Navigating the Complexities of Telework

As telework becomes increasingly common, many employees now work partially or entirely from home. These employees perform tasks at home that they would typically complete in an office or workplace setting. This arrangement, known as teleworking or remote working, requires employers to navigate a complex landscape of rules and regulations, especially when employees work from another country. Here’s what you need to know.

Wage Tax and Personal Income Tax

When an employee works remotely from their country of residence, their tax position is likely to be affected. In most cases, unless a tax treaty between the country of residence and the country where the employer is established includes a specific cross-border or teleworking rule, the employee’s income for each workday spent in the country of residence will be taxable there.

Depending on the countries involved, the nature of the employer's and employee's activities in the country of residence, and any home office agreements, the employer may be required to run a local payroll, withholding and paying wage tax on the remuneration related to workdays in the country of residence. In some cases, only the employee may have an income tax liability.

Social Security Considerations

Posted Employees

If an employee is temporarily working in another country, they may remain covered by their home country’s social security system for up to 24 months. This applies whether the posting occurs at the employer’s initiative (such as for a project abroad) or at the employee’s request (such as during a workation). An A1 certificate is mandatory for posted employees in these situations.

Multi-State Workers

For employees who work regularly in multiple EEA countries, social security coverage is typically determined by where the employee spends 25% or more of their working time. If they work 25% or more in their country of residence, they will be insured there. Otherwise, they are insured in the member state where their employer is established.

To address potential shifts in social security coverage due to teleworking, the EU Framework Agreement on Cross-Border Telework allows employees who work 25% or more in their country of residence solely because of telework to remain insured in the member state where their employer is established, provided they meet certain conditions. However, this agreement does not apply in all situations.

Examples:

• Frank teleworks 40% of his working hours from his home in Belgium and 60% in the Netherlands at his employer’s branch, which is based in Germany. The framework agreement does not apply because Frank works in a country other than where his employer is established.
• Bart teleworks 20% of his time from his home in Germany and visits customers in the Netherlands and Germany. Since Bart's work in Germany is not solely telework, the framework agreement does not apply.

Employees wishing to use the framework agreement must apply for an A1 declaration. Retroactive application of the framework agreement is possible for up to three months if social security contributions were paid in the employer’s country during that period. The A1 declaration is valid for up to three years, after which a new application is necessary.

If your employee works less than 25% in their country of residence or if the framework agreement does not apply, an A1 declaration is still required. In such cases, the declaration is valid for one year and should be applied for in the employee's country of residence.

Employment Law Considerations

Applicable Labour Law

Within Europe, the applicable labour law is governed by Directive (EC) 593/2008, also known as Rome I. The primary rule is that an individual employment contract is governed by the law chosen by the parties. However, this choice of law cannot result in the employee losing protection under the law that would otherwise apply if no choice had been made.

If no choice of law is made, the law of the country where the employee habitually performs their work applies. Temporary work in another country does not usually change the applicable labour law, but employees are entitled to the core labor conditions of the host country based on the Posting of Workers Directive if they work temporarily in another member state.

Key Points:

• If the posting period exceeds 12 months (or 18 months with an extension), you must guarantee all mandatory employment terms of the host country, except for termination rules and supplementary pensions.
• In some countries, like Belgium, any day worked from home may trigger the application of local labor law and collective labor agreements, regardless of the Posting of Workers Directive.

It’s also important to note that if an employee works more than 50% of their time in their country of residence, that country will typically be considered the habitual place of work, and its labour law will apply.

Social Security and Labour Law Interplay

Social security rules can sometimes override labor law. For instance, if an employee is subject to Dutch social security, they are entitled to up to 104 weeks of sick pay under Dutch labor law, even if their employment contract is governed by foreign labor law. When drafting employment contracts, it’s advisable to consider the applicable social security system.

Duty to Notify

For employees posted to another country by an employer not established there, there is often a duty to notify the authorities before the posting begins. While most countries do not require notification for teleworking employees, there are exceptions. Employers should verify whether notification is required, the process for making the notification, and the information needed to do so, as failure to comply can result in significant fines.

Health and Safety: Risk Inventory & Evaluation (RI&E)

Employees working from home must be able to do so safely. Health and safety regulations apply to remote work, and as an employer, you must provide information on safe working practices and ensure a safe home workplace. This may involve offering ergonomic equipment such as keyboards or office chairs.

You are also required to conduct a risk inventory and evaluation (RI&E) that includes the risks associated with working from home.

Monitoring Remote Employees

Employees have a right to privacy, even when working from home. Any monitoring must comply with privacy laws and be justified by the business needs. You are allowed to monitor employees only if it’s essential for your business and there’s no less intrusive way to achieve the goal. For example, you cannot force employees to have a dashcam running constantly or record every keystroke. Employees must also be informed in advance about any monitoring methods.

Corporate Income Tax Considerations

Remote work can lead to the creation of a permanent establishment (PE) in the employee’s country of residence, triggering corporate income tax obligations and a wage tax withholding requirement. Whether a home office constitutes a PE depends on factors such as:

• The existence of a tax treaty between the countries
• Whether the employer has an office available in the country of establishment
• Whether the employer requires the employee to work from the home office
• Whether the home office is a separate room with independent access
• Whether the home office is at the employer’s disposal
• The nature of the employee’s work and their authority to enter into contracts

Information Security

Teleworking introduces new risks to information security. Employees using personal devices may lack the security measures present on company devices, increasing vulnerability. Employers should establish a clear information security policy, ensure all employees are aware of it, and understand the importance of compliance.

How can we help?

Our experts can assist you with all aspects of teleworking, from navigating tax and social security implications to ensuring compliance with employment law, information security, and privacy regulations. Don’t hesitate to reach out to our global mobility, legal, tax, or information security and privacy teams for support.