Social Security in a New Brexit Deal
The European Union (EU) and the United Kingdom (U.K.) reached an agreement in principle on the EU-U.K. Trade and Cooperation Agreement (“the Agreement”), which also affects the coordination of social security, the so-called mobile workers and the protection of their rights.
On 24 December 2020, the European Union (EU) and the United Kingdom (U.K.) reached an agreement in principle on the EU-U.K. Trade and Cooperation Agreement (“the Agreement”). The Agreement impacts coordination of social security for mobile employees and aims at protecting the entitlements of EU citizens temporarily staying in, working in, or moving to the U.K., and of U.K. citizens temporarily staying in, working in, or moving to the EU after 1 January 2021.
The Agreement entered into force on 1 January 2021, but it is currently undergoing a ratification procedure in the U.K. and in each EU member state (deadline for ratification is by the end of February 2021). Subsequently, it must be approved in the EU parliament. The EU Council must adopt the decision on the conclusion of the Agreement as the last step of the ratification process. The Agreement applies only to the 27 EU member states and the U.K. at this point.
Why this matters
All cross-border situations that are initiated on 1 January 2021 and thereafter are covered by this Agreement with respect to social security. All cross-border situations initiated before 1 January 2021 are covered by the prior Withdrawal Agreement between the EU and the United Kingdom. Employers and employees should focus on the terms and conditions of social security coverage under the Agreement, because there are significant differences in that coverage and rights concerning social security, depending on whether a cross-border situation is covered by the Withdrawal Agreement or by the new Agreement.
On 1 January 2021, the U.K. left the EU Single Market and Customs Union, and EU policies are no longer applicable to the former EU member state. The main consequence is that the free movement of persons, services and goods between the EU and the U.K. is ended.
The Agreement provides several measures for coordination of social security for mobile employees aimed at protecting the entitlements of EU citizens temporarily staying in, working in, or moving to the U.K., and of U.K. citizens temporarily staying in, working in, or moving to the EU after 1 January 2021.
Focus of the Protocol on social security coordination is mainly on the following:
- Persons covered,
- Matters covered and NOT covered
- Aggregation of periods
- Exportability of benefits
- Overlapping benefits
Scope of social security
It important to note that the Agreement does not apply the same scope of social security as the EU Regulations for coordination of social security systems in the EU.
Family benefits are no longer coordinated, which means that eligibility for family benefits and a right to export such benefits, for example during a posting, rest on national legislation in the relevant EU member state and the United Kingdom. There is therefore a significant risk that some employees will not be able to claim family benefits or that family benefits will be reduced or even awarded for a shorter duration.
On the other hand, it is reasonable to expect that claims for family benefits that are only subject to the Agreement will be processed faster than the case is today because the involved authorities will not have to communicate or coordinate family benefits in cross-border situations. The authorities will only have to take their local rules into account.
Furthermore, it should be noted that the exporting of unemployment benefits and disability benefits is also subject to national rules which can reasonably be expected to reduce the eligibility for and the amount of these benefits for some employees in a cross-border situation between the EU and the U.K.
Coordination rules for Social Security
The Protocol for social security in the Agreement maintains the principle that only one state’s legislation for social security applies at a time for matters covered. Below, we summarize the most often situations observed in the practice:
- Main rule:
An employed or self-employed person is covered by social security for matters covered by the Agreement by the legislation in the state where the working activity is pursued.
- Specific rule - detached workers:
A person sent by his or her employer to work in another state on behalf of that employer shall be covered by social security in the sending state. The work in the host state must not exceed 24 months and the person may not replace another detached worker. The employer must be established in the sending state and the employer must perform substantial activities in the sending state.
- Specific rule - work in more than one country:
A person who pursues substantial activity (25 percent or more) in the state of residence is covered by the social security legislation in that state. When a person does not perform a substantial part of his or her working activity in the state of residence, the legislation for social security in the state where the employer is located shall apply.
- Health care:
An insured person and his or her family shall receive benefits-in-kind (health care) in the country of residence even if the country of residence is not the competent state, and said person shall receive benefits-in-kind in the competent state even if he or she does not reside there.
It is still not clear how exactly administrative communication will be issued, and requirements around applications and documents are to be applied for enactment of the rights under the Agreement.
Interesting remarks – detached workers
Firstly, the EU member states should have opted in to apply the provision for detached workers by the end of January 2021. As published in the Official Journal of the EU on 16 February 2021, all 27 EU member states opted in to apply the provision for posting of workers. However, the specific procedure surrounding this provision indicates that this is not “business as we know it” from the EU legislation.
Secondly, the Agreement does not provide for an extension of the detachment/posting beyond 24 months. Another question that arises here is if when a detachment for 24 months is used once, does that mean that it cannot be used again in another detachment? If it can, on the other hand, what conditions must be met then?
Lastly, it is unclear what requirement will be presented for the duration of the affiliation to the social security in the sending country prior to the detachment. This could also lead to various approaches in different countries and ultimately lead to rejection of the application of social security in the sending country.
Interesting remarks - Others
The Agreement essentially limits the restrictions and limitations that the U.K.’s exit from the EU presents to the movement of people, companies, goods, capital etc.
It is clear from the Protocol on social security in the Agreement that social security between the EU and U.K. is changing significantly and the full effect of these changes will become more evident in time.
Although the Withdrawal Agreement regulated the relationship between the EU and the U.K. from 1 February 2020 until 31 December 2020, in the context of social security it is stated that persons who are covered by the Withdrawal Agreement can continue benefiting from the Withdrawal Agreement after that date as long as their situation is uninterrupted.
Employers and employees should therefore investigate the possibility of continuing the more generous coverage for social security under the Withdrawal Agreement and avoid the application of the social security rules in the new Agreement as long as possible, depending on the corresponding benefits to the employees.
This can be a complicated technical task and different EU member states seem to be approaching the interpretation of (un)interrupted cross-border situations differently; thus, concerned individuals and employers should consider engaging relevant technical expertise on these important matters.
The restrictions in the new Agreement are expected to trigger a reassessment of the compensation and benefits for employees affected by Brexit. The changes in social security are relevant for any discussion about compensation and benefits for employees affected by the provisions of the Withdrawal Agreement and the new Agreement and should undergo careful analysis and form part of any revision of company policies.
Full text: Trade and Cooperation Agreement between the European Union and the United Kingdom. Note that there might be additional bilateral conditions between the U.K. and Ireland, the U.K., Gibraltar and Spain, and the U.K. and Switzerland, etc.