The new UK/EU social security protocol

Following uncertainty in relation to the implications of Brexit on social security arrangements between the UK and EU member states, and in particular the question of where social security contributions should be paid following 1 January 2021, the UK - EU Trade and Cooperation Agreement agreed on 24 December 2020 outlines the UK and EU's continued cooperation in respect of social security coordination. In particular, the Agreement contains a lengthy Protocol on Social Security Coordination, which sets out the framework for the application of social security, including contributions, to cross-border workers with the aim of ensuring that social security contributions are only paid in one state. This Protocol has  been specifically implemented as part of UK domestic law by s.26 of the EU (Future Relationship) Act 2020.

The Protocol will generally ensure that social security contributions continue to be paid in one state only in cross-border worker situations. However, the rules on cross-border temporary secondments are subject to opt-in on an individual member state basis which may lead to some significant divergence with the pre-2021 regime.

Background

Prior to the end of the transition period, the UK, treated as an EU member state, was subject to the EU social security rules which are found in EU Regulations (the EU Social Security Contributions Regulations (EUSSC)). The basic principles of these rules are that an employee and their employer shall only be subject to the social security rules of one country at any given time and the country in which contributions are to be paid will typically be where the work is undertaken. These regulations will be retained in UK law at the end of the implementation period and in general will continue to apply to individuals who remain in the category protected by the Withdrawal Agreement, for example those in cross-border situations on 1 January 2021. They will not, however, apply to any new cross-border worker situations after 1 January 2021.

The new Protocol

In line with the rules applicable prior to the end of the transition period, the Protocol provides that cross-border workers and their employers will only be liable to pay social security contributions in one state at a time and that in general such social security contributions will be paid in the country where the work is undertaken, irrespective of where the employer is based or where the employee typically resides.

Whilst this general rule brings more clarity to the social security arrangements, the rules applicable to UK employees sent on temporary secondments by their employers (so called 'detached workers') in the EU may be more complicated and, unlike in the rules applicable prior to the end of the transition period, will depend on which country the employee is working in. In contrast to the old rules, these special 'detached workers' rules apply in circumstances where an employee is sent on a temporary assignment or secondment to another state for a period of less than 24 months (provided that they are not simply replacing another "detached worker"). Under the pre-2021 rules, social security contributions would continue to be paid in the home member state of the employee in such cases, however, under the Protocol the place where contributions are payable in these circumstances will depend on whether the relevant member state has opted-in to allow contributions to be continue to be paid in the home state. States had until 1 February 2021 to indicate their choice, but all States have in fact agreed to continue the previous treatment. There remains the option for states to give two months’ notice to stop applying these rules, but it is not thought that this is a likely outcome.

The general rule

In more detail, where a worker works both in the UK and a member state of the EU, then Article 12 of the Protocol will determine where contributions should be made. Such a person shall be subject to the legislation of their State of residence if that person pursues a substantial part of their activity in that State. If they do not pursue a substantial part of their activity in the State of residence, then the relevant State will be:

• the State in which the registered office or place of business of employer is situated if that person is employed by one employer; or
• the State in which the registered office or place of business of the employers is situated if that person is employed by two or more employers which have their registered office or place of business in only one State; or
• the State in which the registered office or place of business of the employer is situated other than the State of residence if that person is employed by two or more employers, which have their registered office or place of business in a Member State and the United Kingdom, one of which is the State of residence; or
• State of residence if that person is employed by two or more employers, at least two of which have their registered office or place of business in different States other than the State of residence.

Article 12(5) of the Protocol provides that a person who normally pursues an activity as an employed person in two or more Member States (and not in the UK) shall be subject to contributions in the UK if that person does not pursue a substantial part of that activity in the State of residence and that person:

• is employed by one or more employers, all of which have their registered office or place of business in the United Kingdom;
• resides in a Member State and is employed by two or more employers, all of which have their registered office or place of business in the United Kingdom and the Member State of residence;
• resides in the United Kingdom and is employed by two or more employers, at least two of which have their registered office or place of business in different Member States; or
• resides in the United Kingdom and is employed by one or more employers, none of which have a registered office or place of business in another State.

Annex 7 to the Protocol defines "substantial" for these purposes: "a 'substantial part of employed or self-employed activity' pursued in a State shall mean a quantitatively substantial part of all the activities of the employed or self-employed person pursued there, without this necessarily being the major part of those activities."

To determine whether a substantial part of the activities is pursued in a State, the following indicative criteria shall be taken into account:

• in the case of an employed activity, the working time or the remuneration; and
• in the case of a self-employed activity, the turnover, working time, number of services rendered or income.

Where less than 25% of these apply to activity, that is an indicator that a substantial part of the activities is not being pursued in the relevant State.

EEA and Switzerland

The general rule relating to social security contributions coordination is also applicable to UK workers in Norway and Switzerland. The "detached worker" principle will be automatically applied in respect of temporary workers in Norway, Switzerland and Iceland, with no opt-in mechanism required (though the relevant qualifying periods vary depending on the country). For further details, see HMRC guidance.

To read other articles in our series of client insights on Brexit - People issues, please see useful articles on our Brexit Feature page.