‘Let's Go on a Workation!’

What are the social security law implications?

In any case, the work abroad should only be temporary. Otherwise, there is a risk of double social security liability for the employee. The principle of territoriality applies in social security law, which means that the social security law of the state in which the work activity is carried out (state of employment) is applied to employees. However, depending on the state of employment and the nationality of the employee, the social security obligation may still be assessed according to German law even in the case of work performed abroad. In this respect, a distinction has to be made above all between EU member states and third countries.

• In the case of work in another EU member state, a person who is posted by their employer to another EU member state in order to perform work there for the employer's account continues to be subject to the social security law of the member state from which the posting is made. The prerequisite is that the expected duration of the posting does not exceed 24 months and that this person does not replace another posted person (Art. 12 para. 1 Regulation (EC) 883/2004). A posting conceptually requires a corresponding instruction by the employer. However, this can also be assumed if the employer agrees to the relocation of the place of work abroad. This can be concluded from a joint announcement on the assessment of posted employees under insurance law by the National Association of Statutory Health Insurance Funds (GKV Spitzenverband), the German Pension Insurance Association (Deutsche Rentenversicherung Bund), the Federal Employment Agency Berlin (Bundesagentur für Arbeit Berlin), and the Statutory Accident Insurance Berlin (Gesetzliche Unfallversicherung Berlin), dated 18 March 2020 (see page 15 of the announcement). Regulation (EC) 883/2004 also applies in principle to countries in the European Economic Area (EEA), although special regulations may apply to individual countries with regard to a shorter posting period. Different regulations apply to cross-border commuters or persons usually employed in another EU member state.
• For work activities in a third country or those involving nationals of a third country, it is necessary to determine whether Germany has signed a social security agreement with the third country. These agreements generally allow posting periods of between 12 and 36 months with the continued application of German social security law. In the absence of such an agreement, the applicability of German social security law depends on the conditions of the posting as per Sec. 4 of the Social Security Code IV (Sozialgesetzbuch (SGB) IV). The posting must be limited in time due to the nature of the employment or contractually in advance. Otherwise, there is a risk of social security liability in both countries.

Before commencing temporary employment in an EU/EEA country, an A1 certificate must be obtained as proof to the foreign authority that the social security law of the sending country (Germany) continues to apply. For activities in a third country, corresponding certificates must be obtained depending on the country. Additionally, depending on the country of employment, there may be reporting obligations (subject to fines) applicable under local national law when posting an employee. Employers must therefore verify and check any reporting obligations on a case-by-case basis before going on a workation.

What are the tax law implications?

Depending on the duration of the activity or stay abroad, employees may incur wage tax obligations abroad. It is essential to check if there is a double taxation agreement between Germany and the country of employment. According to most double taxation agreements, remuneration continues to be taxable under German tax law, provided that the employee is a resident of Germany, stays abroad for not more than 183 days within a period of 12 months or a calendar year, and the remuneration is paid by an employer based in Germany (as per Sec. 15 of the OECD Model Tax Convention). Other double taxation agreements focus on the duration of the activity abroad (rather than the duration of the stay). If the 183-day limit is exceeded, foreign tax law may be applicable, resulting in the risk of double taxation.

Moreover, tax law implications for the company must be taken into account. In each case, it must be determined whether the work of employees abroad creates the risk of establishing a permanent establishment. If this is the case, the company may be liable to pay taxes abroad.

What applies with regard to occupational safety and working conditions abroad?

When employees are temporarily working abroad, both German occupational health and safety regulations and the regulations of the country they are working in must be taken into account. The principle of territoriality applies to occupational health and safety laws, which means that German occupational health and safety law only applies to the territory of the Federal Republic of Germany. However, it may also apply abroad if the parties have agreed to it in the employment contract.

However, due to the principle of territoriality, occupational health and safety laws applicable abroad may also have to be taken into account. According to Art. 8 para. 1 sentence 2 Rome I Regulation, the choice of law may not result in the employee being deprived of protection granted to them by mandatory provisions of the legal system applicable according to the objective connection. This means that a favorability comparison must be made. If the national provisions are mandatory provisions within the meaning of Article 9 of the Rome I Regulation, the applicable protective provisions may co-exist. For example, the German Working Hours Act and foreign working hours regulations may both be applicable. To avoid sanctions by foreign authorities, it is advisable to also observe the working time regulations of the country of employment.

If an employee of an internationally active group of companies is posted to a branch or a company belonging to the group in the territory of another member state or works by way of cross-border temporary employment, the Posted Workers Directive must be taken into account with regard to the applicable working conditions. This directive aims to enforce appropriate minimum working conditions (Directive 96/71/EC, amended by Directive (EU) 2018/957). If the posting lasts more than 12 months, the working conditions of the destination country may be applicable. Additionally, there may be reporting obligations to national authorities. Therefore, before working abroad, the applicability of the directive should be checked in each case, especially to comply with any reporting obligations.

What are the data protection law implications?

Within the European Economic Area (EEA), the General Data Protection Regulation (GDPR) must be observed. If the employee works abroad, the employer is still considered the controller within the meaning of Article 4 No. 7 of the GDPR, as the processing of personal data by the employee in the course of work activities (e.g. emails) is generally carried out on the employer's instructions. Therefore, the employer must ensure that the requirements of the GDPR regarding proper data processing and data security are also complied with within the EEA. Employers are advised to inform employees of their obligations under data protection law in the context of a ‘workation’ or home office and train them accordingly.

Moreover, local data protection laws of the place of residence may also apply, which make further specifications and give authorities rights of intervention or inspection. In some countries, authorities are authorized to inspect work equipment or seize documents upon entry, which may compromise the protection of trade secrets.

Outside the EEA or a country with an adequate level of data protection recognized under Article 45 GDPR, data processing may be subject to further requirements of Articles 44 et seq. GDPR and may not meet them. Data processing by employees abroad could be deemed a transfer of data by the employer to a recipient in a third country.

Given these data protection risks, employers should not allow working from abroad worldwide without further consideration. However, there are fewer concerns for EEA countries and countries for which an adequacy decision has been issued.

What other aspects should employers consider when their employees work abroad? 

Employers should be aware that the laws applicable to the employment relationship and the place of jurisdiction may change when employees work abroad. Therefore, the employment contract should explicitly state that German labor law applies. Additionally, employers must comply with Sec. 2 para. 3 of the Documentation Act (Nachweisgesetz "NachwG"), which requires certain additional information in the employment contract when an employee works abroad.

If employees are working outside the European Union, they will also need work and residence permits to do so.

Conclusion

When it comes to ‘workations’, employers must consider various legal implications, such as labor law, social security law, tax law, data protection law, and residence law. To ensure compliance with legal requirements, employers should encourage their employees to register well in advance of a planned ‘workation’ and check the legal requirements depending on the country of employment. This includes applying for any permits and certificates and making any necessary notifications to foreign authorities. It is strongly recommended that the parties to the employment contract agree that the stay abroad in the particular country is temporary and limited in time.