Which IT company sends its employees abroad?
Change of residence: When the home office moves abroad with you
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Because the 35-year-old programmer Sebastian Hinze fell in love with a local while on vacation in Spain, he asked his employer whether he could also do his tasks from abroad. He had always done a large part of his programming work from home anyway, because there he had the necessary peace and quiet to write the complex algorithms. Because his employer did not want to do without Hinze's expertise, he agreed. The HR department agreed with him that he could do most of his work from Spain as part of home office activities and that he would fly to Germany every five to six weeks for four to five days to work at the Berlin location. Since the company does not have a branch in Spain, the classic posting to an affiliated company could not be used.
However, it was agreed to withhold social security contributions and taxes from Sebastian Hinze's salary for the working days in Spain.
It was intended that this money would be made available to him in order to be able to meet the assumed tax and social security obligations in Spain. Due to the lack of a local branch, this obligation should be fulfilled by the employee himself. In addition, the HR department instructed the employee to apply for an A1 certificate from the competent authority in Spain. An external consultancy recommended this.
Rejection notice due to ignoranceDue to his general ignorance of these social security and tax law issues, the IT specialist applied for the A1 application procedure on the basis of Art. 12 Paragraph 2 of Regulation (EC) 883/2004 for a freelance work on site after moving to Spain. A few weeks later - the programmer had long since given up his place of residence in Germany and was already working for his Berlin employer from Spain - he received a rejection notice as well as a request to pay the tax and social security contributions for his work in Spain.
Hinze's employer also received a letter from the Spanish tax and customs office asking them to clarify the employee's status under labor, tax and social security law and to immediately comply with the country's legal requirements - otherwise, in addition to fines, there is also a risk of business prohibition. What happened?
Missing social security contributions
The idea that the worker in Spain should apply for an A1 certificate turned out to be absurd. If it had been wrongly complied with, it would only have resulted in the employee being exempted from the social security obligation on site. However, this was not the aim of the employer at all. Rather, the HR department mistakenly thought that Sebastian Hinze could have paid the withheld social security and tax contributions independently. Furthermore, it was fatal - and in the worst case actually punishable - that no social security contributions had been paid for the programmer in Germany either. Because although he only worked a few days a month in Germany and mainly in the home office in Spain, there was still a contribution obligation. As a result, the company initially had to pay contributions for the 35-year-old's working days in Germany.
For employees like Sebastian Hinze who work for an employer in several Member States, the social security obligation for multiple employment in the EU has also been defined in more detail.According to Article 13 Paragraph 1 a) of Regulation (EC) No. 883/2004, such employees are exclusively subject to the legal provisions of the Member State of residence if they perform a substantial part of their work there. Essential here means that the employee generates at least 25 percent of the work output in their new home country. The activities in the other country (in this case Germany) must not account for less than five percent of the working time, otherwise they would be insignificant and therefore not to be taken into account. After all, Mr. Hinze met these requirements. This calculation is usually based on 12 calendar months.
Effects of multiple employment in the EU
In contrast to posting under social security law, the employment here usually has to be carried out in Germany and Spain and must not be of a short-term or temporary nature. Contributions in Germany would only not have to be paid if the programmer had only worked sporadically and not regularly in Germany and had done most of his work in Spain. In this case, Sebastian Hinzes would have been employed in only one country (i.e. Spain) and the work stays in Germany would then have been more situational “business trips”, for which an A1 certificate must also be applied for.
What steps does the HR department have to take so that the programmer can continue to work for the Berlin company on a legally secure basis? First of all, the A1 certificate must be applied for, so that it can be proven that for Sebastian Hinze only the Spanish legal provisions and no longer the German ones apply to Sebastian Hinze in matters of social security law.
The social security contributions are generally to be paid in Spain. In accordance with Article 21 (1) of Regulation (EC) 987/2009, the Berlin software company as an employer is fundamentally obliged to pay the contributions in Spain as the competent member state, as if the latter had its registered office or branch there. According to paragraph 2 of this ordinance, the employer can agree with Sebastian Hinze as an employee that he will fulfill the employer's obligations to pay the contributions without affecting the employee's ongoing obligations. Such an agreement would have to be communicated to the competent institution in Spain.
But be careful: This is a completely different application process than a posting.
Tax residency in Spain
In order to guarantee the payment of contributions in Spain, a tax office must be commissioned to register the Berlin company for social security. In addition, a monthly pay slip must be made in Spain. This serves both as the basis for social security contributions and for paying wage tax. Due to Hinze's relocation, he is resident in Spain for tax purposes, which is why he is also taxable in Spain.
The HR department also has an urgent need for action in the drafting of the employment contract for Hinze's employment relationship. So it is essential that the employment in both countries is recorded in the employment contract. In addition, an additional agreement for home office use is required, in which it is also documented that the place of work in Spain is not a place of work. It must also be specified that the programmer works mainly in the home office, but also works for four to five days a month at the Berlin location. The existing employment contract is also the basis for the labor law claim that Sebastian Hinze has against his employer.
INFO: Home office in other EU countries: HR managers should pay attention to this
1. Are you employed in several EU countries?
The determination of the place of residence is decisive for the payment of the social security contributions, provided that a substantial part of the work is carried out there.
Ordinary employment in several member states can be evidenced by an A1 certificate specifying the uniformly applicable legal provisions and payment of the total social security contribution in only one member state (basis: Art. 13 Regulation (EC) No. 883/2004).
2. What is the scope of the social benefits abroad?
Pay attention to special regulations on site such as mandatory payments in pension funds. And clarify whether there are gaps in supply that need to be filled.
3. Is there a payroll and registration requirement at the place of work abroad? Have the necessary adjustments been made to the employment contract?
These include, among other things
• Determination of the place of work abroad
• Documentation of home office activities
• Additional agreement on working days to be performed at the home location
• Provide information on payroll (who does payroll at the place of work?)
• Clear regulation of working periods in the country of residence and abroad at the employer's location
• Obligation of the employee to document his working days
4. Is the establishment of a permanent establishment excluded despite the employee's activity abroad?
Otherwise, this can result in extensive obligations.
5. Is the employee sufficiently informed about his rights and obligations?
• Receipt of health and social benefits abroad and at the place of employment
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