New EU laws may affect half of expat assignments

Up to half of all new expatriate assignments within Europe could be impacted by changes to EU social-security legislation, according to analysis by Deloitte, the business advisory firm.

Although the legislation behind these changes was enacted a number of years ago, the regulations that actually implement the new rules were only passed earlier this month, beginning the six-month process of launching the new legislation on 1 May 2010.

This is the first major change to EU social-security legislation for more than 35 years, when the now well-established processes for obtaining E101 certificates were introduced.

The background to the changes is a desire to simplify the regulations by shortening them - however it remains to be seen if this objective is actually met.

Many rules relating to specific employee types - for example aircrew and transport workers - have been removed altogether, and the rules affecting new short-term and long-term expatriates, as well as cross-border workers, will change substantially.

Short-term assignees will have to keep contributing to their home countries if they are assigned to work in another EU country for two years or less (as opposed to one year or less under the current rules), and long-term expats are likely to find it much harder to remain insured in their home country for as long the current five-year time limit.

An important aspect of the new regulations is also their increased focus on pan-European compliance.

For the first time, foreign social-security authorities will be able to enforce liabilities via their UK counterparts and vice versa.

New rules regarding the exchange of electronic data between authorities will also support a general tightening up of cross-border compliance, and the introduction of an EU-wide social-security database enhances the possibility of enforcement action being taken against those companies that have - perhaps inadvertently - either not paid social security contributions or have paid them in the wrong location.

Robert Hodkinson, lead partner on social-security issues in the Global Employer Services group at Deloitte, said: 'These changes will have a significant impact on both UK employers sending assignees to work in other parts of the EU and on UK companies that host inbound assignees.

'There will be less flexibility under the new rules and an increased exposure to enforcement action.

'While there are some provisions in place to protect existing expatriate arrangements, advance planning will be essential to avoid unwanted additional liabilities.

'Thousands of UK businesses will need to act promptly to adapt to the new rules to ensure that they do not inadvertently incur higher social security costs,' he added.

Employers of current assignees will be protected from the full force of the new legislation, but it is anticipated that it may be difficult to persuade the relevant authorities to allow such employees to be dealt with under the existing - and more benign - legislation if individual cases are not presented before 1 May 2010.

While the UK and other authorities have agreed to look at each case on its merits, it seems inevitable that over time they will be less flexible in their treatment of old cases.

Hodkinson continued: 'While employers will obviously focus on any changes in social-security contributions, individual employees may well be more concerned about the impact on their benefits.

'State pension, child benefit and other social-security entitlements are sensitive issues for employees and communications about any enforced changes need to be handled with care.

'Employees whose social-security status is most likely to be impacted as a result of the introduction of the new rules include longer-term expatriates and commuters.

'Long-term expatriates may find it harder to remain in the UK National Insurance system from 2010 and the social-security status of commuters, which has historically been a complicated area, will get more complex.

'Employers need to manage their obligations carefully for this type of cross-border employee if they are not to expose themselves to additional risks of penalties,' Hodkinson concluded.

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