Brexit and Social Security: What has changed for workers moving between the UK and the EU?

Brexit Transition Period comes to an end…

At 11 p.m. on 31 December 2020, the Transition Period (during which the UK was effectively treated as still part of the EU) came to an end. In our previous article, "Social Security and Brexit: Where are we now?", we highlighted the risks faced by UK employers with employees working in the EU if no agreement on social security coordination was reached by that point.

Protocol on social security coordination

Fortunately, just before Christmas, the UK and EU settled a Trade and Co-operation Agreement which included a protocol on social security coordination (Protocol). This Protocol ensures that many of the EU social security coordination rules continue to apply to the UK - welcome news for employers with workers moving to and from the EU.

As with the EU rules, the purpose of the Protocol is to ensure that employees and employers are only subject to the social security regime of a single state at any one time. The general rule is that contributions are payable in the country where the work is done subject to special rules for individuals temporarily working outside their home country (Detached Workers) and for multi-state workers.

Importantly, the Protocol applies to individuals that are subject to the relevant legislation of the UK or an EU Member State and is not dependent on them being a national of that country.

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Rules for Detached Workers

Same rules, different terminology

The Detached Worker rules largely replicate the EU rules for ‘posted’ workers that we outlined in our previous article. Under the Detached Worker rules, if an employee based in the UK is sent to work in the EU for a short period of time and:

the assignment will not last for longer than two years; and
the employee is not sent to replace another detached worker

they (and their employer) will continue to pay National Insurance contributions in the UK¹ (and vice versa). Each EU Member State had until 1 February 2021 to decide whether it wanted to adopt the Detached Worker rules. That date has now passed, and HM Revenue & Customs (HMRC) have confirmed that all the Member States have chosen to apply the rules.

Theoretically, a Member State can change its mind and decide to stop applying the Detached Worker rules by giving 2 months' notice to the relevant authorities. We think it is highly unlikely that this will happen in the near future but, if it does, existing postings would be protected.

How do you apply the Detached Worker rules?

In order to take advantage of the Detached Worker rules, UK employers must request an A1 Form from HM Revenue & Customs as before. Some additional information may need to be provided and a link to the HMRC guidance on how to do this is below:

https://www.gov.uk/guidance/national-insurance-for-workers-from-the-uk-working-in-the-eea-or-switzerland

Multi-State Workers

The Protocol replicates the EU rules for multi-state workers (i.e. where a person works in the UK and another EU Member State). In such cases, the worker will remain within the UK social security system if they are both resident and carry out a "substantial" part of their activity in the UK. "Substantial" for the purposes of the Protocol means at least 25% of the individual's working time or remuneration (which is the same as under the EU rules).

No "Special Circumstances" extension

Under the EU rules, when a posting had been in place for two years, it was sometimes possible to obtain permission for the individual to remain within the UK social security system for longer provided the authorities in both countries agreed and the particular circumstances merit it. The Protocol does not contain an equivalent provision and we understand this to be a deliberate measure.

Liability of employers

As with the EU rules, the Protocol provides that UK employers with employees working in an EU Member State will have to comply with the local social security obligations within that state, even if they don't have a presence there. This will be relevant where a UK employer has workers who are within the host country social security system because neither the Detached Worker nor Multi-State Worker rules keep them within UK NICs. Such employers will continue to face the practical issues of registering with and making payments to an overseas social security system although, like the EU rules, the employee can agree to take on responsibility for their employer's contributions.

Summary of the rules for UK employees sent to work in the EU

EEA-EFTA States and Switzerland

EEA-EFTA States (Norway, Iceland and Liechtenstein) and Switzerland are not party to the Protocol, however, we understand that the UK hopes to negotiate new reciprocal agreements on social security coordination with these countries soon. Certain arrangements in place before 31 December are protected by law and continue to be governed by the EU rules². For arrangements that started on or after 1 January 2021, a temporary solution has been found by modifying pre-existing bilateral agreements which means that the rules for each of the four countries are currently slightly different. The rules for workers posted from the UK from 1 January 2021 are as follows:

Other considerations

The rules on social security coordination ensure that UK workers can receive necessary healthcare treatment in the EU Member State they are temporarily posted to. Unlike social security, there are no EU-wide rules that set out which country can tax an employee's income during an overseas posting. Therefore, Brexit will not impact on the obligation to collect and pay local payroll taxes on an employee's salary and benefits. Each country's national law, as well as each tax treaty between the UK and EU Member State will continue to determine these. Immigration issues are more complex following Brexit and local advice should always be taken when looking at an EU posting. For more information please see our briefings: Business travel post transition and The new points based system.

In summary, the Protocol provides some welcome (if long awaited) breathing space for UK employers sending workers to the EU. The Protocol itself only has an initial life of 15 years and could be terminated earlier. Despite this, social security is one area where it is largely "business as usual".