A look into the future social security implications for Luxembourg cross-border employees

We know —and understand—that you are probably tired of any mention of the COVID-19 crisis, but frankly, it’s unavoidable. Even as its presence fades from our daily lives, the lessons learned during the pandemic, particularly during the lockdown, have definitively led to a new way of thinking, a new business culture and new ways of remote working.

During this period, digital solutions were developed, the application of the double tax treaty agreements agreed between Luxembourg and its neighbouring countries was relaxed, the legal and regulatory framework applicable to Luxembourg employees was reviewed, the application of the Regulation (CE) n°883/2003, coordinating the social security systems within in the European Union (EU), the European Economic Area (EEA) and Switzerland (the Regulation) was freezed —just to name some of the reactions.

Drawing on this experience, the Administrative Commission (AC) for the coordination of social security systems in the EU published a guidance note on telework during the summer —you can read our PwC Flash about this matter here.

The  transitional social security measures still apply until 31 December 2022, and so, for the time being, employees residing in a different State than the one in which their employer is established don’t suffer from unintended social security consequences due to teleworking.

All the while, the AC is mapping out different pathways to achieving the desired future legal framework for teleworking cross-border workers.

In this blog, we do a recap on the origin and context in which the Regulation was issued several years ago, and share with you the latest insights from the AC on how the rules may evolve going forward.

This will allow you, dear reader, to better understand the (current) social security obstacles to cross-border telework and the potential impact on them when the transitional period comes to an end.  

A refresher on which rules apply to cross-border activities

The Article 13 of the Regulation and related guidelines rule on how to determine the applicable legislation for people working in two or more EU Member States. A series of factors need to be considered. 

Among these are the working time and remuneration spent or derived in the State of residence —in fact, these are the most crucial ones. But what does that mean exactly?

Typically, a person working in her State of residence at least 25 percent of the time is deemed to pursue a substantial activity in that State and should, therefore, be subject to this country’s legislation. 

Otherwise, the legislation of the Member State in which the employer’s registered office or place of business is located applies. The assessment should be based on the assumed working situation in the following 12 calendar months, but past work patterns may also be considered in certain circumstances.

Practically, the competent institution of the country of residence should be informed of the working situation to assess the applicable legislation. The next step is to request to the authorities a portable European A1 certificate for individuals working out of the competent state.

In the context of the COVID-19 crisis, the Joint Social Security Centre (Centre Commun de la Sécurité Sociale, or CCSS) took a flexible approach and confirmed that A1 certificates wouldn’t be required exceptionally for people working from home during the crisis. You can find the CCSS FAQ here.

The origin of the 25 percent limit

The term “substantial” was introduced more than ten years ago in the Regulation (applicable since 1 May 2010), when remote working wasn’t widespread yet. 

In the old Regulation (EC) n°1408/71, the determination of applicable legislation was settled through definitions and interpretation developed by each Member State to have a legal framework for cross-border activities.

The purpose of introducing the 25 percent threshold was to reach a more coordinated approach among Member States. This mark was set to represent a benchmark for the application of the legislation of the State of residence. 

Nevertheless, the reference to a 25 percent limit already raised worries and pending questions such as its practical assessment and its relevance for multiple cross-border activities. 

The relevance of this limit has been also questioned for the international transport sector as it triggers significant practical difficulties, in particular for Luxembourg transport workers who are essentially cross-border workers and in general non-resident individuals employed by Luxembourg companies.

Today, and in the absence of dedicated rules for teleworking, the most common approach is to consider that teleworking falls within the scope of the common rules of Article 13 of the Regulation. 

However, these rules don’t take into account how COVID-19 has advanced new ways of remote working. As a result, the rule appears restrictive for employees and employers willing to favour telework beyond one day per week.

Latest insights

The guidance note on telework, as revised by the AC on 14 June 2022, includes a chapter dedicated to the legislation applicable to teleworkers, and elaborates on how the current legal framework of the Regulation should be interpreted with respect to telework going forward.

The AC provides that random and unpredictable telework should be covered by Article 12 of the Regulation dedicated to posted workers. As an example, in the future an employee might be able to continue to work from home, because, for example, she or he has to care for sick children or aged relatives. 

On this basis, and to the extent that the conditions for posting are met, the employee could remain insured under the legislation of the country of employment —that is, Luxembourg— while performing part of the work duties from home.

However, telework that is part of the habitual working pattern should remain covered by Article 13 of the Regulation dedicated to multi-state workers. To assess the applicable legislation, the 25 percent criterion should, however, be interpreted in a flexible and more adequate way as “telework constitutes a new reality for workers and employers”.

The guidance note doesn’t clearly specify the scope of the “flexibility” that Member States may apply with respect to the assessment of the 25 percent limit. This is because discussions are still ongoing between Member States on designing specific rules for teleworkers. 

There’s also a possibility that the 25 percent will be revised and increased to 40 percent —this  corresponds to two days of teleworking per week on average. Different institutions conducted surveys that show this figure corresponds to the level of flexibility sought by employees and employers. 

Practically, there shouldn’t be any change in the administrative formalities to be carried out for employees covered by the Article 13 of the Regulation. That is, employers should file a request to the competent institution of the individual’s country of residence for determining the applicable legislation and then request an A1 statement. 

This means that Luxembourg employers want to get ready to be able to handle this —burdensome— process for their non-resident employees to ensure compliance with applicable rules from 1 January 2023.

Stay tuned, we will keep you posted on any publications on the topic!  

What we think
Jalila Bakkali
Jalila Bakkali, Senior Manager, People & Organisation, Personal Tax department at PwC Luxembourg

New ways of remote working are now part of the business culture and should have a clear legal framework to ensure legal stability for both Luxembourg employers and its employees.

Julien Treffort
Julien Treffort, Partner, Personal Tax, PwC Luxembourg

The Luxembourg labour market depends essentially on cross-border workers —they represent more than 45% of the Luxembourg overall workforce. Reviewing the social security rules for teleworking to recognise this new way of remote working and to maintain the attractiveness of Luxembourg is a necessity, especially in the light of the lessons learned from the COVID-19 crisis.

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