CIBR Blog

The new regulation provides both challenges and opportunities. Employers with cross-border worker populations should carefully consider how the changes to the social security contribution will impact their international operational cost and how these contributions will impact international assignments. They should find out how the operations can be designed in order to benefit from reduced social security liabilities.

The new Regulation (EC) N° 883/2004 of the European Parliament and the Council of 29 April 2004 on the coordination of social security schemes (hereafter ‘Regulation 883/2004’) is was applied on 1 March 2010. This may have a significant impact on the social security situation of your mobile employees.

As opposed to the old legislation, the new Regulation focuses on the coordination rather than the harmonization of the EU Member States social security systems, thus respecting the characteristics of national social security legislation.

The main purpose of the new regulations is that of simplifying the existent rules and procedures, while reinforcing the basic principles that they are based on, regarding equality and freedom of movement of workers within the European Union.

How will this affect your business?

The application of Regulation 883/2004 may require you to revise the social security situation of your mobile employees. You may be required to adapt expat policies and compliance processes and to restructure employment relationships.

The implementation of Regulation 883/2004 could have financial consequences. As one or the other social security regimes may prove to be more advantageous from a cost perspective, the introduction of Regulation 883/2004 could also create certain optimisation opportunities.

Finally, the fact that the employee could explicitly request that the new Regulation is applied will require careful consideration and management.

In the transitional period employers will have to be prepared to manage two different systems.

Regulation (EC) N° 883/2004

As a consequence of the repeated amendments and modifications that Regulation no. 1408/1971 (the main European regulation regarding social security) was subjected to in order to reflect the changes in both European and national legislations during the past years, the rules for coordination of social security systems have grown in complexity. Given the fact that the modernization and simplification of these rules was considered essential in order to achieve the goal of freedom of movement of EU citizens, the European Commission adopted a new set of rules in the field of social security.

Regulation 883/2004 and its implementing regulation (to be published in September 2009) will be replacing Regulation (EC) N° 1408/71 (hereafter: ‘Regulation 1408/71’) as of 1 May 2010.

As a result, the EU regime for the coordination of social security schemes will be affected. Some of the major changes are briefly outlined below.

Major changes

Assignments

Currently, i.e. under Regulation 1408/71, the period during which an employee can remain eligible for the social security scheme of his/her country of residence while he/she is on assignment abroad, based on the general assignment article, is equal to 12 months. Under the new regulation this period has been extended to 24 months. This means that the application for a 24 month assignment will no longer require the intervention from the social security authorities of the host country.

The possibility to apply for a longer period (based on article 17 - generally up to 5 years – for which intervention from the authorities of the host country is required) will however remain in place. Also, the main conditions for assignment remain unchanged.

Simultaneous employment

Under Regulation 1408/71, in the case of simultaneous employment in several states for one and the same employer, a person is subject to the social security scheme of his/her country of residence if he/she pursues part of his/her activities in the country of residence (in many countries 1 day per month on average is sufficient in this respect). Under Regulation 883/2004, an employee will only be subject to the social security scheme of his/her country of residence, in a similar situation, given that he/she performs a substantial part of his/her activities in the country of residence. ‘Substantial' activities are defined as 25% or more of the working time, remuneration or turnover. This definition could change the social security situation for a number of mobile employees who are working in several countries and who are currently subject to the social security scheme of their country of residence.

In addition, under the new regime, the so-called ‘Annex VII situations’, whereby a person may exceptionally be subject to two different social security schemes, has been abolished. In the future, a person, who works as an employee as well as a self-employed person in several countries at the same time, will automatically be subject to the social security scheme for self-employed persons of the state which is already competent for the employed activities (with regard to the totality of his activities).

Benefits

Certain changes will occur with regard to the provisions relating to specific branches of social security benefits. For instance, exportation of unemployment benefits will now become possible during a period of 6 months instead of 3 months under Regulation 1408/71.

Transitory rules

During a transitory period (10 years), the provisions of Regulation 1408/71 will continue to apply to existing situations as long as the factual elements of the existing situation have not changed, unless the employee explicitly requests that the new Regulation is applied.

It is important to note that the provisions of Regulation 1408/71 will continue to apply with regard to third country nationals, as the new regulation will only apply to them once the EU Members States have agreed to enlarge the scope of application to that extent. The provisions of Regulation 1408/71 will also continue to apply in relation to Norway, Iceland, Lichtenstein and Switzerland, as agreements with those countries still have to be concluded with regard to the application of Regulation 883/2004 for workers moving within the EEA and Switzerland.

Coverage

The provisions cover anyone who moves to another Member State to settle permanently, work temporarily or study, and even those who are travelling to take a holiday (e.g. tourists, mobile workers, jobseekers, retired people, etc.).

Summary of the most important provisions of Regulation 883/2004 are:

· Regulation 883/2004 will repeal Regulation 1408/1971, but the latter will still be applicable regarding some acts and treaties that the Community is part of, in order to ensure the legal certainty;

· Only one social security system will be applicable at a time for the same person;

· The applicable legislation will be established under the provisions of Title II of Regulation 883/2004;

· Situations of simultaneous insurance in two or more Member States of employed or independent workers, will no longer be possible;

· Possible modifications of local registration procedures and withholding and payment of the contributions;

· The documentation that governs secondment missions will be changed;

· Electronic communication and information or documents exchange between relevant authorities of different Member States will become mandatory;

· The certificates (forms) regarding the applicable legislation are to be replaced by an electronic certification system, as coordination of the relevant institutions from different Member States will be put in place;

What’s next?

The new regulations state a transitional period between the adopting of the implementation regulation and its entering in force. This period is used by national institutions of the Member States to prepare the transition to the new procedures.

Also, an Administrative Commission will be established in order to coordinate the social security systems. The Commission will be composed of a Government’s representative from each of the Member States and will play an important part in facilitating a unitary application of the Community Law, promoting and development of cooperation among the Member States and their relevant institutions in the field of social security. The Commission will also encourage a broader use of the new technologies, in order to facilitate the freedom of movement of the EU citizens.

Furthermore, the new legislation regulates the establishment of a series of mechanisms for the guarantee of the proper functioning and cooperation among the Member States and their relevant institutions in the field of social security. As a consequence, a technical commission, an audit board as well as a consultancy committee will be established.

During the transition period, the provisions of the Regulation 1408/1971 will still be applicable to the existing situations, as long as the facts remain unchanged or the employee does not expressly request the application of the new provisions.

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