How Brexit affects the social security position of your employees

Long awaited and finally here: the European Union (EU) and the United Kingdom (UK) have put together a Trade and Cooperation Agreement. Time for us to give you a high-level overview of Brexit’s consequences for the social security position of your employees!

Social security

Prior to 1 January 2021, the social security position of employees was determined by the European Regulation 883/2004. This European Regulation no longer applies in relation to the UK as of 1 January 2021. Although it appeared as though a no-deal Brexit was imminent, the UK and the EU did finally reach a Trade and Cooperation Agreement. This (provisional) Agreement has recently been published. The (provisional) Agreement also covers social security.
Regarding the Social Security Protocol applicable to situations arising on or after 1 January 2021, the following points struck us as particularly noteworthy:

  • Only EU member states are covered.
  • The Protocol does not cover all benefits. From a Dutch perspective, the Long Term Care Act and family benefits are not covered. From a UK perspective, the Protocol only appears to cover old age pension and healthcare.
  • Employees who are considered to be posted workers, can continue to be subject to the social security system of their home country for up to 24 months, if certain conditions are met. 
  • The Protocol does not contain a clause allowing countries to agree upon a deviation from the Protocol (whereas such a clause is present in the EU Regulation). 
  • Specific rules apply for employees who work in two or more countries. Under certain conditions, they can continue to be subject to the social security system of their home country. 
  • A1 certificates can only be obtained for situations within the EU. For situations that involve the UK, a specific type of certificate will need to be obtained to demonstrate the social security position of an employee.

If an employee is subject to the social security system of another country, this can often result in an obligation for the employer to register and set-up a payroll in that other country.

Please bear in mind that a distinction needs to be made between, on the one hand, employees who are covered by the Withdrawal Agreement (which may apply to situations that already existed on 31 December 2020), and on the other hand, new cross-border situations.

Despite these changes, our overall advice is unchanged: it remains important to determine your employees’ social security position on an individual basis, by carefully reviewing each particular case.

Permits

UK nationals who were already living and working in the Netherlands prior to 1 January 2021 and who are covered by the provisions of the Withdrawal Agreement, still have until 30 June 2021 to apply for a Dutch residence document with the Immigration Office (IND).

UK nationals who come to live and/or work in the Netherlands after 1 January 2021, are treated in the same way as non-EU nationals and must obtain a work and/or residence permit in order to work and/or live in the Netherlands legally.

UK nationals do not need a visa (‘Schengen visa’) to travel to the Schengen Area for business and/or a holiday. UK nationals are permitted to stay in the Schengen Area for a maximum period of 90 days in any 180-day period (business and/or a holiday). However, in order to be permitted to work in the Netherlands, the employer in the Netherlands must arrange for a work permit for the UK national. If the UK national stays/works in the Netherlands for more than 90 days, then the UK national needs a work permit as well as a residence permit.

Under the EU-UK Agreement, the employer may be eligible for a more lenient assessment when applying for a work permit for highly skilled employees with a qualifying university degree.  

Personal income tax position

Although this update is mainly focused on the social security position of employees, we would also like to take this opportunity to briefly mention how Brexit may affect the personal income tax position of UK employees in the Netherlands.

Potential consequences for the personal income tax position of employees are:

  • UK residents can no longer obtain the status of ‘qualifying non-resident taxpayer’. Previously, obtaining this status could, under specific conditions, result in the employee being entitled to the same deductibles (e.g. mortgage interest deduction) and tax credits as residents of the Netherlands.
  • Employees who emigrate to the UK will no longer automatically obtain deferment of payment of a potential protective assessment. A protective assessment can include unrealised capital gains relating to the shares of a substantial shareholding, as well as pensions and annuities.
  • UK residents will no longer be able to claim the tax component of the labour tax credit.

Would you like to learn more about how Brexit may affect you (in your role as employer) and your employees? Feel free to contact us! In addition to the topics discussed in this update, we can also advise you on labour law issues and HR solutions.