UK and EU/EEA post-Brexit social security co-ordination
UK based employees and employers are generally required to make National Insurance contributions (NIC) on earnings from employment. Similar rules apply to the self-employed but are outside the scope of this note.
The social security position can be more complex where an employee works in multiple jurisdictions, or is seconded from one location to another. The UK has a number of social security agreements with other jurisdictions that determine where social security is payable. In the absence of such an agreement, the domestic rules of the UK and the second jurisdiction need to be considered and dual social security liabilities may arise.
Prior to 1 January 2021, for working arrangements concerning the UK and another EU or EEA Member State, the Member State in which social security was payable was determined with reference to Regulation (EC) No 883/2004 (the Regulation).
Under the Regulation, the general rule is that social security contributions are only payable in one Member State. That Member State is generally the location in which the individual is working, but there are exceptions to this where an individual is either:
- employed in one member state, but assigned to work in another (Detached Workers); or
- working across two or more member states (Multi-State Workers).
In addition to these scenarios, there may be other working arrangements where exceptions apply (for example where there is more than one employment, or where the worker is self-employed).
Under the Regulation, the employer should obtain an A1 certificate of continuing liability, to evidence the location in which social security contributions are payable.
What are the implications of the Brexit agreement?
Under transitional provisions of the UK/EU withdrawal agreement, assignments and cross-border working arrangements which involved the UK and another EU or EEA Member State, to which the existing Regulation applied and which began prior to 1 January 2021 will broadly be grandfathered in accordance with that Regulation for as long as they continue unchanged and without interruption.
For working arrangements that commence on or after 1 January 2021, cross-border working between the UK and EU Member States will be governed by the EU-UK Trade and Cooperation agreement, which includes a protocol on Social Security Coordination (the Protocol).
Under the Protocol, UK individuals sent by their UK employers to work temporarily in an EU Member State for periods of up to 24 months and not to replace another detached worker, will remain within the scope of UK NIC (i.e. no EU social security contributions would be payable). Note that this is subject to the acceptance of the Detached Worker Rules by the relevant EU Member State. EU Member States may opt out of these rules by 1 February 2021 or (subject to grandfathering provisions) at any time thereafter. If a Member State does opt out, the domestic rules of the UK and the second jurisdiction will apply (with the risk of dual contribution liability).
It is worth noting that under the old Regulation, an individual could remain within their “home” social security for longer periods in exceptional circumstances (generally for up to 60 months subject to the approval of the second jurisdiction), however the equivalent provisions are omitted in the Protocol.
The Detached Worker Rules apply to EU Member States. Separate agreements apply to the EEA jurisdictions:
- Switzerland – may remain within the scope of UK NIC for up to 24 months;
- Norway – may remain within the scope of UK NIC for up to 36 months;
- Iceland – may remain within the scope of UK NIC for up to 52 weeks (with a further 52 week extension possible); and
- Liechtenstein – no agreement has yet been reached.
A Multi-State Worker under the Protocol is an individual who normally works in the UK but also in one or more EU or EEA jurisdictions for at least 5% of their working time. The provisions of the Protocol mirror those in the old Regulation, which means that, at a high level:
- an individual is liable to social security contributions in the jurisdiction in which he/she is habitually resident, if at least 25% of their working time is spent or their remuneration earned in that jurisdiction; and
- if the 25% threshold is not met in the jurisdiction of habitual residence, a series of tests (partly depending on whether the employee has one or more employers) is applied to determine whether social security contributions are payable in the UK or the EU.
The Protocol will have effect for 15 years, unless terminated by either party by notice or extended by mutual agreement.
Where the Protocol applies, the employer should apply to the “home” social security authorities on behalf of the employee, to obtain an “A1 Certificate”. This certificate confirms the social security position, and evidences that social security contributions are not payable in a second jurisdiction.
Where an individual becomes liable to social security contributions in a jurisdiction other than the one in which his or her employer is based, the employer’s responsibilities depend on the rules in that jurisdiction. The employer may be required to register with the local authorities, set up a local payroll and pay employee’s and employer’s contributions there, for instance by appointing a local payroll agent.
If you would like to discuss, or would like further information regarding the UK position, please let us know.