Despite the Brexit transition period ending on 31 December, there is still much uncertainty regarding if a ‘deal’ will be reached and what, if any, final agreed position will be post 1 January 2021.
Either way, there will very likely be an impact on employers and the social security positions of their UK-touching globally-mobile employees.
The current landscape: an overview
The UK is currently subject to the European Social Security Regulations in respect of:
- UK employees who spend time working in another EEA location (and Switzerland); and
- employees from EEA locations (and Switzerland) who spend time working in the UK.
These regulations ensure that employees who work across the EEA only pay social security in one country. Where applicable, the regulations enable an employee to remain within the social security system of their country of employment (which would also ordinarily be their home location) for a period of time (usually for up to 24 months, although this can be extended by agreement) whilst working temporarily in another EEA location.
In terms of UK-touching globally-mobile employees, the application of the regulations would commonly result in a UK employee remaining within the UK National Insurance system when working in another EEA country. The same process would also apply to EEA employees working in the UK whereby they would remain subject to social security in their home location.
To ensure the application and coordination of the regulations across the EEA, the Form A1 regime is in place to administer this process. Under the regime, employees need to obtain a Form A1 (typically from the authorities in their home location) to confirm the country to which they need to make social security contributions. This, in turn, confirms that they are exempt from having to make social security contributions in the other EEA location they are working in. Compliance with the Form A1 regime continues to be a hot-topic for employers and an area of increased focus by authorities across the EEA.
The Posted Worker Directive and mandatory registration
The Posted Worker Directive (PWD) was updated in July 2020 to ensure a ‘level-playing field’ in respect of a number of employment related terms and conditions for employees who work temporarily in another EEA location.
Because of the PWD, several EEA countries have introduced mandatory registration requirements which employers must to adhere to when sending employees to work in their country. These include, for example:
- prior notification of any new employees;
- registration of the employee;
- work and salary details; and
- providing a Form A1.
The registration requirements vary country-to-country and can give rise to many practical and administrative challenges for employers, such as identifying the specific requirements in the EEA location concerned and ensuring timely completion of these ahead of any overseas posting.
What will the post-Brexit landscape look like?
HMRC’s most recent guidance, as set out in their October 2020 Employer Bulletin, confirms that the UK will apply the following approach to EEA social security coordination up to 31 December 2020:
- where a UK employee is sent to work in an EEA location before 1 January 2021, HMRC will still issue a Form A1 in respect of the period of posting (subject to the usual limits) including where the period goes beyond 1 January 2021. This can be used as confirmation that UK National Insurance will apply for the period of the Form A1. HMRC will not currently issue Form A1 for postings after 1 January 2021 whilst the current Brexit negotiations continue;
- where an EEA employee comes to work in the UK before 1 January 2021 and they have a Form A1 which confirms continuation in their home country social security scheme, this will still apply and no National Insurance will be due for the period stated on the Form A1. This includes periods beyond 1 January 2021 where the posting to the UK took place before this date. Similarly, it is anticipated that EEA locations will not issue Forms A1 to employees who are due to start work in the UK after 1 January 2021 whilst the negotiations continue; and
- the UK has reached a reciprocal agreement with the Republic of Ireland which ensures that the current social security coordination rules in respect of moves by UK and Irish employees will continue to apply post 1 January 2021.
Whilst the above sets out the approach HMRC intends to take from a UK perspective, it is not yet clear if the EU will take a similar approach with regard to UK employees working overseas in an EEA location even when they commenced their assignment prior to 31 December 2020 and have a Form A1 in place. For example, the EU may take the contrasting view that regard will need to be given to the local domestic rules and any existing social security reciprocal agreement (which may be in place with the overseas country concerned) when determining if social security is due in the overseas EEA location.
In that respect, there is still much uncertainty regarding the post-Brexit landscape. If a deal is reached, it is possible that any such agreement will mirror and ensure a broad continuance of the current position. In a no-deal scenario, a number of points may arise including:
- determining an employee’s social security position on a country-by-country basis;
- reliance on historical social security agreements;
- awaiting refreshed HMRC guidance;
- the UK entering into new country-by-country social security reciprocal agreements;
- continuance of the need to provide PWD style data (or increased data) in EEA locations and additional registration requirements; and
- ensuring appropriate healthcare coverage/insurance is in place for employees working across the EEA. Currently, some coverage in the host EEA location may be available to an employee via obtaining an EHIC card and a Form S1, however, these schemes would likely be removed.
All these matters have the potential to give rise to a wide range of additional compliance, administrative and practical considerations for employers.
What should you do to prepare?
In anticipation of the end of the Brexit transition period, there are various actions which employers should take, including:
- identifying UK employees working across the EEA and EEA employees working in the UK and/or who may be in the future;
- identifying any additional employees who are home working internationally across the EEA because of the coronavirus pandemic;
- ensuring Forms A1 have been obtained and are up to date;
- ensuring PWD registrations have been completed as applicable; and
- reviewing healthcare coverage and provision of health insurance.
How can RSM help?
We are working with a number of employers to prepare them for the post-Brexit landscape and to assist with their social security compliance processes and procedures. We have extensive experience in this area and our recent work has included:
- conducting Brexit awareness workshops;
- assisting with implementing processes and procedures for tracking individuals to ensure compliance; and
- assisting with the Form A1 process.