Social insurance in Europe – which applicable system?

In Europe, a substantial number of employees in engaged a cross border employment and work outside their country of residence. Determining the applicable social security regime is not always a straigthforward matter and in case a mistake occurs (and social security is paid in the wrong location), this can have a significant impact on both the employer and the employee.

A few years ago, EU Regulation 883/2004 came into force in order to determine the applicable social security system in case of cross border employment.  Recently, new rules have been issued, which cover the situation where an employee is simultanously working for more than one employer (European Regulation 465/2012). These changes are important for employees, who work under a so-called salary split.

Before this  new regulation, it was of no importance how much work was rendered in the country of residence of the employee. Now, the applicable rules are similar to the ones, which apply in case an individual has only one employer. The substance of the professional activities will in most cases be an important element in order to determine the applicable social security legislation.

We first look at the initial Regulation 883/2004, more specifically at the situation where an employee works simultaneously in more than one European member state, including his country of residence, and where only one employer is involved. In such case, the social security regime of the country of residence (of the employee) will apply, provided that a subtantial portion of the activities is performed in the residence state.

Substantial activities is defined as a minimum of 25% of total working time of the employee or the activities, for which at least 25% of the overall salary is paid out.

Example

An employee lives in Belgium. He has a French employer (only one employer).

He works 30% of his time in Belgium and 70% of his time in France.

In this scenario, Belgian social security is applicable on 100% of the salary (including the French salary).

In case an employee was working under the old rules for more than one employer, the substance of the employment did not matter. This resulted in the following example:

An employee lives in Belgium. He has a Belgian employer and a German employer

He works 5% in Belgium (for the Belgian employer) and 95% in Germany for the German employer.

In this scenario, Belgian social security was applicable, notwithstanding the fact that only 5% of the working time was spent on Belgian territory.

Under the new rules, the number of employers within Europe in most cases has no impact any more. The employee will only be subject to the social security system of the country of residence in case he performs substantial duties (more than 25%) in that country.

Example

A employee lives in Belgium. He has a UK employer and works 40% of his time for this employer on Belgian territory. He also has a French employer and works 60% for this employer in France.

He will be subject to Belgian social security.

In case he does not spend subtantial duties (less than 25%) in his residence state, the following rules apply:

•  If he works for one employer: social security of the country, where the employer is located.
•  If he works for more than one employer:

The employers are in two European states, including the country where the employee is living: the country of the other state (not the residence state of the employee) because he has no substantial duties in the residence country.

Example :Belgian employee, working for a Belgian employer 20% in Belgium and for a German employer 80% in Germany: German social security applies.

Multiple employers, located in several countries, but not in the country of residence of the employee: social security of the country of residence applies.

Example: a Belgian resident employee has a UK employer. He works 80% in the UK. He also has a Dutch employer and works 20% in The Netherlands. He falls under Belgian social security.

More than one employer, but all of them are located in the same country: the social security of the work state is applicable.

Example: a Belgian resident employee works for a Belgian employer 20% in Belgium and for another Belgian employer 80% in France. He falls under Belgian social security even though he works less than 25% in Belgium.

The regulation has a 10 year transition period for existing (and unchanged) work situations.

It is possible that a person has mixed activities, partly as employee for one or more employers, and partly as a self employed person. This commonly  applies to directors of a Belgian company, who are treated as self employed persons for social security purposes. For these persons, one first has to apply the rules in respect of his employee activities to determine the country where employee social security is due. Subsequently, the self employed activities will be subject to social security in the same country (where he is also subject to employee social security).

Jan Lambrechts – ICHIBAN Consult

Also have a look at this overview: Overview of social security