How does telework affect what employers in the EU need to take into account when they employ frontier workers?
The COVID-19 crisis provided the world of work with a lot of new challenges. As the post-COVID era is hopefully near, employers will need to anticipate new challenges ahead. One challenge that employers will probably be confronted with is the impact of more telework on the employment of their frontier workers. This can have important consequences for applicable employment law, social security and tax. Because of this, we recommend organisations to update or implement collective agreements, individual agreements and/or telework policies to take into account any rules or limits that apply for frontier workers.
This article examines the law on telework and frontier work in the EU generally, and sets out in detail the position for frontier teleworkers who work in France and live in Belgium and vice versa.
What employment law applies?
Within the EU, the Rome I Regulation applies. This states that an employment agreement is governed by the law chosen by the parties (the subjectively applicable law). As a result, employers are advised to state the applicable law clearly in (an annex to) the employment agreement.
This freedom is limited where there are more favourable mandatory provisions (for the employee) in the law of the country where the employee habitually works; or the country with which there is a ‘manifestly closer connection’ (the objectively applicable law).
For frontier workers, more telework can have a significant impact on what employment law applies, as the country of habitual employment might change. Furthermore, according to the Schlecker case law of the European Court of Justice, the concept of ‘manifestly closer connection’ takes into account the applicable social security and tax, which might switch (partially for tax) to the country of residence once the frontier worker starts working more from home.
This may mean the subjectively applicable law chosen in the employment agreement and the objectively applicable law are not the same. In that case, the employee can ‘cherry pick’ the most favourable provisions of each legal system.
In addition, there may be local overriding mandatory provisions of the country where the employee is teleworking that will apply.
Within the EU, Regulation 883/2004 applies. The starting point is that the employee is only subject to the social security of a single member state (the work state). One exception to this principle is ‘simultaneous employment’ in two or more member states, which would be the case if a frontier worker works both from home in in one member state and at their employer’s premises in another.
For simultaneous employment, the employee will be subject to the social security of his or her residence state if s/he works there for at least 25% of working time. If the employee works less than 25% in his or her state of residence, s/he will be subject to the social security of the member state where the employer’s registered office is situated.
The impact of this rule for frontier workers is that as soon as the frontier worker works for more than 25% of total working time at home, their social security regime will switch to their state of residence.
An A1 form from the employee’s residence state will be needed to show which social security regime applies.
Employers need to check if there is a risk a ‘permanent establishment’ would be created by employees teleworking.
If a permanent establishment is created, all profits attributable to it are subject to corporate income tax in that country. It is therefore vital to check checked whether frontier workers teleworking might result in the creation of a permanent establishment.
Telework from home can also have an impact on frontier workers’ income tax.
If an employee works in more than one country the following steps must be followed to determine in which country the employee in question will be taxed:
- Determine the employee’s tax residence.
- Determine the nature of the income: income from employment is in principle taxable in the state of employment (where the employee physically works). If the employer is situated in the work state, income tax will be applied in the work state regardless of whether the employee is present more or fewer than 183 days in that state.
The principle is that, as soon as a frontier worker works a single day in his or her state of residence, s/he will also be taxed there. It will therefore be important to record which days an employee is physically working in which country (‘tracking’).
If an employee has a foreign tax liability, the employer may have extra obligations relating to this (withholding social security contributions and taxes, registration, etc.).
Employers are recommended to consider these rules and remarks when updating or implementing collective agreements, individual agreements or telework policies. Changes in applicable employment law, social security and/or tax of frontier workers can have several consequences and result in additional obligations for employers.
Telework and frontier workers between France and Belgium
Check how the rules on frontier workers apply between France and Belgium, and what has changed with the COVID crisis and increased telework.