Recent uncertainty around Brexit has highlighted concerns and questions regarding social security issues for detached workers, or employees on temporary assignments.
Most countries provide social benefits for workers, such as pension upon retirement, after minimum eligibility requirements are met. These requirements vary significantly, but typically include a minimum length of coverage, or credited contributions. For example, the United Kingdom requires a minimum of 35 years of credited contributions for retirees to receive a full state pension payout.
Overseas assignments can complicate social security situations for workers and their employers. Contributions are generally obligatory in the country where work is performed, or the host country during an assignment. However, if contributions to the home country schemes are discontinued, employees’ coverage period will be interrupted, potentially impacting future benefits entitlements. Dual contributions to the home and host countries’ programs increase costs, potentially to the extent that an assignment may not be approved.
To remove these complications, many countries have signed social security agreements. These agreements may be bilateral (between two countries) or multilateral (among countries in an economic region, such as the European Union). At a basic level, agreements limit contributions, by employees and employers, to either the home or host country, but not both; and allow for continued home country contributions during temporary assignments. Detachment periods ranging from 24 to 60 months can be considered temporary. Furthermore, if host country contribution is necessary, these agreements allow “totalization” – that is, periods of coverage in a host country can also count towards credited contributions in the home country to determine benefit entitlement.
The social tax feature of the Equus Tax Engine automatically decides which country’s contributions to include in delivering tax cost estimates. The Engine calculates home country contributions if an agreement is available and the assignment duration is within the detachment period. Otherwise, the Engine calculates host contributions if required based on the country’s rule.
What about Brexit? Following the United Kingdom’s departure from the EU, a new Protocol on Social Security Coordination applies for assignments starting after December 31, 2020. All EU member nations have opted into this new agreement, which specifies a 24-month detachment period. Cost estimates created for 2021 and beyond for assignments between the UK and EU countries will calculate the home country contributions if the assignment duration is 24 months or less.
The Equus Tax Engine’s automatic social tax feature saves time and resources by incorporating up-to-date information on applicable totalization agreements. New agreements and changes to existing ones are promptly identified and updated in the Tax Engine, so you can deliver tax cost estimates with speed and ease.
Learn more about the Equus Tax Engine.