Navigating the Landscape of Cross-Border Remote Work: Social Security Cost Implications and Compliance
October 10, 2024
By: Wim Cocquyt, Harry Goldstraw, Marina Ocariz, Amelia Haynes
Living in one country while working for an employer in another country is not a new phenomenon, but, until recently, legitimate paths for doing so were limited, expensive and often bureaucratic.
Consequently, many people chose to label themselves as “tourists” or “business visitors” whilst working remotely, risking fines or other penalties for illegal working or even deportation if caught.
However, with more and more people being able to work remotely, it is increasingly common for individuals to work whilst on holiday or take extended trips overseas whilst working for their employer in their home country. Whilst some countries may have relaxed immigration requirements regarding short (or longer)-term remote working, in this new and evolving landscape, adherence to social security regulations has become more crucial than ever.
Several European Economic Area (EEA) countries, including all Mediterranean European Union (EU) countries, as well as the Czech Republic, Hungary, Romania, Estonia and Iceland, have introduced Digital Nomad Visas or Remote Worker Visas.
These countries recognise the potential benefits of attracting remote workers and are leveraging their visa programmes to enhance their economic and social ecosystems, adapting to changing work trends and positioning themselves as attractive destinations for global talent. But what are the social security implications of these developments?
Social security implications
As a rule, social security obligations are linked to the employee’s physical workplace: “you pay where you work.” Consequently, remote work in a third country can, in principle, significantly impact the social security profile of both the employer and the employee, potentially leading to double social security liabilities or loss of accrued benefits.
As remote work programs proliferate, understanding the cost implications of adhering to social security regulations across different jurisdictions becomes crucial for both employers and employees.
In this context, remote workers may seek to utilise a social security certificate of coverage where social security agreements exist (such as the A1 certificate in Europe), to allow individuals temporarily working in a foreign country to remain covered by their home country's social security system and be partially or fully exempt from payments in the country in which they are physically working.
In instances where a certificate is not possible, certain countries have specific domestic provisions for individuals who are only working temporarily in the country that may exempt individuals from social security contributions.
The European Framework Agreement for teleworkers
The multi-lateral European Framework Agreement on social security for cross-border remote workers aims to address the unique challenges encountered by individuals who work remotely across Europe.
Since July 2023, the European countries that have signed up to this agreement allow employees who are resident and partially work in one Member State, but are employed in another Member State, to request they remain affiliated to the social security system of the country of their employer rather than that of their country of residence, provided that at least 25%, but less than 50% of their working time is spent in their country of residence.
If 50% or more of their working time is spent in their country of residence, then the employees must be affiliated with the social security system of their country of residence.
The number of requests received by the 22 signatory European countries currently applying the Framework Agreement have been rather low compared to the number of cross-border or frontier workers present in Europe. For example, in Belgium the competent authorities have so far received only approximately 1,000 requests, which is far below the cross-border remote workers that potentially could benefit from the rules of the Framework Agreement.
The social security authorities believe that the main reasons behind the low number of A1 applications for remote workers are the tax implications, the reduced risk of inspections taking place in private homes and the passive action from employers and employees.
Beginning in July of 2024, it became only possible to apply for a retrospective A1 certificate for remote working under the Framework Agreement no further than three months prior to the date of application. The work periods before will not be covered by the Framework Agreement and therefore will be subject to the normal designation rules for the applicable social security legislation, which may bring with a serious risk for an unexpected (high) social security liability in the country of residency of the employee.
Looking forward
Remote work can lower costs for companies by reducing expenses related to physical offices.
However, companies must bear in mind that it can also lead to increased social security costs if they haven't considered the social security implications of remote work. This is especially important if their employees do not have the proper A1 certificate in place when audited by authorities, or, for example, when issues come up in the relationship between employer and employee.
Therefore, it is important for companies to carefully manage the social security cost implications for their cross-border remote workforce.
Additionally, companies may need to invest in technology infrastructure and resources to effectively support remote work. Therefore, while the digital nomad visas offer genuine benefits such as travelling and working legally around the world, careful consideration and strategic planning are essential to maximise advantages while mitigating potential social security costs for both employers and employees.
How can Fragomen help?
The Fragomen Social Security team is well prepared to guide clients to optimise their social security programs and be compliant while allowing the presence of remote workers from an immigration perspective. This strategic approach will help you plan and ensure social security compliance for your cross-border workforce at the outset.
Need to know more?
For assistance, please contact Fragomen Consulting Europe at [email protected] or [email protected].
This blog was published on 10 October 2024 and due to the circumstances, there are frequent changes. To keep up to date with all the latest updates on global immigration, please subscribe to our alerts and follow us on LinkedIn, X, Facebook and Instagram.