Perhaps you had never given it any thought before, but suddenly a member of staff comes to you with the news that she and her husband are moving to Germany. She is a good employee and you are keen for her to carry on working for you even if she is going to live abroad, which is entirely possible in today’s digital world. It is a shame that she is moving away, but it is great that she wants to keep on working for you. Besides that, you are also looking for new employees to fill a number of vacancies. This is proving to be quite a challenge, however, due to a tight labor market, particularly in the specific sector you work in. While searching on LinkedIn you come across a profile for someone who has emigrated to Spain. You make contact and the prospective employee shows interest in the available position. He decides he would like to work for you from Spain. Okay, so now you’ve just got to sort out the employment contact. You call your contact person for payroll matters at Visser & Visser. “Hey, we’ve taken on an employee who lives in Spain. Is there anything in particular we need to consider? We want to keep things simple and put him on the payroll here in the Netherlands.”
Do you know what you need to consider if you employ someone who lives and works abroad?
What are your options (the points in relation to which you have choices) and what are your obligations (the points in relation to which you have no choice and are bound by foreign legislation or international regulations)? This may sound complicated, but we will explain it all to you clearly. It is important that you have some knowledge of this area if you are having to deal with cross-border employment.
If an employee works abroad, you need to consider the following in each individual case:
- the country in which the employee is subject to social insurance legislation;
- the country in which tax needs to be paid, and
- which employment law is applicable.
The answers to the above questions will be different for each individual employee. They will depend, amongst other things, on the country where the employer is based, the country where the employee lives and the country/countries where he/she works. When it comes to social security, the legislation of a single country will always apply. You have no choice on this matter. The European Regulation on the coordination of social security systems (883/2004) is decisive here. When it comes to taxation, there may be a situation where tax needs to be paid in two countries on a pro-rata basis, according to the percentage of work carried out in each country. Whether or not this is the case depends partly on the question of whether the employer and employee are based/living in the same country. With regard to the employment law that applies, you have a certain amount of choice in relation to the employment law that you declare to be applicable in the employment contract. In addition, you are always bound by the mandatory provisions of the country where the employee (physically) works.
Considerations regarding employment contracts with your employees abroad
In this blog we are focusing on the employment contract. You may think: “Let’s not make things complicated with foreign legislation. I don’t know what the rules (and possibilities) are in other countries. It’s much too complicated for me to learn. In the Netherlands I know where I stand. We’ll just stick with Dutch law.” But...watch out! Do you really know what this choice means? Going back to the Spanish employee in the example above, if you opt to declare that Dutch law applies in his employment contract, you will still be obliged to implement the mandatory employment conditions applicable in Spain if these are more favorable for the employee. As soon as the provisions under Dutch employment law are more favorable, however, these Dutch provisions will apply. Put simply, the employee is entitled to the “benefits” of both countries. In short, the option that you can be sure will cost you the most money.
Continued payment of wages during sickness for employees who fall under foreign social insurance legislation
And there’s another thing. In the Netherlands, the regulations on the continued payment of wages during sickness are a provision under employment law. However, the case law of the European Court of Justice suggests that, in the case of international employment situations, the continued payment of wages during sickness is regarded as a social security provision. The main rule for the continued payment of wages during sickness is therefore that, in the first instance, the applicable provisions are those of the country where the employee is covered by social security legislation.
Many other countries continue to pay wages when an employee is sick for a much shorter period than we do in the Netherlands (in Germany, for example, the period is only six weeks). You should therefore be cautious about putting a provision in the employment contract concerning the continued payment of wages for two years in the event of sickness. “Okay”, you say, “in that case, I’ll just remove that provision from the employment contract. That will solve the issue.” It will, provided you do not have a collective labor agreement (CLA) in force. In the event that a relevant CLA does exist and you have stated in the employment contract that Dutch law applies, you are bound by the provisions of the CLA for an employee working abroad, whereas these would not have applied to that same employee if you had not included a choice of law in the employment contract (or had chosen the law of another country).
The fact that CLAs go over and above the statutory regulations for the continued payment of wages during sickness means the employee working abroad can derive rights from them if you have not arranged the choice of law in the employment contract properly. Consider here too that sick leave insurance often does not offer cover for employees who live and work abroad. So be careful of getting cold feet about foreign law! It could cost you (a lot of) money unnecessarily. Make sure you get good advice from an expert. We will be very happy to assist you with this.