordination rules for multistate workers, including the 25% condition, will continue to apply. 

Tax treatment  

The tax treatment of an employee depends on various factors, such as the physical location of work. For most countries, tax treatment is determined by tax treaties. It is important to note that the Framework Agreement does not extend to taxes. Presently, the Dutch government is focusing on two tax measures to facilitate the taxation of cross-border workers who work from home. The Netherlands aims to include a homeworking measure for international workers in bilateral tax treaties. An example of such a potential arrangement is a threshold regulation allowing employees to work from home for a specific number of days without affecting their tax position in their state of residence (home country). Ideally, the social security and tax measures should be aligned to ensure consistency, although this is unlikely as the principles governing the allocation rules for social security and taxes have always differed strongly. 

The Netherlands is currently discussing the possibility of taxation primarily with neighbouring countries, such as Belgium and Germany. Several consultations have taken place, but so far, no agreement has been reached to adjust the tax treaties. 

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