The transitional period of Regulation no. 883/2004 ended on 1 May 2020 - be aware of possible change of applicable social security system
08 May 2020
On 1 May 2020, the transitional period of Regulation (EC) no. 883/2004 on the coordination of social security systems - during which the provisions of the “old” Regulation (EEC) no. 1408/71 could continue to apply - ended for the EU countries. This means that - as from now - only the provisions of Regulation (EC) no. 883/2004 will have to be adhered to. In some international employment situations this could imply a change in the applicable social security scheme.
Introduction
The coordination of the social security systems within the EEA and Switzerland is regulated by Regulation (EC) no. 883/2004 (“Regulation no. 883/4004”), which replaced the old Regulation (EEC) no. 1408/71 (“Regulation no. 1408/71”). The latter Regulation, however, could remain applicable in certain circumstances and transitional measures were applicable until 30 April 2020 to avoid a sudden change of the applicable social security system from one day to another for mobile workers. Indeed, article 87(3) of Regulation no. 883/2004 states that:
“If, as a result of this Regulation, a person is subject to the legislation of a Member State other than that determined in accordance with Title II of Regulation (EEC) No 1408/71, that legislation shall continue to apply while the relevant situation remains unchanged and in any case for no longer than 10 years from the date of application of this Regulation unless the person concerned requests that he/she be subject to the legislation applicable under this Regulation".
Now that the transitional period has ended, such change in the applicable social security system may nevertheless still occur as from 1 May 2020.
Similarities and differences between the Regulations
The general principle of Regulation no. 1408/71 was - and of Regulation no. 883/2004 still is - that the social security scheme of the Member State where the activities are performed is applicable (the so-called “work state principle”). Exceptions to this rule apply, amongst others, in case of secondment and simultaneous employment. Important differences however exist between both Regulations, which could result in a change in the applicable social security scheme for a given cross-border employment situation. We will not dig into all differences, but give an example to indicate the possible impact of the end of the transitional measures.
E.g. the situation whereby an individual resides in Belgium and simultaneously works in Belgium for 10% of his working time and in the Netherlands for 90% of his working time, both for the same Dutch employer.
In case of simultaneous employment, Regulation no. 1408/71 provided that an individual, performing activities in at least two Member States, was subject to the social security scheme of the Member State in which he resided, insofar as he also performed his professional activities partly in this country of residence.
This implies that the individual in our example was subject to the social security scheme of his residence state, i.e. the Belgian social security scheme.
Regulation no. 883/2004 now states that an individual who is simultaneously working in two or more Member States, will be subject to the social security system of the country of residence if he performs a substantial part (i.e. at least 25% of total working time/remuneration) of his activities there. If this is not the case and the individual is only employed by one legal entity, he will be subject to the social security system of the country in which the sole employer is vested.
Applying this rule to our example and taking into account that the individual concerned does not perform at least 25% of his working time in his residence state Belgium, this would imply that the individual concerned would become subject to the social security system where his employer is vested, i.e. the Dutch social security scheme.
Another significant change worth mentioning is the applicable legislation for a situation in which an individual simultaneously exercises employee activities in one Member State and self-employed activities in another Member State. On the basis of Regulation no. 883/2004, such an individual will only be subject to the legislation of the member State in which the employed activities are performed. However, before the entry into force of Regulation no. 883/2004, an individual who simultaneously performed employed activities in one Member State and self-employed activities in another Member State was simultaneously subject to the legislation of both states if the Member State where the self-employed activity took place was mentioned in Annex VII of Regulation no. 1408/71, which was the case for - amongst others - Belgium, resulting in a dual subjection to two different social security schemes.
Transitional measures
To avoid a sudden change in the applicable social security system, transitional measures were included in Regulation no. 883/2004, for individuals who would become subject to another social security scheme under said Regulation, compared to Regulation 1408/71. As such, the provisions of Regulation no. 1408/71 remained applicable after the entry into force of Regulation no. 883/2004 on 1 May 2010 if:
the residential or professional situation of the employee or self-employed person concerned did not change (i.e. no change in residence state, working time percentage(s) in work state(s) and employer...); and
the employee or self-employed person himself didn’t request to no longer apply the transitional measures and thus have Regulation no. 883/2004 apply to his situation.
Applied to the example given above and in the assumption that nothing changed in the working situation, the individual could remain subject to the Belgian social security system by applying the transitional measures after 1 May 2010. However, as from 1 May 2020, Regulation no. 883/2004 applies and the individual would nevertheless become subject to the Dutch social security scheme.
Important to point out in this respect, is a judgment (case no. C-33/18) by the Court of Justice of the European Union (CJEU). In this judgment, the Court ruled that the transitional measures were not applicable to situations of dual subjection under Regulation 1408/71 (as explained above), i.e. the situation where an individual - on the date of the entry into force of Regulation no. 883/2004 - was simultaneously subject to the legislation of two Member States on the basis of the provisions of Regulation no. 1408/71. Rather, the CJEU states, Regulation no. 883/2004 was immediately applicable to those situations, meaning that these individuals should in principle have been solely subject to the legislation of the Member State where they exercised their employed activity as from 1 May 2010. We refer to our previous newsletter on this topic for more details.
Note that, for some countries, Regulation no. 883/2004 only entered into force on a later moment and the transitional measures still continue to apply:
for Switzerland: until 30 March 2022 included;
for Iceland, Liechtenstein and Norway: until 31 May 2022 included.
Conclusion
Individuals for whom the provisions of Regulation no. 1408/71 continued to apply after the entry into force of Regulation no. 883/2004 will need to consider the impact of the end of the transitional period and the application of Regulation no. 883/2004 on their international employment situation. It is important to assess this since a change in the applicable social security scheme could imply additional administrative burden and differences in terms of the level of social security contributions and/or social security benefits.
If you’d like more guidance on the above, do not hesitate to contact us.
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