In addition to other
formalities, all employers in the European Union who post their employees to
other member states or employ citizens of other member states or the EEA are
already used to dealing with the issue of which member state they must pay
social security and health insurance contributions in on their behalf. Also,
the self-employed must deal with this problem when they decide to do business
in one or more EU member states. Nevertheless, the correct interpretation of
the relevant coordination regulation sometimes seems problematic for employers
and the self-employed, and the incorrect application of the regulation or lack
of information on the applicable legislation may result in many sanctions.
By 1 May 2010 this situation
will be covered by the coordination
regulation for social security, Council Regulation (EC) No. 1408/71, on the
application of social security schemes to employed persons, to self-employed
persons and to members of their families moving within the Community,, as
amended (“Regulation”) and Council Regulation (EC) No. 574/72,
which lays down the procedure for its implementation (“Implementing
Regulation”). Coordination regulations are legislation which is directly binding on and superior to the
national legislation of EU member states. They are to determine the social security legislation
applicable to employees, their family members and the self-employed who operate
in one or more EU member states, and to determine the entitlements of these
persons to health care and other social security benefits such as pensions and
unemployment benefits. It must be noted that the application of the Regulation
and the Implementing Regulation (“Current Regulations”) was contractually
extended also to EEA states (Iceland, Norway and Liechtenstein) and
1 May 2010 the Current Regulations will be replaced by New Regulations, that is,
Regulation (EC) No. 883/2004 on the coordination of social security systems
(“New Regulation”) and Regulation (EC) No. 987/2009 laying down the procedure
for implementing Regulation (EC) No. 883/2004 (New Implementing Regulation).
The purpose of this Article is
to draw attention to some new rules to be introduced by the New Regulations
which employers and the self-employed in the EU will have to follow in the
First, we remind you of some
basic coordination principles and present the changes which will occur under
the New Regulations.
BASIC COORDINATION PRINCIPLES
Under the New Regulations the
following four coordination principles applicable under the Current Regulations
- Equality of treatment, that is, the principle of
equal treatment of persons to whom the New Regulations apply. The persons are
subject to the same obligations and enjoy the same benefits under the
legislation of any member state as the nationals of that state.
- Application of the legislation of a single member
state, that is, the rules for determining the applicable social security
legislation. Their goal is to avoid situations when a person is simultaneously
insured in several member states or not insured in any member state.
- Aggregation of periods of insurance, that is, the
total of the periods when a person was insured under social security systems in
different member states is the basis for the entitlement to benefits, such as
- Retention of the acquired rights (payment of benefits
abroad, export of benefits), that is, payment of benefits in any EU member state
where the person who has the relevant rights stays.
assimilation of facts is a new principle arising from the judicial
decisions of the European Court of Justice (“ECJ”). Under this principle equal
effects are attributed to benefits granted by one member state (or events
occurring in one member state) in another member state which applies the New
Regulations as if the benefits had been granted (or events had occurred) in
this other member state.
MATTERS COVERED BY THE NEW REGULATION
The New Regulation applies and
is superior to national legislation which deals with:
Sickness benefits, maternity
benefits, invalidity benefits, old-age benefits, survivors’ benefits, benefits
in respect of accidents at work and occupational diseases, death grants,
unemployment benefits and finally family benefits. The New Regulation
introduces equivalent paternity benefits and pre-retirement benefits.
As mentioned above the
regulation also applies to health insurance and non-monetary health insurance
PERSONS COVERED BY THE NEW REGULATION
The New Regulation applies to
nationals of EU member states, stateless persons and refugees residing in an
EU member state who are or have been subject to the legislation of one or
more member states, as well as to members of their families and their survivors
irrespective of their nationality. Compared to the Current Regulations the
scope of persons covered also includes inactive persons.
However, it must be noted that
compared to the Current Regulations the New Regulation does not yet apply to Norway, Liechtenstein, Iceland and
Switzerland. The Current Regulations will apply to employees posted to
these states until a new agreement is concluded with them.
The New Regulations also do
not apply to nationals of third states. Correspondingly, nationals of the EEA
and Switzerland, and nationals of third states, will temporarily be subject to
the Current Regulations until a new regulation is adopted which is to
replace Council Regulation (EC) No. 859/03 under which the application of the
Current Regulations was extended to nationals of third states.
certain cases the Current Regulations will temporarily apply also after 1 May
WHERE TO PAY INSURANCE
Let us focus on the principle
of the legislation of a single
member state which is expected to be the most interesting issue for employees
(and their employers) and the self-employed. Despite the basic principle of
paying insurance in the state where the work is executed remaining unchanged,
the New Regulations makes the free
rendering of services for employers who post their employees to other member
states easier. A special category of employees in international transport
has been repealed. The most significant amendments introduced by the New
Regulation concern work performed simultaneously in two member states. Also,
electronic communication between competent institutions and electronic forms
represent a significant change. However, in this respect a temporary period of
two years is set for member states.
Work executed only in one member state
If persons pursue activities
as employees or self-employed only in one member state, they are insured in
this state, that is, in the state where the activity is pursued. Their place of
residence or place of payment of the remuneration is insignificant.
If, for example, a Slovak employee concludes an employment agreement which
determines the Czech Republic as the sole place of performance of work, the
employee is insured only in the Czech Republic.
Posting to another member state
the Regulation must be applied by European employers when they post their
employees to another member state. If
certain conditions are observed, the posted employee will further remain
insured in the social security and health insurance system of the state
from which the employee was posted. However, some amendments are introduced to
simplify the matter, which mainly include the fact that the execution of employees’ activities in another EU member state in
the name of posting employers does not exceed 24 months. Consequently, the
term of posting is extended from the original 12 months (which might be
extended by an additional 12 months under the Current Regulations) to 24
The confirmation on the
applicability of the legislation of the first member state will further be
issued for the entire term of posting by the relevant authority of the first
member state. When all conditions of the
New Regulations are observed, employees posted by employer from one member
state to do work in another EU member state will be for the entire period of 24
months subject to the social security and health insurance legislation of the
first member state.
As in the past the basic
prerequisites for the posting must be observed, which are mainly the maintained
direct relation between employees and employers who carry out the substantial
part of their activities in the first member state, and the application of the
social security and health insurance legislation of this state to the posted
employees for a minimum of one month before their posting. The direct relation
is assessed mainly with respect to the employers’ responsibility for hiring
employees, their remuneration and performance of work, and the potential termination
of their employment and the power to determine the nature of the work. As in
the past, a posted person may not replace another posted person.
If, for example, a German
employer who carries out substantial business activities in Germany posts its employees
to Austria for a period which is not expected to exceed 24 months and if the
conditions mentioned above are observed, the employer will pay insurance
contributions for the employees only in Germany.
Also, persons who normally
pursue activities as self-employed in a member state and go to temporarily
pursue similar activities in another member state may be posted for a maximum
of 24 months. In such a case they remain insured in the first state if the
expected term of their activities does not exceed 24 months.
Activities pursued in two or more member states
As mentioned above, this area
is subject to major amendments. Persons
who normally pursue activities in two member states for one employer will
further be subject to legislation of the
member state of their residence only if they pursue a substantial part of their
activities in this state. A substantial part means a minimum of 25 percent
with regard to the working period or wages. Also the development expected in the following 12 months is
to be considered.
If employees do not pursue a
substantial part of their activities in the member state of their residence and
they have only one employer, the legislation of the member state where their
employer’s registered seat or place of business is located applies to them.
Employees are also insured in
the member state of their residence if they are employed by different
enterprises or different employees whose registered seats or places of business
are in different member states.
It is important that the New
Regulations also stipulate the criteria
for determining the residence which is understood as a place where a person
habitually resides. Information significant for the assessment of the place of
residence is as follows: the duration and continuity of presence in the member
state concerned, the person’s situation including the nature and the specific
characteristics of all activities pursued, the place where the activities are
pursued, the stability of the activity and the term of any work contract,
family status and family ties, the exercise of any non-remunerated activity,
the permanent nature of their housing situation, and tax residence.
For example, an employee whose
place of residence is in the Czech Republic works for an Austrian employeer
simultaneously in the Czech Republic and Austria. While under the Current
Regulations the employee would be insured in the Czech Republic, under the New
Regulations it will have to be assessed whether the employee pursues the
substantial part of their activities in the Czech Republic. If this condition
is not fulfilled, the employee will be insured in Austria.
self-employed who pursue their activities in two or more member states are subject to
the legislation of the member state where their place of residence is, if they
pursue the substantial part of their activities in this state. A substantial
part is assessed based on the turnover, working time, volume of services
rendered and the income in the relevant state. In other cases, when the
self-employed do not live in the state where they pursue the substantial part
of their activities, they are subject to the legislation of the member state in
which the centre of their activities is located. The centre is assessed with
regard to the place of business, nature and duration of activities, volume of
the services rendered and the intention arising from all circumstances.
It must also be noted that, as
opposed to the present situation, the determination of the applicable
legislation does not depend only on the local competent institution. At the request of the relevant person,
the applicable legislation will be determined by a competent institution in the
member state of the place of residence and the decision will be notified to the
competent institution in the other member state. If the decision of the first
member state’s competent organisation is not cast in doubt within two months by
the second competent institution, the determination of the applicable
legislation is final.
If the competent institution
of the other member state does not agree with the determined applicable
legislation, the determined legislation applies only temporarily and the
applicable legislation is finally and retroactively determined by the Administrative Commission. If other than the
temporarily prevailing legislation is determined as applicable, insurance
contributions and the costs of granted benefits must be settled between the
competent institutions and any potential differences must be refunded to insured
persons or paid by them.
Exception to the rules
Also, under the New
Regulations exceptions to the rules mentioned above may be applied for. As in
the past, both member states must agree on the exception to which no legal
TRANSIT FROM THE CURRENT TO THE NEW REGULATIONS
Under the transitory provisions of the New
Regulations and decision No. H1 of the Administrative Commission for the
Coordiantion of Social Security Systems, E
forms issued during the effect of the Current Regulations will also apply after
1 May 2010 until they cease to be valid or are withdrawn or replaced by
documents issued under the New Regulations (in maximum for 10 years) .
The goal of this text was to draw attention mainly
to certain new provisions concerning coordinating social security in Europe and
determining the relevant rules upon the application of the New
Regulations. An employer in the EU
and the self-employed should not forget that only based on the complex
application of coordination regulations in individiual cases may they save
costs and avoid sanctions in practice.