United Kingdom: A framework agreement, but questions remain regarding social security coordination in a post-Brexit world

In brief

The EU-UK Trade and Cooperation Agreement ("Agreement") contains a framework agreement for the future treatment of workers through a Protocol on Social Security ("Protocol"). The Protocol puts in place measures to ensure that social security benefits are coordinated and to protect individuals (and their employers) against double social security contributions.


That being said, employers sending employees from the UK to the EU and the EU to the UK still face more difficulties than they would under the EU regulatory framework (which ceased to apply from 31 December 2020). In particular, employers should note the following:

  • Given the late nature of the Agreement, there are no comprehensive regulations and guidance in the UK or from EU member states that explain how employees who move between the UK and EU or the EU and the UK will be able to benefit from the Agreement.
  • The detached workers rules applicable to workers moving for less than two years are only applicable to EU member states that elect for them to apply.
  • The previous posted workers rules under the EU regulatory framework ceased to apply on 31 December 2020 (though EU individual member states can elect to continue to apply the posted workers rules for a transitional period of up 15 years).

Summary

The Agreement has put in place measures to coordinate social security benefits. Broadly, it aims to ensure that only one set of rules applies to a person at any given time to avoid the risk that such a person would pay double social security contributions or that no legislation would apply to them at a given moment resulting in them being left without social security protection. The UK cannot discriminate and impose different terms on EU member states (apart from in respect of the specific arrangements in place for Irish workers).

The Agreement is a marked improvement on the position that would have emerged if there had been a no deal Brexit, which would have led to double social security contributions (or inadequate social security benefit coverage) for UK employees working in EU member states. Further, the position of each affected employee would have to be assessed against a background of having to go back to antiquated social security agreements entered into by individual member states with the UK on a sporadic basis (at best). Against this background, the framework of the Agreement is to be welcomed.

Nevertheless, employers sending employees from the UK to the EU and the EU to the UK will face more difficulties than they would under the current EU regulatory framework (which ceases to apply directly). In particular, employers should note the following:

  • Given the late nature of the Agreement, there are no comprehensive regulations and guidance in the UK or from EU member states that explain how employees who move between the UK and EU or the EU and the UK will be able to benefit from the Agreement.
  • The detached workers rules applicable to workers moving for less than two years are only applicable to EU member states that elect for them to apply.

The previous posted workers rules under the EU regulatory framework ceased to apply on 31 December 2020 (though EU individual member states can elect to continue to apply the posted workers rules for a transitional period of up to 15 years).

The Protocol on Social Security

The Agreement contains a framework agreement for the future treatment of workers through the Protocol.

The overall aim is to prevent the worker from having to pay double social security contributions. The Protocol specifies that affected workers will be subject to the legislation of only one state, determined in accordance with the Protocol.

The Protocol then applies the following main rules:

  1. A person pursuing an activity as an employed or self-employed person in a state shall be subject to the legislation of that state but subject to the rules regarding a person that works in the UK and also a member state simultaneously (see 2 below).
  2. The rules where a person works in two states simultaneously state that the applicable legislation will depend on the specific facts of the individual including residence, where the work activity is substantially carried out and the location of the registered office/place of business of the relevant undertaking/employer.
  3. The rules relating to detached workers (moving for less than two years) state that where — but only where — an EU member state so elects (as a Category A state), provided that the intended duration is less than 24 months and the worker has not replaced another detached worker, the individual will remain subject to their home country's social security system (and not that of the host country).

Detached workers within this context are broadly employees who are sent by an employer to work for that employer in another state. By contrast, a posted worker is a worker who is sent to work for another entity (often on an intragroup basis).

What about posted workers?

The EU Q&As specifically note that the posting of workers is part of the free movement of services within the EU and that the Agreement does not include rules for the posting of UK workers in the EU, or vice versa. This means that, for example, a worker sent by the UK to the EU to work for an EU entity will have to pay social security contributions in the EU member state and will be subject to the legislation of that country (in addition to possible continuing liability in the UK).

It was, however, agreed that in this area — and as a transitional provision — member states may request, upon notification to the commission, to continue the posting system as it exists now for a period of up to 15 years. Member states can terminate the posting system earlier. During this period of time, posted workers will then pay their social security contributions to the party that sent them (i.e., the UK in the example provided).

The Agreement, therefore, has not put in place a blanket umbrella agreement for the posting of workers to and from the UK and the EU. The position of such posted workers will depend on the position to be adopted by individual member states of the EU (and the UK).

What about UK-based employees employed by EU companies? Will such companies be subject to UK employer National Insurance contributions?

Yes. The Protocol states that an employer with a registered office or place of business outside a state shall comply with all obligations as if it had a registered office or place of business in that state, i.e., effectively deeming them to have a registered office or place of business for social security contribution purposes. Therefore, where an EU company has employees in the UK, it will still be liable to pay employer National Insurance contributions and account for employee National Insurance contributions.

Conversely, UK companies will have to pay employer social security contributions and account for employee social security contributions for any of its EU-based employees, even if the UK company is not resident in the EU.


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