Social Security: Country of Residence Rules for Multi-State Workers

20 March 2017

Our previous blog post on social security focused on workers being posted to the UK from overseas or from the UK to an overseas country to work, but what is the position if someone works in more than one country? This post will explain the position for multi-state workers in the European Economic Area (EEA).

When working within the EEA (includes the EU, Iceland, Liechtenstein, Norway and Switzerland), the worker will always be subject to social security contributions in one country only. In order to determine which country this will be, the worker’s country of residence must be established first of all.

Residence for Social Security Purposes

An individual’s country of residence for social security purposes is the place where they habitually reside and where their centre of interest is. This can be different from an individual’s residence for tax purposes and an individual cannot choose their country of residence, rather the relevant social security authorities must agree on an individual’s country of residence, based on their circumstances, and they will look at a number of factors including:

  • Family status and ties
  • Housing situation and how permanent it is
  • Where bank accounts, investment and pension arrangements are
  • Where income tax is paid

Employers and employees should agree on the individual’s residence for social security, given it affects both parties, and be clear on that intention before approaching any authority for agreement. 

Rules for Employees

Once the country of residence has been determined, the country where contributions are due is decided under the European Commission Regulations. Where an employee works in more than one country, the Regulations state that the individual will be covered by the legislation of their country of residence if they pursue a substantial part of their employment activity there. Substantial activity is defined as at least 25% of overall duties. If no substantial activity is performed in the country of residence, then contributions will be due where the registered office or place of business of the employer is.

Example:

If an individual, considered resident in the UK for social security purposes, has a German based employer, where he works three days a week in Germany and two days a week back in the UK, he would meet the 25% criteria in the UK (his country of residence), so he would pay contributions in the UK. However, if the work pattern was such that he worked four days per week in Germany and only one day per week in the UK, the 25% criteria would not be satisfied in the UK and so German contributions would be payable, because the employer is based in Germany.

If an individual works for several employers, all based in the same country which is not the individual’s country of residence, and the individual does not perform a substantial part of activity in their country of residence, contributions will be due in the country where the employers are situated similar to above. If however, there is more than one employer and at least two employers are located in different countries, other than the individual’s country of residence, the individual will pay contributions in their country of residence regardless of whether the 25% substantial activity criteria is met.

Example:

If a resident of France had two contracts, one French and one UK contract, he would pay contributions in France if at least 25% of duties were carried out in France and if not, he would pay contributions in the UK.  However if the French resident had a UK contract and Spanish contract, he would pay contributions in France regardless of whether 25% of duties were carried out in France or not.

Rules for the Self-Employed

Where an individual is self-employed, they will pay contributions in their country of residence if they meet the 25% substantial activity criteria and if not, they will pay where their centre of interest and activities are situated.  If an individual is both employed and self-employed, the employment takes precedence and contributions are due where the individual is employed. 

Example:

A self-employed individual who is considered UK resident, who pursues their self-employed activity four days per week in the UK but who also has an employment contract with a Norwegian company to work in Norway for one day per week, would be subject to Norwegian social security, regardless of the fact he meets the substantial activity criteria in the UK. This is because the employment takes priority. If however, there was no employment contract and the individual carried out duties in Norway for one day per week under his self-employment, he would pay contributions in the UK, because the UK is his country of residence and he carries out at least 25% of duties in the UK.

What About Certificates of Coverage?

Once the country where social security contributions are due has been established, an A1 certificate may need to be obtained from the authorities of that country in order to satisfy the other relevant countries that contributions are not due to them. This should be applied for as early as possible, otherwise, the other countries could also seek contributions until they are satisfied that a certificate is in place.

The above rules need to be considered carefully in order to minimise the risk of higher social security contributions becoming due unexpectedly and to ensure compliance with social security obligations in all jurisdictions.

If you require any advice or assistance with reviewing the position for yourself or your workforce, please contact Charlotte Stewart, Integrated Employment Solutions Manager (charlotte.stewart@aab.uk).

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