Working remotely from another country – Social security law

Working from locations outside the employer’s premises (remote working) has experienced a remarkable boom since Covid, if not before. This type of work lets employees carry out IT-based activities outside the traditional office environment, especially from home.

Since then, remote working from home, even outside Germany, has become increasingly popular and frequently requested at German companies, especially by employees whose families live abroad. A taskforce within the EU has therefore developed clear rules in the field of social security law. The multilateral Framework Agreement on the application of Article 16(1) of Regulation (EC) No 883/04 in cases of habitual cross-border telework (“Framework Agreement”) was drawn up; EU Member States and other countries can sign up to this. Currently, in addition to Germany, all countries bordering Germany (including Switzerland), with the exception of Denmark, are participating in the Agreement. The UK, Italy and Greece, among others, have not yet signed the Framework Agreement.

From a German perspective, under the rules of the Framework Agreement an employee who lives outside Germany and wishes to work from there on a regular basis, even if they have a workplace at an employer’s German premises, can remain in the German social security system on certain conditions.

However, this is only possible if remote work in the foreign country of residence makes up less than 50% of the employee’s total work over the next twelve calendar months and the employee therefore is going to spend more than 50% of their working time in Germany. Since 1 July 2023, employers have been able, with the employee’s consent, to apply to the competent (German) social security authority to enter into an exemption agreement (“Exemption Agreement”) on the basis of the newly drawn-up Framework Agreement. German social security law will then remain applicable on the basis of the Exemption Agreement.

The Framework Agreement has been entered into for an initial period of five years and will presumably be extended automatically for another five years.

Conditions for the continued application of German social security law

The requirements for the Exemption Agreement and thus for remaining in the German social security system are:

• The employee works remotely, i.e. performs an activity that can be done regardless of location and could be done on the employer’s premises.
• The employee wishes to carry out that activity on a cross-border basis, i.e. in a Member State other than that in which the employer is established.
• The employee’s job involves the use of information technology.
• The employee performs their work not only in their country of residence but also in the country of the employer's registered office.

Significance for cross-border remote work

Based on the Framework Agreement, German employers can now allow an employee to work from home even if this home is located in a (neighbouring) foreign country and the employee wants to work there for almost half of their working time.

Previously, in cases where the employee performed more than 25% of their work in their (foreign) country of residence, the social security law of the country of residence was applicable (Article 13(1) Regulation (EC) 883/04). Now, according to the new regulation, German social security law will remain applicable even if the employee works remotely in their country of residence for almost 50% of the time.

Since the employee remains in the German social security system, there is no further administrative burden for the employer regarding payroll accounting.

Caution – Check foreign labour and tax law implications!

However, when employees work remotely across borders, employers must ensure that the mandatory legal provisions of the foreign country are complied with, especially in the area of employment law. These will usually impact working hours and other employee protection regulations.

We strongly recommend that employers keep careful written documentation in a supplementary agreement to the employment contract. In some cases additional obligations to provide evidence according to the law on evidence must also be complied with.

In addition, employers must check whether there are any tax obligations abroad if the employee performs their work there (remotely). This can have wage tax implications and also raise the issue of a permanent establishment of the employer abroad at the level of income tax.

Outlook: The future of global remote work

Currently, 19 states have acceded to the Framework Agreement, with more expected to follow.

The Framework Agreement marks a significant step in shaping the global remote-work landscape. While it already offers new opportunities to employees and employers, the future of global remote work looks exciting. Technological developments and changing working (time) models will continue to influence how employees and employers organise work in a global context. Companies should maximise the benefits of the Framework Agreement while adapting their employment practices to the changing demands of the global workplace.

Employers based in Germany should check whether employees’ countries of residence are covered by the Framework Agreement and, if required, apply for an Exemption Agreement. If more than 50% cross-border remote work is to be arranged and German social security law is still intended to apply, there may be the option of a “normal” Exemption Agreement pursuant to Article 16(1) of Regulation (EC) No 883/2004.

We will be happy to advise you on which option is most suitable for you in each case.