Working remotely across borders

In the fourth episode of our Arbeitsrecht podcast in German, Isabel Firneis and Anna Schwamberger pick up the topic of home office, which already received some discussion in the second episode. This time, they focus on the legal consequences in scenarios where employees perform their work from different Member States (e.g. partially in Austria and partially from their home office in another state).

EPISODE SUMMARY

Practice shows that the number of cases when work is performed partially from a home in another country continues to grow, especially since the start of the pandemic. Although Austrian labour law provides for special rules and conditions for working from home, the Home Office Act does not state that home office cannot be located outside of Austria. Such scenarios however give rise to a number of legal questions such as the applicable labour, social security and tax law.¹

Labour law

The Rome I Regulation (Regulation (EC) No 593/2008) generally provides that the law applicable to an employment contract can be chosen. The choice of law however may not deprive an employee of the protection that would be granted to him/her by the national law of the state that would apply in the absence of a choice of law. This might lead to the partial applicability of the mandatory labour law of a state different than the state whose law has been chosen.
For example, the contract chooses Hungarian law, but the employee usually performs work from Austria. In this case, Austrian law would apply without the choice of law, which leads to the applicability of at least the mandatory labour law, if the provisions are more favourable for the employee. In practice, it means that the employee can cherry pick those statutory regulations that are more favourable for her or him.

In addition, the so-called overriding mandatory provisions need to be considered, which are regulations that protect the public interest.

Social security law

In social security law, the principle of territoriality prevails. The national social security law of the state in which the activity is actually carried out always applies. In cases when work is carried out in two or more Member States, one should also consider the applicability of the EU law and bilateral agreements.
According to Regulation (EC) No 883/2004, an employee can only be subject to the compulsory social security law of one Member State. The regulation that coordinates the different social security systems determines which national law must apply. The employee’s place of residence or the registered office of the company, as well as the extent of the activity in the respective Member State play an important role in the assessment. In principle, the social security law of the Member State of residence applies, provided that a substantial part (approx. 25%) of the employee’s activity is carried out in this Member State. If the employee does not work a substantial part in the Member State of his/her residence, the social security law of the state where the employer has its seat applies.

Tax law

In cross-border working arrangements, we deal with two levels of tax implications: for employees and employers. For employees, one has to consider where the income is taxable; this can be complex, and the double taxation treaties must be checked. Further, also from an employer’s perspective, the tax implications of such a cross-border set-up must be evaluated in detail. For example: depending on the exact set-up, the employee’s home office in another country could be regarded as a permanent establishment for tax purposes; this could potentially lead to a (partial) taxability of profits abroad.

¹This episode considers only cases within the EU, when a place of work according the employment contract and home office are both in the EU countries.