The UK formally left the European Union (EU) on 31 January 2020. However, in the short term, social security liabilities for moves between the UK and the EU will remain unchanged. The Agreement on the Withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (or the Withdrawal Agreement for short) has brought in a transitional period, where existing regulations will apply until 31 December 2020.
What are the existing rules?
Under European regulations, moves within the European Economic Area (EEA) are covered by a multilateral social security agreement. The EEA consists of the EU and the four countries which make up the European Free Trade Area (EFTA): Iceland, Liechtenstein, Norway and Switzerland. Under the agreement, the assignee remains in the home scheme and is not required to contribute to the host scheme as long as the assignment does not exceed two years, the individual continues to be employed by the home country employer and does not replace another employee who is returning from a posting. For longer assignments, these rules may be extended on a discretionary basis, subject to approval from the home and host country authorities. Either way, employers must apply for an A1 certificate before the assignment commences; this is issued by the home country authority as proof of payment of contributions to the home scheme.
If an assignee works in more than one country, the rules are slightly more complex. However, it is still ensured that contributions are only paid in one country. Which country is determined by a set of criteria that considers the country of habitual residence, whether or not a substantial part of their activity occurs in this country, and the country in which the legal employer has its registered office or place of business.
What are the rules from 31 December 2020?
It is hoped that future negotiations between the UK and the EU will bring some clarity, as there are currently more questions than answers. According to the Withdrawal Agreement, individuals “shall be covered for as long as they continue without interruption to be in one of the situations …. involving both a Member State and the United Kingdom”. Does this mean that the above rules will still apply to existing assignees after the transitional period has ended, for the duration of the assignment? If so, would it also mean that an assignment could theoretically start on 31 December 2020 and the existing rules apply for at least two years? This is currently unclear, as is the definition of “without interruption”.
What about assignments starting from 1 January 2021 and onwards? If future negotiations end in no agreement, dual social security liabilities may occur for moves between the UK and the EEA. Currently, reciprocal social security agreements exist between the UK and the following: Austria, Belgium, Croatia, Cyprus, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Luxembourg, Malta, Netherlands, Norway, Portugal, Slovenia, Spain, Sweden and Switzerland. While these are bilateral and uniquely framed, they typically ensure that contributions are payable in one country only for a set time period. However, most of these agreements precede the 1970s and could be inadequate for modern work practices; for example, they may not consider cross-border employees or short-term business travellers, and only apply to nationals of the countries who concluded the agreement. The length of applicability may also be inferior to existing rules. For example, the French agreement only allows assignees to continue home country contributions for six months, with a potential extension period of six months only. It is also worth noting that the UK has not concluded agreements with several EU member states, including Poland, Romania and the Czech Republic.
If an existing deal is not fit for purpose, then an obvious solution is to negotiate a new one. Indeed, the UK and Ireland have negotiated a revised agreement which mirrors the existing EU regulations and is expected to be signed into law following Brexit. Discussions have taken place with other EU countries, but these have tended to focus on benefit entitlement rather than contribution liabilities.
Could the transitional period be extended?
The Withdrawal Agreement states that the transitional period can be extended once, for a period of one or two years, by mutual agreement. This decision must take place before 1 July 2020. Although the UK has now formally left the EU, the departure date was extended several times and the whole process took over three years. The political appetite for another Brexit-related extension may not exist on either side. Of course, if no real progress in negotiations has been made by 1 July, an extension might be viewed as the ‘least-worst’ option.
In the short term, there is no impact on social security liabilities for moves within the EEA. However, the impact from 2021 is less clear. The current rules may be further extended, or an agreement may be struck between both parties. The worst-case scenario is ‘no deal’ and the UK is forced to fall back on existing bilateral agreements which may or may not be fit for purpose. It is hoped that negotiations between the UK and the EU will bring some clarity to the issue. However, in practice, discussions will take place on a huge range of subjects, so it remains to be seen how much priority this issue gets compared to others, such as free trade. Global mobility professionals ought to be aware that the prospect of dual social liabilities, and therefore increased assignment costs, is realistic. Bringing future assignment start dates forward to 2020, where possible, may be a prudent strategy.
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