The new year brings new social security challenges post- Brexit

What is the issue?

With Brexit talks still ongoing, employers should be planning for the impact of a hard Brexit on social security coverage and benefit provision for their employees who travel between the UK and EU (including EEA & EFTA countries and Switzerland) for work.

HMRC’s October employer bulletin provided a welcome update on National Insurance coverage and social security co-ordination for employees who start working on this basis during the Brexit transition period (up to 31 December 2020) and for those that start after the end of December 2020. This is summarised below. Note – for the purposes of this blog post, all references to “EU” include EEA & EFTA countries plus Switzerland. 

Who is impacted?

UK employees starting to work in the EU and employees from the EU who start work in the UK, either before or after 1 January 2021.

This includes employees posted to work from/to the UK for a period of up to 24 months (“posted workers”), and employees who work in the UK and one or more EU countries on a regular basis (“multistate workers”).  It also impacts frontier workers who are those who reside in either the UK or the EU, EEA or Switzerland and who work in one or more of those countries, but not the one in which they reside.

Up to 31 December 2020

UK employees working in the EU

If the posting or multistate worker arrangement starts before 1 January 2021, under the withdrawal agreement the employee should remain liable to UK NIC, and an A1 certificate should be obtained from HMRC before this date to confirm this.

This should mean that the employee does not need to pay social security contributions in their host country. However, if the A1 certificate covers a period falling after 31 December 2020, based on our experience, there is no guarantee that the other country’s social security authorities will accept this. Consequently, double social security charges may arise.

Employees from the EU

If the posting or multistate worker arrangement starts before 1 January 2021 and an A1 certificate has been issued by that employee’s home country social security authorities, the employee should remain subject to social security in that country and will not be liable to UK NIC.

This should be the case regardless of whether the A1 certificate covers a period falling before, on, or after 31 December 2020. However, based on our experience, we are aware that some EU countries, for example Germany, are reluctant to issue A1 certificates with a date falling after 31 December 2020. Consequently, double social security charges may arise.

From 1 January 2021

The social security position for employees whose posting or multistate employment arrangements start after 1 January will depend on whether the UK and EU reach agreement on social security coverage.

The proposals that the UK put forward to the EU largely mirror the existing provisions on social security coverage for posted and multistate workers.

However, if no agreement is reached the position is uncertain and may involve:

• Falling back on bi-lateral agreements that predate UK’s membership of the EU;
• Treating moves to / from the EU in the same way we treat moves to / from any other non -agreement country (the “52-week rule”); or
• In the case of Ireland, a bi-lateral agreement has been reached that broadly maintains current rules.

Impact for employers and employees

• Potential double social security charges.
• Additional reporting and compliance obligations.
• Potential loss of healthcare and benefit coverage.

What action should employers take?

• For moves that take place before 1 January 2021:
  • Obtain A1 and S1 certificates as soon as possible to mitigate double social security charges and loss of healthcare provision for employees (the S1 enables the employee to access healthcare in the country they are working in).
  • If certificates S1 and A1 are not obtained:
    • Obtain private medical insurance (PMI) for employees to protect healthcare coverage;
    • Account for additional social security costs and update tax equalisation policies to provide for this.
• For moves that take place after 1 January 2021:
  • Actions will depend on whether agreement between the UK and EU is reached and if so, what the agreement says. Precautionary measures could include:  
    • Projecting the impact of any double social security costs;
    • Determining additional reporting and compliance obligations;
    • Reviewing payroll withholdings and processes;
    • Reviewing existing tax equalisation policies to account for double social security charges;
    • Identifying the loss of health insurance cover and differences in coverage for social security benefits, such as maternity/paternity, healthcare, disability and unemployment;
    • Providing guidance to employees on making voluntary social security contributions in their home country to plug state pension coverage gaps, and consider whether to cover these costs (and update HR policy to account for this).

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