BREXIT – Social Security rules from 2021
The UK-EU Trade and Co-operation Agreement has now been published in full containing the details of the Social Security rules to be applied between the EU states and the UK from 1 January 2021. At the time of writing the House of Commons has overwhelmingly agreed the Bill containing the Brexit deal and it is expected to be passed by the House of Lords, be granted Royal Ascent by the Queen and take effect from 11pm on 31 December. Although the European Parliament will vote on the Brexit Deal in January 2021, ambassadors from all of the 27 EU member states have already unanimously approved it.
Cross-border Social Security from 1 January 2021
This agreement includes the Protocol on Social Security Coordination which is to apply to persons and their families who are, or have been, subject to the legislation of the UK and/or one or more of the EU States.
The agreement largely replicates the current EU social security coordination regulations. Therefore, individuals will be subject to the social security legislation of one country only and the scenario of compulsory payment of social security contributions on earnings in more than one country will not arise. Contributions will generally be payable in the country where activities are undertaken, with special provisions for multi-state and detached workers.
The rules for multi-state workers are to remain broadly the same, retaining the need to determine where someone is habitually resident and where they perform substantive work duties. Multi-state workers will be covered by the legislation of the State of residence if they carry out a substantial part of their activity in that State. If this is not the case, then generally the social security liability will fall under the legislation of the country in which the employer is situated. In the absence of new guidance, we are assuming for the time being that ‘substantial’ means 25% or more of an employee’s work activity.
Therefore, we would expect the vast majority of multi-state worker A1 certificates in existence to continue to be valid and individuals should continue to apply for these as necessary.
The detached worker rules apply to individuals seconded/assigned by an employer to work in the UK or an EU territory. The rules for detached workers are also to remain broadly the same. An employee sent temporarily by their employer to perform work in another state will continue to be subject to the social security legislation of their home country provided that the duration of the posting doesn’t exceed 24 months and they are not replacing another detached worker. There is currently no guidance that this 24 month period can be extended, in the way that it could be previously, and this could have ramifications including for UK employers sending international assignees to higher social security regimes such as Belgium, France and Italy.
However, there is one very big difference as the option of an ‘opt out’ has been given. Each EU country must individually agree to apply the detached worker rules by 1 February 2021 in order for them to continue to apply. Therefore, there is no guarantee that these rules will apply for all postings and we will need to wait for the EU member states to formally confirm their respective agreement or non-agreement.
For secondments starting between 1 January 2021 and 1 February 2021, where an employee is being posted to a country that is yet to opt out of these rules, they will be treated as if the rules do apply for as long as their activities continue. Therefore, regardless of whether the EU State subsequently opts out, the worker can continue to be covered under their home country legislation with a valid certificate.
In other circumstances, where EU countries decide to opt out of the detached worker rules, employers and employees will be liable to pay contributions in the country where they are temporarily working (unless they are in the scope of the Withdrawal Agreement). However, it still stands that double contributions cannot be charged.
As at 8 January 2021, these countries had already agreed to apply the ‘detached worker’ rules: Austria, Hungary, Portugal, Sweden. You can check the latest list of countries applying the ‘detached worker’ rules here.
Please note that there are special rules for posting between the UK and Norway, Switzerland, Iceland and Liechtenstein which started post 31 December 2020:
- Norway: employees remain within home country legislation for temporary postings of up to 3 years (must apply within 4 months of the start of the posting)
- Switzerland: employees remain within home country legislation for temporary postings of up to 2 years
- Iceland: individuals remain within home country legislation for temporary postings of up to 1 year if you’re employed and a non-UK and non-EEA national (can be extended by a further year with agreement before the end of the first year)
- Liechtenstein: there are no special rules and there is the possibility of double contributions. Postings from the UK will generally need to continue paying UK National Insurance contributions for the first 52 weeks.
Where the new Protocol applies, employers should continue to apply to the home country social security office on behalf of the employee going to work in the EU or the UK. This will exempt any host country social security contributions.
However, where individuals become liable to the host social security legislation then the employer will be required to register and pay employer social security contributions in that jurisdiction and, potentially, facilitate the withholding of employee social security contributions. Please note that if the employer has no place of business in that jurisdiction then the employee may, by mutual agreement, take on the responsibility for the employer contributions. While relatively common in other European countries, historically, HMRC has not endorsed employees making contributions on their employers’ behalf.
Working abroad since 2020
Workers posted between the UK and the EU States, Norway, Switzerland, Iceland and Liechtenstein prior to 1 January 2021 should be protected by the Withdrawal Agreement or equivalent agreements. The Withdrawal Agreement states that individuals “shall be covered for as long as they continue without interruption to be in one of the situations …. involving both a Member State and the United Kingdom”.
What this effectively means is that a posted worker with a valid A1 certificate who remains on their posting will continue to be covered by that A1. This will be relevant for ongoing current postings to and from the EU States that decide not to sign up for the new detached worker rules.