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New EU social security rules enter into force as from 1 May 2010

 

This Regulation replaces EU Regulation 1408/71 and is designed to provide:

  • conflict of law rules for determining the applicable social security laws in the private sector within the European Union, and
  • specific rules for the various categories of benefits in cross-border employment situations.

Scope of application

The Regulation will apply to nationals of the European Union Member States, but EU Regulation 1408/71 will continue to apply in Switzerland, EEA jurisdictions (Norway, Iceland and Liechtenstein) as well as to all other third-country nationals covered by EU Regulation 859/2003. The Regulation covers various social security benefits (ie sickness, maternity, paternity, old age, invalidity, accidents at work and occupational diseases, unemployment, death, and child allowances).

Continuity of some basic principles

Some of the basic principles set out in EU Regulation 1408/71 remain unchanged in the Regulation; for example, the principle that:

  • only the social security laws of one Member State apply
  • the social security laws of the Member State where the person is employed apply, and 
  • the social security laws of the Member State where the activity is pursued determine the 'employed' or 'self-employed' status of the activity. However, there are exceptions to these principles.

Major changes

The major changes that the Regulation makes relate primarily to the conflict of law rules set out in Regulation 1408/71. The main changes are as follows:

1. Temporary secondment

If a person who pursues an activity as an employed person in a Member State is temporarily seconded to another Member State to perform work which benefits the original employer, the employee shall continue to be subject to the social security laws of the first Member State, provided that the anticipated duration of the work does not exceed 24 months (instead of 12 months under EU Regulation1408/71). This provision can be applied without prior certification by the host country authorities. The rules regarding the potential ability to extend the secondment have not been changed.

2. Simultaneous employment as an employee in two or more Member States

Under Regulation 1408/71, if a person pursues an activity as an employee in two or more Member States, including in the employee's Member State of residence (irrespective of the volume of work done there), the applicable social security law is the law of the employee's Member State of residence. Now, under the Regulation, in order for the applicable social security law to be that of the employee's Member State, the employee must pursue a substantial part of their activity in their Member State of residence (indicatively defined as 25% or more of working time or remuneration, whilst also stressing that, in practice, this must be determined on a case-by-case basis and in the framework of an overall assessment).

The same rule (application of the employee's Member State of residence laws) applies if the employee is in the service of various undertakings or employers having their registered office or place of business in different Member States. If the employee pursues the activity in more than one Member State in the service of a single company, and if the employee does not pursue a substantial part of the activity in their Member State of residence, the social security laws of the country where the company's registered office or place of business is located shall be applicable, unless it is located outside of the EU (in which case, the social security laws of the employee's Member State of residence shall again apply).

3. Simultaneous employment as a self-employed person in two or more Member States

If a self-employed person pursues a substantial part of their activity in their Member State of residence, then the social security laws of the Member State of residence shall apply. If the self-employed person does not reside in one of the Member States in which they pursue a substantial part of their activity, the social security laws of the Member State where "the centre of interest of [their] business activities is situated" shall apply. This 'centre of interest' is assessed on the basis of the relevant facts, such as, the presence of an office, volume and duration of the activities etc.

4. Simultaneous employment as an employee and as a self-employed person in two or more Member States

Here, the social security laws of the Member State where a person pursues an activity as an employed person shall apply. If the activity is carried out in more than one Member State, the rules set out under 2. above apply. The Regulation abolishes 'infamous' Annex VII to Regulation 1408/71 pursuant to which it was possible for the social security laws of two Member States to govern cross-border employment situations. Now, only a single Member Sates' social security laws shall apply (however, see transitional measures below).

Other notable changes include:

  • the abolishment of the specific conflict of law rules for flying personnel and persons engaged in international transport activities and
  • the shift towards an electronic administrative processing system replacing the current paper-based system using E101 forms. In this respect, an Implementing Regulation also officially endorses recent ECJ case law confirming the binding nature of this documentation on other Member States' competent authorities claiming jurisdiction in a specific case (see in particular ECJ case Herbosch Kiere, n° C-2/05).

Transitional measures

If a person is subject to different social security laws under the Regulation than they are currently subject to under Regulation 1408/71, the existing situation under Regulation 1408/71 continues to prevail as long as the relevant situation remains unchanged, that is, unless the person concerned asks for the Regulation to be applied in order to change the applicable social security laws in line with the Regulation's provisions. Any such request filed before 31 July 2010 shall have retroactive effect to 1 May 2010. Any request filed on or after 1 August 2010 shall be effective on the first day of the following month.

To Do

Given the new rules under the Regulation, it is advisable for all businesses (who have a significant number of cross-border employment situations within the European Union) to assess in the coming weeks:

  • the impact of the new conflict of law rules on current (and prospective) employment structures, since the direct effect on labour costs may be substantial
  • the positive or adverse effects of preserving the existing situation under Regulation 1408/71 anthe consequences of filing a request to alter the current applicable laws to those provided by the Regulation.

For more information, please contact Pieter De Koster:pieter.dekoster@allenovery.com

 

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