In recent times, the European Union (EU) has shed light on the regulation of what are known as digital nomads—professionals who telecommute for a company based in one country while residing in another. This issue has been addressed through a framework agreement that provides greater flexibility in Social Security contributions when such situations occur between two European countries that have signed the document.
The text delves into the reality of cross-border teleworking, a modality that brings more flexibility to the labor environment. The scarcity of professionals in critical areas for companies has led them to hire employees from other countries, primarily impacting sectors such as technology, consulting, and finance, but also occurring in areas with closer border proximity.
The regulations governing these types of employees have been modified. The framework agreement concerning the application of Article 16(1) of the Regulation on the coordination of social security systems introduces an exception for these cases, with a validity period of five years, extendable upon agreement. The document went somewhat unnoticed when published in the Official State Gazette (BOE) on August 4th of the past year, although it came into effect on July 1st, 2023.
Cross-border teleworkers may be subject to the legislation of the state where the company is headquartered rather than the country where they habitually reside if they meet certain requirements: they must apply for it in advance, and the functions they perform remotely from their country of residence must amount to less than 50% of their total working time.
According to Juan Carlos Fernández, labor partner at Abdón Pedrajas law firm, its implementation brings advantages for companies. Among them, “the possibility of enjoying greater legal certainty, as it would allow maintaining the contribution of these workers in a single member state continuously, avoiding the bureaucracy, time, and resources that the recurrent change of legislation in Social Security matters used to entail,” he emphasizes.
Both the employer and the interested party can request this option. It is not mandatory for requests for exceptions to go through the authorities of both countries involved but only through the one where the company’s headquarters are located, explains Carmen Galán, labor managing partner at Lener.
Requirements
For example, a Spanish worker hired in San Sebastián as a salesperson but residing in Biarritz. Until now, to maintain his affiliation with the Spanish Social Security system, this salesperson had to provide services in Spain for at least 75% of his working hours. Likewise, this Spanish employee could not telecommute for more than 25% from Biarritz (just over one day a week) if he wants to avoid being subject to French legislation.
With the new European agreement, if all requirements are met, “that 25% becomes 50%, so that salesperson can telecommute for more time in France, between two and three days a week, and continue contributing to the Spanish Social Security system. This Spanish worker residing in France can spend more time telecommuting from his home without a change in legislation occurring,” explains Iván Preciado, principal associate of labor at Cuatrecasas.
The origin of this issue lies in the pandemic. Lockdowns resulted in an anomaly in certain parts of Europe, such as Belgium, the Netherlands, and France: workers who provided their services in person in a country close to theirs were forced to telecommute from their countries of residence. The exceptional circumstances of the moment allowed for a resolution.
The problem arose afterward, according to Javier Alonso de Armiño, senior associate at Sagardoy, when the option of telecommuting or hybrid work became more frequent during a few days a week. Until then, the EU Regulation 883/2004 on the coordination of social security systems was applied.
Currently, in the application of this regulation, explains Alonso Armiño, a person contributes to their country of residence whenever they work from there for a substantial part of the time, 25%. “This new framework agreement updates this criterion and brings sensibility to a very specific case, that of cross-border telecommuting, because it extends it to less than 50% of the total working time,” clarifies the lawyer.
For lawyer Carmen Galán, it is worth asking about other scenarios that pose some uncertainties on how to proceed. This includes people who, in addition to cross-border telecommuting, engage in an additional activity in their country of residence. Or when employees habitually perform another activity in a third state, different from their personal residence and the company’s headquarters. These cases fall outside the scope of this agreement.
Although the consulted labor lawyers agree that this regulation has a very limited scope, that of digital nomads, they believe it provides more security by offering a harmonized interpretation of some articles of the regulation.
Thanks to what this framework agreement includes, “the company will be able to offer a broader telecommuting regime to its cross-border workers, which will undoubtedly enhance employers’ ability to retain and attract talent,” says Álvaro Fernández, senior associate of labor at Cuatrecasas, who highlights that the document does not include changes in residence and tax rules. Something positive when considering companies’ quest to attract talent, even beyond borders.
Signing Countries
Among the requirements to access the agreement is the need for either the employee or the employer to request it in advance. Additionally, work in the country of residence cannot exceed 50% of the total working hours, and the employee must use information technologies for their duties. The rule applies only to signing countries. Both the worker and the company must have their residence and domicile, respectively, in one of the signatory States: Germany, Switzerland, Liechtenstein, the Czech Republic, Austria, the Netherlands, Slovakia, Belgium, Luxembourg, Finland, Norway, Portugal, Sweden, Poland, Croatia, Malta, Spain, and France. The agreement does not apply to self-employed workers or nomads from non-EU countries.
This comprehensive regulatory framework aims to address the evolving nature of work, particularly in the digital era, while ensuring the protection and rights of workers and maintaining a balance between flexibility and stability in the labor market. By providing clarity and guidance on cross-border teleworking, it facilitates smoother operations for both companies and employees across the EU.