There may be consequences for the social security of employees working from home in a foreign country.

When a company instructs its employees to work from home, it has to take special care. Social security law in Germany and also in many other countries is based on the place of employment. When the place of employment moves abroad permanently, the social security obligation will generally no longer apply in Germany, but in the employee’s country of residence instead. The situation is considered to be “permanent” when there is no time limit as such. Companies then have to change the payroll statements, deregister employees from the German social security system and find a way to pay the social security contributions that may fall due in the foreign country. This often requires the company to register locally at the foreign social security authorities or to have local shadow payroll accounting; this can also be performed by a service provider.

Within the EU/EEA/Switzerland

If an employee moves their work location to another EU/EEA state or Switzerland and works exclusively from there, companies will generally have to pay the social security contributions in the country concerned. The company has to register in these countries, and in some cases even has to implement local shadow payroll accounting. There is often the option to transfer the reporting and payment obligation to the employee. In this case, the company pays the employer and employee contributions to the employee, who then transfers them to the foreign authorities. Even if this is the procedure used in many European countries, the company has to be aware that liability for unpaid, late or underpaid contributions does not transfer to the employee and that it remains responsible for compliance with the corresponding regulations.

Several locations within the EU/EEA/Switzerland

If an employee works from home in a foreign country and also has regular working days in Germany, the social security question depends on the frequency of days worked on either side of the border. However, in these commuter or cross-border worker situations, the foreign social security law often applies – i.e., as soon as the employee works 25% of the time from home.

Outside the EU/EEA/Switzerland

If an employee moves their work location from home to a third country, companies will also generally have to pay the social security contributions in this country. Unlike the situation within the EU/EEA/Switzerland, in most other countries there is no option to transfer the contribution payments and registration obligation to the employee. Companies therefore have to take action and endeavor to pay the correct social security amounts. There are no uniform regulations in third countries, meaning that there are different rules and processes applicable in each country. The penalties when companies fail to meet their obligations also vary. Some countries even threaten criminal proceedings for missing social security contributions, for both the employee as well as for the general manager or management board of the German company. If the employee works some days in Germany, the German social security obligation applies for these working days.

Working from home temporarily in a foreign country

If an employee temporarily works from home in a foreign country, for example because they are supporting family members and occasionally spend time with the family in another country, it may be possible to remain within the German social security system. This ultimately depends on the duration, the country and the existing requirements of the applicable social security law. In these cases, companies can consult with the health insurance company responsible to find out whether the German social security obligation can continue to apply. This information should, however, be used with caution, because this does not necessarily mean that companies have no obligations in the other country. In particular, the situation caused by COVID-19 will be evaluated again separately by the social security agencies to ensure that there will be no disadvantages to employees or employers from temporarily working from home in a foreign country because of the coronavirus and that the German social security can continue to apply.

Within Germany, there are potentially implications for social security law if the place where an employee is working from home is in a different social security jurisdiction (east or west Germany).

This article has been recently published in Tax & Law Magazine Q3. Please also take a look at the Tax & Law Special „My home is my office. The Tax & Law Magazine is the customer magazine of EY’s tax and legal department. It is also available in digital form in our EY Tax & Law DE News App (available in the App Store for iOS and Android).

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