Mobility Matters May 2021 issue

Brexit and Its Impact on Global Mobility: Past, Present, and Future

May 2021 | by Daida Hadzic, Meijburg & Co., The Netherlands, and Yoori Sohn, KPMG LLP, United States (Meijburg & Co., and KPMG LLP (U.S.) are member firms of KPMG International

The European Union (EU) and the United Kingdom (U.K.) signed the Trade and Cooperation Agreement (the Agreement), including the Protocol on Social Security Coordination (the Protocol) on 30 December 2020.1 The Protocol is effective as of 1 January 2021 and covers mobile workers between the U.K. and the EU. This marked a beginning of a new relationship between the EU and the U.K. – now two distinct markets and two distinct legal spaces.

Why is it important to look at the past, present and future all at the same time? Mobile workers who are affected by Brexit, and their employers, must note that there are significant differences between the rules laid out in the Protocol and the rules laid out in EU legislation. The decisions on whether the rules in the Protocol apply or the rules in the EU legislation can continue to apply to a mobile worker will impact not only present, but also future social security coverage for the mobile worker and his/her current and future employers.

This article looks at the various agreements between the EU and the U.K. to help facilitate relations between the two parties in light of Brexit and how they govern the application of social security rules to mobile workers and their employers and in what ways they needed, and need, to comply with the new rules, pre-Brexit and post-Brexit. 

First Exit

The U.K. formally withdrew from the EU on 31 January 2020, and the two parties entered into a transitional period from 1 February 2020 to 31 December 2020, laid down in an EU-U.K. Withdrawal Agreement.

During the transitional period from 1 February 2020 until 31 December 2020, mobile workers between the U.K. and the EU continued to be covered under the EU’s social security legislation. Table A below illustrates, in brief, the scope and aspects of the Withdrawal Agreement versus existing EU legislation. 

Table A below confirms that there are no changes during the transitional period regarding how social security benefits are covered, grandfathered, and exported, nor regarding which working situations allow continued application of social security in the home country.

As the end of the transitional period approached, employers with mobile employees in the U.K. and across the EU were reexamining their mobility programs in order to appropriately assess the changes in the rules, to foster adherence to policies being put in place as a result of the new Brexit deal. 

New assignments between the U.K. and the EU beginning after the transitional period must look to all options to prevent disruptions in social security protections. In addition to concerns over coordination of social security contributions and benefits, employers must take steps to remain compliant and retain protections for their mobile employees going forward. 

Table A

  EU-UK
Withdrawal
Agreement
EU
Legislation
for Social
Security

Material Scope

Sickness benefits and beneifts for accidents at work and occupational diseases         ✔                 ✔     
Maternity/paternity benefits         ✔              ✔     
Pre-retirement, old age and survivors benefits: and death grants         ✔              ✔     
Family benefits         ✔              ✔     
Unemployed benefits         ✔              ✔     
Invalidity benefits         ✔              ✔     
 

Coordination rules

Main rule social security in the country jurisdiction of work applies         ✔              ✔     
Posting up to 24 months         ✔              ✔     
Extension of posting for over 24 months         ✔              ✔     
Posting over 24 months         ✔              ✔     
Work in more than one country/jurisdiction         ✔              ✔     
Special agreements (e.g., extension of posting, postings longer than 24 months,
deriving from rules for work in more than one country/jurisdiction, etc.)
        ✔              ✔     

Source: Meijburg & Co.


Social Security Coordination Pre-Brexit, during Transitional Period, and Post-Brexit 


Past: EU Social Security Coordination Rules Pre-Brexit


Social security coordination in the EU is regulated under the EC reg. 883/2004.2 These coordination rules apply directly and uniformly in all EU and European Economic Area (EEA) countries, and in Switzerland. The rules are meant to help ensure minimal disruptions in social security protection for mobile persons. 

The four key principles of the coordination rules are: “single state,” equal treatment, aggregation of insurance periods, and exportability of benefits. 

The single state principle provides that at any one time, a person is covered by one country’s social security rules and the employer and employee are liable to make contributions in that one country. 

The equal treatment principle includes a requirement that a person has the same rights and obligations as a national of the EU member state where he or she is covered.

The aggregation principle (also called the “grandfather rule”) requires periods of insurance, employment, or residence in other EU member states to be taken into account when determining a person’s eligibility for benefits.

Finally, the exportability principle allows the individual to receive benefits from EU member states even if he or she is a resident in another member state. 

EU Coordination Rules in Brief

  • Detached/posted workers who are seconded/assigned by an employer to work in another EU country remain subject to the legislation of their home country up to 24 months. With mutual consent between the host and the home country, the detachment/posting may be extended up to five years or even longer. 
  • Detached/posted workers can be seconded/assigned again after the first 24 months has expired and maintain social security coverage in the home country.
  • Multi-state workers are covered by the legislation of the country of residence if they carry out a substantial part of their activity (at least 25 percent) in that country. 
  • If multi-state workers do not carry out a substantial part of their activity in the country of residence, they are covered by the legislation where their employer is situated.
  • A range of social security benefits are protected and within the scope of coverage including sickness benefits; maternity/paternity benefits; old-age, pre-retirement and invalidity benefits; survivors' benefits and death grants; unemployment benefits; benefits for accidents at work and occupational diseases; and family benefits. 

Beginning 1 February 2020, when the Withdrawal Agreement entered into force and began the so-called transitional period, the European Community (EC) regulations remained as the governing rule for social security coordination between the U.K. and the EU member states. 
 

Transitional Period: Withdrawal Agreement and the Aggregation Rule


The scope of the Withdrawal Agreement covers mobile workers who were in cross-border situations (e.g., as multi-state workers or detached/posted workers) between the U.K. and EU/EEA/Switzerland at the end of the transitional period (i.e., from 1 February 2020 to 31 December 2020).

Social security protections remained coordinated, and operated in the same manner as pre-Brexit, during the transitional period under the Withdrawal Agreement (as noted in Table A above). Mobile workers who remained in or entered into cross-border situations during the transitional period were eligible to apply for a certificate of coverage (the so-called A1 certificate4) for social security based on the existing EC regulations and for the maximum allowable extensions. 

The following examples of cross-border situations fall within the Withdrawal Agreement:

  • Example 1: A Polish national posted to the U.K. for a two-year assignment on 1 May 2020;
  • Example 2: On 31 October 2020, a U.K. national posted to France applied for an extension for an additional three years after having already been posted for 24 months; and
  • Example 3: A German national residing in the U.K. since 1 February 2020 and working in both the U.K. and Ireland.
    As illustrated above, the Withdrawal Agreement and the A1 certificates issued for all working situations continue to cover and protect cross-border situations that existed before 1 January 2021. The aggregation principle (the “grandfather rule”) covers and protects existing cross-border situations between the U.K. and the EU/EEA and/or Switzerland as long as the situation continues “without interruption.” This means that the coverage under social security according to EC regulations can continue after 31 December 2020, which was the end of the transitional period.

A Working Situation Without Interruption

The European Commission’s guidance5 (“the Guidance”) on the Withdrawal Agreement provides that the phrase “‘without interruption’ has to be understood in such a flexible way that also short periods in between two situations are not harmful” and not every change in a situation is treated as an interruption.6

The Guidance notes that an individual within the scope of the Withdrawal Agreement could switch from one cross-border situation to another cross-border situation without causing the individual to fall out of scope; and short breaks in between situations should not be construed as being fatal to existing protections under the Withdrawal Agreement.7

Certain changes in cross-border situations that do not rise to a level of “interruptions” under the Withdrawal Agreement could be:

  • Example 4: A Polish national, residing in the U.K. and working for a U.K. employer at the end of the transitional period, will continue to be covered if she:
    - changes habitual residence from the U.K. to France while remaining employed by the U.K. employer;
    - becomes unemployed in the U.K. and continues to reside in the U.K.; or
    - after a period of unemployment finds employment with an Irish employer and performs services in the United Kingdom.8
  • Example 5: A U.K. national who resides in the U.K. but works in both the U.K. and the Netherlands is covered by Dutch social security. After a few years, the U.K. national begins to perform a substantial part of his work in the U.K. and has to apply the U.K.’s social security legislation. This situation still falls within the scope of the Withdrawal Agreement and the U.K. national would remain covered and protected.
    Thus, the Guidance leads to the conclusion that employers and employees should seek protection for social security under the Withdrawal Agreement, even if their working situation changes after 1 January 2021. For example, if an employee is posted on a two-year assignment from Germany to the U.K. from 1 November 2020, this will trigger the application of the Withdrawal Agreement, so social security coverage will be protected under the EC regulations as usual. If the employee were to change employers during or upon expiry of the assignment, and continue to work in the U.K. in some capacity, the Withdrawal Agreement would continue to apply to the employee and the new employer.

Thus, the Guidance leads to the conclusion that employers and employees should seek protection for social security under the Withdrawal Agreement, even if their working situation changes after 1 January 2021. For example, if an employee is posted on a two-year assignment from Germany to the U.K. from 1 November 2020, this will trigger the application of the Withdrawal Agreement, so social security coverage will be protected under the EC regulations as usual. If the employee were to change employers during or upon expiry of the assignment, and continue to work in the U.K. in some capacity, the Withdrawal Agreement would continue to apply to the employee and the new employer.

In summary, even if a company hires an employee after 1 January 2021, this does not automatically exclude the application of the Withdrawal Agreement and EC regulations. One might wonder that if there is a new social security Protocol that regulates social security between the EU and the U.K. from 1 January 2021, why is the application of the Withdrawal Agreement important to consider?

In comparison to the EC regulations, the new social security Protocol contains significant restrictions, in particular with regard to the duration of coverage under social security in the home country, the scope of social security benefits covered, and limitations on the exportability of certain benefits covered by the Protocol. More details can be found under the Post-Brexit: The New Social Security Coordination and New Challenges section below.

A Working Situation with Interruption

Returning to the earlier example of the Polish national, an interruption has occurred if the Polish national no longer works in the U.K. and changes her habitual residence to another EU member state. Here, an interruption has occurred because the cross-border situation involving the U.K. has now ceased to exist.9

In conclusion, changes that might occur in a working situation do not exclude the continued application of the Withdrawal Agreement as long as there is a continued EU-U.K. cross-border element.

Any new posting, business trip, or relocation to/from the U.K. after an interruption has occurred would fall under the new EU-U.K. Agreement and not under the Withdrawal Agreement.
 

Future: The New Social Security Coordination and New Challenges Post-Brexit


Scope of the Protocol

The material scope of the Protocol mirrors the benefits of the EC regulations with changes in family, unemployment, and invalidity benefits. While unemployment and invalidity benefits continue to be provided, specific conditions and limitations in respect of the exportability of these benefits apply.

Family benefits are not within the scope of the Agreement and are no longer coordinated. This means that eligibility for family benefits and the right to export such benefits rest entirely on the domestic legislation of each EU member state and the United Kingdom. 

The exportability of rights under the EC regulations means that entitlement to benefits is transferred intact between the EU member state and the U.K. without the risk of reduction, suspension, or amendment. However, without exportability, an individual’s right will have to be determined based on the domestic legislation of the host country, increasing the chance of ineligibility for benefits. 

Social Security Coordination and Lack of Clarity on Certain Matters

Social security coordination under the Protocol retains the single state principle. This means that employees traveling between the EU and the U.K. shall be covered by only one country’s social security rules at a time and that this country, as a main rule, is the country where the work is performed.10 The Protocol includes exceptions to the main rule that concern, among others, detached/posted workers and workers who work simultaneously in at least one EU country and the United Kingdom. These exceptions differ from those in the rules of the EC regulations, particularly with respect to:

- extensions of postings for over 24 months, which are not possible under social security in the home country;

- postings over 24 months, which are not possible under social security in the home country; and

- special agreements, which are no longer an option (e.g., extensions of posting, deriving from rules for work in more than one country/jurisdiction).

Unlike the EC regulations, the Protocol lacks a method for an extension of a detachment/posting beyond 24 months and for a detachment/posting that is intended to last over 24 months. 

Detached/Posted Worker Rule

Each EU member state listed below confirmed to adopt the detached/posted worker rules, which is a special “carve out” from the aforementioned main rule.11

- Austria, Belgium,  Bulgaria, Croatia, Czech Republic— Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain and Sweden

The detached/posted worker rule allows social security coverage in the home state for posted workers for up to 24 months.12 Unlike coordination under the Withdrawal Agreement, the Protocol does not provide a method for home country coverage to be extended beyond 24 months. 

Some examples:

  • Example 6: A detached/posted worker sent from the U.K. to Germany on 3 January 2021 for 24 months would be able to continue coverage under social security in the home state. However, it would not be possible to extend this posting beyond 24 months under the Protocol. If the posting is extended for three months after the first 24 months have elapsed, the last three months would become subject to German legislation (and no longer to that of the U.K.) on social security.13
  • Example 7: A detached/posted worker sent from the U.K. to Germany on 3 January 2021 for 25 months is subject to German legislation from the start of the posting.14

The above examples illustrate that the posted/detached worker rule does not automatically extend 24 months of home state coverage to all posted workers. The anticipated duration of the posting must also be considered when applying the detached/posted worker rule under the Protocol.

One of the several unanswered questions is how local administrations will treat a situation when a posting/detachment turns out not to exceed 24 months even though that was the original plan. Currently, local administrations have a diverse approach to this issue. Some are ruling according to how the situation was expected to be initially, while others are inclined to put more emphasis on the changed circumstances.

Regardless of the approach, this was not an issue under the EC regulations because an extension of 24 months is possible with the conclusion of a special agreement between the relevant countries. However, that is not possible under the EU-U.K. Agreement. This means that how countries approach this issue will determine the result.

Imagine that a worker is posted from Germany to the U.K. for 25 months under the Protocol. U.K. social security applies because the duration of the posting exceeds 24 months. Now let us say that for whichever reason, after six months in the U.K. the posting ceases and the worker returns to Germany. If German authorities issue a certificate for German social security for six months, how would the U.K authority react? The contributions are rightly paid in the U.K. and the posting was intended to last 25 months, so can a result be different depending on when you file an application for a certificate of coverage? Additionally, would it make a difference if the posting was intended to last longer, for example 36 months, and it ceased after 20 months?This is a problematic area because in the Protocol the countries do not have any flexibility to rectify unintended effects of the coordination rules by concluding special agreements. Another important point is that these issues highlight that the coordination rules for social security are not a matter of a unilateral decision that one country can make.

For example, if the German authority issues a certificate for German social security to the U.K. for six months for a detachment/posting that was supposed to last two and a half years, the U.K. authority has to agree that this is the correct result in order for it to be enforced. The U.K. authority can claim that there is no entitlement to reimbursement of social security contributions for six months, because the intended duration of the detachment/posting exceeded 24 months, so the U.K. legislation for social security applies regardless of the later changes to the duration of the detachment/posting.

This hypothetical example illustrates the importance of the uniform application of the rules. Moreover, even though a certificate of coverage has been obtained, that does not automatically entail that it can be enforced without objection from the authority that receives it.

Multi-State Worker Rule

The multi-state worker rule remains similar to the EC regulations in that a multi-state worker will be covered under the legislation of the state of residence if a substantial part of the work is performed in that state.15 If a substantial part of the work is not performed in the state of residence, then the multi-state worker will be covered under the legislation of the state where the employer is situated.16 

This provision is sometimes viewed as the preferred solution to the social security issue, because it applies for as long as an employee is a multi-state worker, and the employer and employee must meet fewer conditions in comparison to the provision on posting/detachment. This provision has been under scrutiny by some local authorities in the EU and by the European Court of Justice for some time and, as a result, case law has significantly changed the interpretation of certain elements in this provision. 

For example, in the case C-610/18 AFMB and Others,17 the European Court of Justice offered a new view on how the employer is defined in the provision for multi-state work. Local administrations will have to consider if these interpretations will be replicated in the implementation of the EU-U.K. Agreement.  

The U.K. administration cannot be expected to observe or implement rulings by the European Court of Justice, or any other intra-EU developments, in the implementation of the EC regulations. It is therefore important for employers and employees to scrutinise U.K. rulings on social security under the EU-U.K. Agreement, especially if there is an indication that the Agreement should be applied identically to the EC regulations and EU case law. 

The European Free Trade Association (EFTA)

The Agreement applies only between the EU and the U.K., which means that EFTA, which includes Iceland, Liechtenstein, Norway, and Switzerland, must rely on either existing bilateral social security agreements with the U.K. or negotiate new agreements to govern social security for cross-border situations as noted in Table B.

Table B

  Existing
Bilateral
Agreement
with the UK
EC reg.
884/2024
Iceland         ✖              ✖
Liechtenstein                      ✖
Norway         ✖              ✖
Switzerland         ✖             ✖


Switzerland

During the transitional period from 1 February 2020 until 31 December, the EU regulations on social security remain applicable without any change in the relations between Switzerland and the United Kingdom. From 1 January 2021, individuals in a cross-border situation between the U.K. and Switzerland are subject to the 1968 Convention on Social Security (the Convention).18 

It must be noted that coverage under the Convention does not coordinate social security for multi-state workers. In practice this means that when an individual works in both Switzerland and the U.K., social security in Switzerland will apply during actual work there, while during work in the U.K., U.K. social security will apply.19

See Table C below for brief insight into the scope and coverage of the existing Convention versus existing EU legislation.

Table C

  CH-U.K.
Totalization
Agreement
EU Legislation
for social
security

Material Scope

Sickness benefits and beneifts for accidents at work and occupational diseases         ✔                 ✔     
Maternity benefits (potentially also paternity benefits)*         ✔              ✔     
Pre-retirement, old age and survivors benefits: and death grants         ✔              ✔     
Family benefits         ✔              ✔     
Unemployed benefits                      ✔     
Invalidity benefits         ✔              ✔     
 

Coordination rules

Main rule social security in the country jurisdiction of work applies         ✔              ✔     
Posting up to 24 months         ✔              ✔     
Extension of posting for over 24 months         ✔              ✔     
Posting over 24 months         ✔              ✔     
Work in more than one country**          ✖              ✔     
Special agreements (eg. extension of posting, deriving from rules 
for work in more than one country etc.)
        ✔              ✔     

* There are no specific rules for paternity benefits in the TA. It is assumed that the paternity benefits will be considered to be
equivalent to maternity benefits and covered by the TA.

** The main rule applies to employees working in more than one country leading to a split in social security contributions
betweeen the two countries.

*** A mutual agreement can cover various situations, incl. extension of assignments, exemption from double liability, etc.

 Special conditions apply


In order to guarantee the rights that insured persons have acquired, an agreement on citizens’ rights has been concluded between Switzerland and the U.K., which applies from 1 January 2021. This agreement maintains the rights arising from Annex II (social security coordination) of the Free Movement of Persons (FMOPA)20 between Switzerland and the EU for persons who were subject to FMOPA before 1 January 2021.

This agreement has been supplemented by a decision21 of the Swiss-EU Joint Committee of the FMOPA, which extends the protection of rights to EU nationals and cross-border situations involving the EU.
 

Conclusion

New cross-border situations commencing after 1 January 2021 are governed under the rules set forth in the Protocol of the EU-U.K. Agreement. However, the Withdrawal Agreement – that in principle continues the application of the EU regulations for working situations initiated before 1 January 2021 – continues to apply as long as a EU-U.K. cross-border situation is not interrupted.

Employers and mobile workers should explore the possibility of continuing to apply the terms of the Withdrawal Agreement rather than becoming subject to the EU-U.K. Agreement because the EU-U.K. Agreement contains restrictions concerning coordination rules and benefits. Once the EU-U.K. Agreement applies, one cannot switch back to the Withdrawal Agreement.

As noted above, the EU-U.K. Agreement contains no flexibility regarding the limitation of a detachment/posting to 24 months; and, generally, there is great uncertainty regarding how the coordination rules will be interpreted and applied. On the benefits side, the EU-U.K. Agreement does not cover family benefits and puts limitations on exporting unemployment and disability benefits, which can have negative effects on employees and their families.

It can be advantageous for employers and mobile workers to pursue all options to continue applying the EU legislation for social security between the EU and the United Kingdom. Whether it is the EU legislation or the EU-U.K. Agreement that applies in a given situation will also have an impact on social security coverage and social security benefits in the future. 

If EU legislation ceases to apply, employers and mobile workers will have more limited options to prevent disruptions in social security coverage. As a result, the mobile worker could lose his/her right to benefits that he/she otherwise would be eligible for under EU legislation.

As mentioned above, EFTA countries that have a pre-existing social security agreement with the U.K. apply that agreement to coordinate social security between their respective countries and the U.K. on a bilateral basis. Such agreements usually do not reflect the contemporary mobility of workers and therefore contain certain limitations. For example, such agreements normally do not include coordination of social security for multi-state workers and can contain other limitations in comparison to the EU’s legislation for social security.
 

Footnotes:
 For information on the EU-U.K. Trade and Cooperation Agreement as well as links to the text of the Agreement, see: https://ec.europa.eu/info/relations-united-kingdom/eu-uk-trade-and-cooperation-agreement_en. The EU and the U.K. Agreement is applied provisionally from 1 January 2020, because the formal ratification of the Agreement could not be completed by 1 January 2021. On 28 April 2021, it was announced that the EU Parliament formally approved the new Agreement. This means that the ratification process is now completed and the Agreement will apply permanently.    
The European Community (EC) Regulation 883/2004 for coordination of social security systems and the European Community (EC) Regulation 987/2009 for the administration and implementation of the regulation for the coordination of social security. See the European Commission: Employment, Social Affairs & Inclusion webpage: https://ec.europa.eu/social/main.jsp?catId=867&langId=en. Unless otherwise noted and distinguished in the discussion, the EC regulations are to be assumed to apply in the same manner in the EU/EEA and Switzerland.
For information on the Withdrawal Agreement concluded between the European Union and the United Kingdom and links to the full text, see: https://ec.europa.eu/info/relations-united-kingdom/eu-uk-withdrawal-agreement_en.
A uniform EU certificate of coverage that confirms an individual remains subject to the social security coverage in his/her home country during a temporary employment in another country, issued by a social security institution in the competent country.
See: “Commission Notice: Guidance Note relating to the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community,” 3.1.3 Article 30(2) (12 May 2020).
6 Id.
7  Id.
8  Id.
Id.
10  EU-U.K. Trade and Cooperation Agreement, art. SSC.10.
11  The confirmation of the EU member states opting in to apply the provision for detached/posted workers is published in the Notice posted in the 16 February 2021 Official Journal of the European Union.
12  Id. at SSC.11.
13  Id. at SSC.11(1)(a). When a detached/posted worker is being posted to a new assignment in the EU, it may be worthwhile to consider whether the Withdrawal Agreement applies to the cross-border situation. As noted in the discussion, if the posting is a switch/change that does not constitute an “interruption” from existing cross-border situations, more generous coverage under the Withdrawal Agreement may be applicable.
14  Id. at SSC.11(1).
15  Id. at SSC.12.
16  Id.
17  See European Court of Justice ruling in “C-610/18 AFMB and Others” full text at: https://curia.europa.eu/juris/liste.jsf?num=C-610/18.
18  See KPMG’s GMS Flash Alert 2019-035, 26 February 2019. 
19  Id. Also, see GMS Flash Alert 2021-038, 25 January 2021. The Convention only covers Swiss and U.K. nationals; thus, third-country nationals would not be covered and no protections would be provided, resulting in a double payment into both country’s social security systems on 100 percent of their income. See: “More information about the agreement on citizens' rights,” published (in English) online by the Swiss Federal Social Insurance Office.
20  See: The Agreement on Free Movement of Persons between Switzerland and the EU, published online on the EUR-Lex site. 21  See: Decision 1/2020 of the Joint Committee published in the Official Journal of the European Union (5.2.2021).
21  See: Decision 1/2020 of the Joint Committee published in the Official Journal of the European Union (5.2.2021).