Update 3 July 2020
Extension of the flexible rules until 31 August 2020 has been also confirmed for German cross-border residents working at home.
See below the communication from the Luxembourg Government:
Update 1st July 2020
Good news, days related to home working due to Covid-19 will continue to not be taken into account in determining the applicable social security legislation until 31 August 2020. This date may again be revised according to the Covid-19 measures.
See below the publication of the Belgian authorities:
At the start of the lockdown mid-March 2020, and considering that the Luxembourg labour market depends critically on frontier workers (currently representing more than 45% of the Luxembourg overall workforce), debates were first essentially focused on the tax implications for cross-borders forced to work from home, leaving the social security implications behind.
It was only weeks later that this topic became more visible when the Luxembourg Minister of Social Security anticipated the potential adverse consequences by agreeing with his counterparts in the neighbouring countries that teleworking days arising from the COVID-19 crisis should not be taken into account for the application of Regulation (EC) 883/2004 coordinating the social security systems within the EEA. In parallel, the European Commission issued guidelines to freeze the application of the above-mentioned Regulation and thereby protect all frontier workers from changes in their applicable legislation “as a result of changes in their working pattern during the COVID-19 pandemic”.
The purpose of these measures is primarily to prevent teleworkers –residing in a different State than where their employer is established – from suffering unintended consequences due to having the famous 25% rule temporarily exceeded due to the COVID-19 crisis. In fact, this 25% limit represents the main restriction preventing Luxembourg employers from implementing ambitious home-based policies in favour of their (cross-border) population.
This would however, undeniably reduce current major traffic jams and road accidents which remain critical in the Grande-Region, but would also provide other substantial benefits such as (but not limited to) more comfort, work-life balance and flexibility for employees, higher productivity for employers and reduction of carbon footprint through reduced fuel consumption and gas emission. Within this context, it is interesting to understand how the application of the above-mentioned Regulation (EC) 883/2004 at the level of frontier workers, acts as a brake on the development of this new way of working.
Which rules apply to cross-border activities?
Article 13 of Regulation (EC) 883/2004 and related guidelines rule on how to determine the applicable legislation for persons normally pursuing professional activities on the territory of two or more Member States. A series of factors need to be considered, amongst which, the working time and remuneration spent/derived in the state of residence – which are key indicators – to assess whether an individual is regarded as pursuing substantial activities in the State of residence.
Typically, a person working in his/her State of residence for more than 25% is deemed to pursue substantial activities there, and as a result should be subject to the legislation of his/her State of residence. Otherwise, the legislation of the Member State in which the registered office or place of business is situated 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, and according to the procedures laid down under Article 16 of the Implementing Regulation 987/2009, the competent institution of the individual’s country of residence should be informed of the working situation to assess the applicable legislation and issue a portable document A1. Considering the exceptional situation, the Joint Social Security Centre (Centre Commun de la Sécurité Sociale) confirmed however that A1 certificates would not be required for persons working from home to the COVID-19 crisis (see FAQ: https://ccss.public.lu/fr/support/faq/employeurs.html ).
Where does the 25% limit come from?
Historically, the term “substantial” was introduced ten years ago in the Regulation (EC) 883/2004 (applicable since 1st May 2010). In the old Regulation 1408/71, the determination of applicable legislation was settled through definitions and interpretation developed by each Member State.
The purpose of introducing a threshold was to reach a more coordinated approach among the Member States and the number 25% reflected a benchmark for the application of the legislation of the State of residence. Nevertheless, at that time the reference to a 25% limit already raised a certain number of worries, pending various questions. One such was the practical counting of the 25% and its relevance for multiple cross-border activities, but also for international transport. This is because this limit triggers important practical difficulties, in particular for Luxembourg transport workers, who are essentially cross-border persons and, globally speaking, non-residents employed by Luxembourg employers.
Today, even though teleworking increased substantially in different territories, related working days fall within the scope of common rules of Article 13 of Regulation (EC) 883/2004 ignoring its particularity. Therefore, teleworking days should be counted down from the 25% threshold which appears restrictive for employees and employers willing to deploy teleworking for more than 1 day a week.
Within the context of the COVID-19 crisis, the European Commission offered flexibility to prevent frontier workers from changes in their applicable legislation as a result of teleworking during the COVID-19 pandemic.
All these measures are however exceptional and temporary. It is expected that the flexible rules will continue to apply in the context of the deconfinement only until 30 June 2020 for Belgian cross-border commuters, depending on how the pandemic crisis evolves. Once this transition period will expire, the normal set of social security rules will apply again, and the 25% rule will limit again the expansion of teleworking for frontier-workers.
It is unfortunate to see that the proposal to amend Regulation (EC) 883/2004 initiated by the European Commission in December 2016 did not include teleworking. The COVID-19 crisis has flagged teleworking as a hot topic and highlighted the need to derogate to the rules common of Article 13 of Regulation (EC) 883/2004. Therefore, post-crisis (potentially as of 1 July 2020) employers should anticipate the potential consequences of having their frontier workers continuing to work from home beyond the 25% limit.
Managing Director, People & Organisation, Personal tax department, PwC Luxembourg
Tel: +352 49 48 48 3205
Senior Manager, People & Organisation, Personal tax department, PwC Luxembourg
Tel: +352 49 48 48 3367