The reported cases of the Omicron variant are increasing exponentially across the globe as I write this blog in early December 2021. Some countries have re-imposed travel restrictions, and companies are delaying employees’ return to the office. The emergence of Omicron and the plausibility of future variants are more factors supporting the idea that remote work may become permanent.
In the two earlier blogs of this remote work series, I explained the permanent establishment and personal income tax risks when employees work remotely in a country different from their employers. These risks may trigger new or additional corporate tax liabilities, payroll withholding obligations, and related filing requirements for the company. This blog covers social security contribution risks.
Employees and their employers are generally obligated to contribute to social security programs in the country where work is performed, or where workers are physically present. A key exception occurs when 1) employees are temporarily posted to another country, and 2) the two countries have entered into a bilateral agreement or are party to a multilateral agreement, such as the one covering the European Union countries plus Iceland, Liechtenstein, Norway and Switzerland. These temporarily posted or detached workers and their employers continue contributions to the social security programs in the country where they normally work.
At the onset of the pandemic, many countries, especially those within the EU, provided temporary measures for employees and employers to continue contributions where employees normally worked, even if they were working from another jurisdiction due to travel restrictions. While some authorities have extended the expiry date, these measures do not apply if the remote work from a different jurisdiction becomes a permanent arrangement.
If the employer already operates a local payroll in the remote work location, the additional administration costs may not be substantial. However, the cost of employers’ portion of the contributions will differ because social security programs and their funding vary significantly across countries. For example, the employers’ portion of social security contribution is over four times higher in France compared to the Netherlands. Moreover, France imposes an additional 5% payroll tax. Therefore, it is prudent to evaluate the change in costs as part of the approval process when considering permanent remote work requests.
If a local payroll is not available, employers will need to introduce new processes to satisfy the country’s social security contribution withholding and reporting requirements in addition to the income tax withholding obligations.
As global circumstances change, more employees may request to permanently change their work arrangements. Social security risk will be an important element for organizations to evaluate as part of their approval processes when considering such requests. Employers will want to assess the change in their contribution costs along with the costs to meet withholding obligations, especially in countries where their companies do not normally operate. Equus can help!