Extension of the exemption from social security contributions in the country of residence

In our April article (here) we informed you that the Czech Republic has concluded framework agreements with Germany and Austria with effect from 1 March 2023 extending the exemption for the purposes of determining the social security jurisdiction of persons. The agreements concerned persons who usually perform cross-border telework and wish to be insured in the state of the employer's residence. With effect from 1 July 2023, these new rules have been extended within the EU to other countries by replacing the original agreements with a new multilateral framework agreement.

In a cross-border employment situation, the employer has a number of obligations (summarised here). One of them is the proper payment of social security contributions for its workers. According to the European Social Security Coordination Regulations, the rule is that a person is insured in one Member State. For the purpose of determining this single state of insurance, the European Coordination Regulation provides a set of rules. The employer is then obliged to pay the insurance premiums for its worker in the state whose insurance scheme the worker is affiliated to.

One of the most widely used rules for determining the state of jurisdiction is the rule of simultaneous exercise of activities in several Member States (e.g. the state of residence of the worker and the state of residence of the employer). In this case, the worker is insured in their state of residence if they carry out at least 25% of their activity there (i.e. on average about 1.25 days per week). Otherwise, the worker is liable for the insurance in the state of residence of their employer.

Given the frequency with which employers have allowed their employees to work remotely, even from another country and for more than one day a week, some European countries have decided to simplify the procedure whereby a worker can be insured in the country of their employer even if they exceed the 25% working time limit.

Until the existence of the agreements, this was only possible where the so-called general exemption under the European Coordination Regulations was used. If it was to the benefit of the employee, this exemption allowed the worker to be insured in the employer's state of residence. However, this process was rather difficult and lengthy because it had to be explicitly agreed by both Member States. The derogation was therefore non-random.

As we already wrote in the first paragraph, framework agreements were concluded on 1 March 2023 between the Czech Republic and Germany as well as between the Czech Republic and Austria, which simplified the process of applying the exemption in relation to these countries. Since 1 July 2023, a new Framework Agreement has been concluded, which replaces the previous agreements and extends the application of the exemption to other European countries that have acceded to it (list of countries here).

The purpose of the new framework agreement is therefore to allow employees in certain circumstances to be insured in their employer's country of residence when working remotely across borders. This even though they would normally be covered by the system of their state of residence. Subject to specific conditions, the application of the exemption is eligible.

In particular, the conditions for the application of the exemption under the framework agreement are as follows:

  • Employees usually telework for their foreign employer from their country of residence between 25% and 50% of their working time.
  • The situation concerns countries that have acceded to the framework agreement.
  • The employee stays connected to the work environment of the employer or the company through information technology.
  • The employee and the employer may apply for an exemption under the framework agreement in the employer's country of residence for a period of up to three years at the earliest from 1 July 2023.
  • The employee's situation is limited to the two countries in question (e.g. the employee works for another Czech employer or an employer from a different country than the first employer).
  • The employee is not self-employed.

If you are in a situation where you employ a person to do work for you in another European country and both the person and you have an interest in being insured in the Czech Republic, we recommend you consider applying for an exemption under the framework agreement. We will be happy to assist you in assessing the situation and preparing an A1 form (certificate of affiliation to social security regulations).