Introduction
Modern information and communication technology mean that some employees can now work remotely from any location as effectively as they do from their employer's office. As a result, employees are increasingly requesting remote working for some, or indeed all, of their working hours.
Tele-working
'Tele-working' is the use of information technology as part of an employment contract in order to enable an employee to regularly, and not just on an ad hoc basis, work remotely from home or any other location to carry out duties that would usually be done at the employee's office or place of work.
It is increasingly common for employees to live in a different European Member State from that in which they work. This can give rise to complex cross-border issues. Employers should take care when allowing employees to tele-work as it may have serious consequences in terms of which Member State's social security and employment law will apply, as well as raising a number of tax issues.
Working in two or more Member States for a single employer - social security
EU Member States have to apply EU Regulations coordinating the social security schemes mobile workers are subject too. These Regulations determine the applicable social security legislation in the case of cross-border employment. According to these Regulations, an employee who works in one Member state, shall be subject to the social security legislation of that Member State (Article 11, (3), (a) of Regulation 883/2004).
However, if an employee lives in a different Member State to that of where his/her employer is based and normally works for this employer, either simultaneously or in alteration, in the employer's Member State and also in at least one other Member State (whether this is the employee's home state or a further Member State), he/she will be treated as working in the territory of two or more Member States (Article 13, (1) of Regulation 883/2004; Article 14 (5) of Regulation 987/2009).
We consider below the legal implications of a salaried employee working in two or more Member States for a single employer.
Marginal activity
If only a small proportion of an employee's work is done outside the territory of his/her usual working Member State, then this may constitute a 'marginal activity' and the specific choice of law rules under the European social security regulations concerning working in several member states are not applied (Article 14, (5), (b), Regulation 987/2009).
'Marginal activity' is defined as permanent work where the time taken to do it and the economic return on it are negligible. As an indication, this means work that takes up less than 5% of the employee's normal working time and/or represents less than 5% of his/her total pay. Consequently, just a single day's tele-working each month would result in this threshold being exceeded.
If only marginal activities are carried out in a different Member State to that in which the employee carries out his/her main work, the employee is regarded under the Regulations as someone that works exclusively in one Member State and will consequently only be subject to the social security law of the Member State in which he/she performs the majority (over 95%) of his/her work. The marginal activities in the other Member State will also be subject to this social security law.
Please note the result might be different in cases where the employee is linked with two employers established in different countries.
Substantial tele-working
If the employer's registered office or place of business is different to the place where the employee lives and the employee's (home) tele-working constitutes a 'substantial' portion of his/her work activities, the tele-worker will be subject to the social security law of the Member State in which he/she is a resident, not that of the Member State where the registered office or place of business is located (Article 13, (1), (a), Regulation 883/2004).
Tele-working is 'substantial' where it constitutes 25% or more of the employee's normal working time and/or represents 25% or more of the employee's total pay (Article 14, (8), Regulation 987/2009). This means that where an employee works from home for more than five days each month, assuming that he/she is paid proportionally for those days, the social security law of his/her resident Member State will apply.
It is important for employers to be aware that should they decide to allow an employee to work from home for more than 25% of the time, the social security law applying to the employee may change if that employee's residence is different from his/her employer's place of business or registered office. In such a situation the employee will no longer be subject to the social security law of the state in which he/she carries out his/her work but solely to the law of the Member State of his/her residence.
The following example illustrates the above:
In the case of an employee who works from home in his/her resident Member State one day a week but who is employed on a full-time basis by an employer in another Member State, his/her tele-working is neither substantial (less than 25%) nor marginal (more than 5%).
In such a case, the specific rules of the Regulation for working in two or more Member States will apply. According to these rules, the employee would normally be subject to the social security law of the Member State in which he resides (Article 13, (1), (a) Regulation 883/2004). However, since he/she does not pursue substantial activities on that Member State's territory, the employee will be subject to the social security legislation of the place where the registered office or place of business of his/her employer is situated (Article 13, (1), (b), (i) Regulation 883/2004).
Cross-border tele-working for a non-EU employer
Article 14 (11) of Regulation 987/2009 stipulates that "if a person pursues his activity as an employed person in two or more Member States on behalf of an employer established outside the territory of the Union, and if this person resides in a Member State without pursuing substantial activity there, he shall be subject to the legislation of the Member State of residence."
This means that an employee who resides in a Member State and works across two Member States for an employer who is based outside the European Union shall be subject to the social security legislation of the Member State of his/her residence. This is the case even if the employee's activity in his/her state of residence is not substantial.
Social security considerations
Employers must be conscious to this issue. If an employer permits its employees to spend 25% or more of their time working from home, social security contributions will be due in the employee's home Member State, and not in the Member State whether the employer is based. If they are not paid when they are due, the employer may be liable to fines, interest and penalty increases.
There are also clearly far-reaching practical consequences for employees if their social security scheme changes to this extent.
Employment law
In principle the employee will be subject to the employment law of the Member State in which the employer is established. However some mandatory employment law provisions of the employee's home residence State may apply.
The effect of this is that if an employee works habitually in one Member State and tele-works at home in another Member State, an employer will in principle still be obliged to comply with a number of mandatory legal provisions of the State in which the employee tele-works.
Immigration law
Employers should also consider whether employees (if they are not EU-citizens) need a work permit in order to be able to tele-work in a particular Member State.
Tax implications: a permanent establishment?
It is possible that an employee who works from home in a different Member State to that of the employer and who has authority to legally bind the employer could be judged as holding a "permanent establishment" in the Member State in which he/she resides. If so, both the employee (for his/her salary) and the employer will be liable to pay tax in that country.
Moreover, tele-working across borders could also have an effect on the personal income tax of the employee giving rise to a tax liability in a country in which they do not reside or in which they would not have considered themselves to be a tax domicile.
Conclusion
Permitting cross-border tele-working can have wide-ranging consequences for both employees and employers. Employers should always investigate the implications of tele-working and consider carefully whether this option really is favourable for both parties.
