From our practice, we see a trend that employees more often propose to their employers to work from home in another EU country. As an employer, you will then need to decide whether to grant or refuse the request based on your and your employee's best interests. However, suppose you do grant the request to work from home. In that case, there may be significant implications for the tax and social security position of your employee and the applicable (labour) law. It may also lead to employer obligations, such as an obligation to register for tax and social security purposes in the (new) employee’s country of residence and to execute a local payroll. Outside the EU or if an individual does not have an EU nationality immigration matters will most likely arise too.
It could happen that one of your employees, based in a neighbouring country, e.g. from Germany or Belgium, requests to work (part-time) from home. In the current situation, it may be the case that your employee performs physical labour entirely in the country of employment (i.e. the Netherlands). In this case, your employee is fully taxed in the Netherlands for this income. However, if your employee were to work from home more often, or even completely, the tax on the earned income would also be levied partially or even entirely in the country of residence (Germany or Belgium). Working in two (or more countries) typically also triggers tax compliance obligations. In general, an employee will need to file a personal income tax return in the country of residence (in most cases declaring his/her worldwide income), but also to declare locally sourced income (i.e. the taxable working days in the country where the remote working days are physically being performed). It is important that the various tax positions are aligned and that the correct avoidances of double taxation are claimed (under the applicable tax treaty/treaties) to avoid double taxation.
In short: working from home can affect your employee's tax position and will also imply that you, as an employer, need to make the necessary arrangements (e.g. having to register for tax purposes with the local tax authorities and to process a local payroll, taking into account the local due wage/income taxes).
If an employee works from home, it can create a permanent establishment (PE) for the employer in the employee's country of residence. This can trigger non-employment tax implications, e.g. corporate tax, VAT etc., in the employee's country of residence. In general, an employee who works from home a few days a week will not quickly result in a permanent establishment if the employee also has a workplace at the employer's office. However, if the employee, for example, has a commercial or senior (management) role and can enter into contracts with clients from home, or can commit the company towards external parties, the risk of a permanent establishment increases. This will need to be assessed on a case-by-case basis because some countries are quicker to establish a permanent establishment for remote work than others. In the situation where a ‘PE’ is recognized, typically employer obligations (e.g. a payroll obligation for wage/income tax purposes) in that country are triggered as well. It is therefore highly recommended to have any PE risk assessed upfront, before allowing employees to perform their employment activities from their (new) country of residence.
Next to the tax side, there can also be consequences from a social security point of view if your employee works from a different country than where the employer is based. If an employee who would normally work in the Netherlands will work more from home within the EU/EER, there is a chance that the employee, based on EU law/regulations, will also become covered by the social security system in the (new) country of residence. This not only has consequences for the employee, but the employer may also have to register in the employee's country of residence to pay the applicable social security premiums.
Contrary to tax, there is a framework agreement at the EU level for social security purposes. This agreement meets the desires of employees and employers to be able to work partially from home without triggering local social security obligations. Based on new legislation (applicable from July 2023), cross-border workers can – subject to conditions - work from home for up to 50% of their time without being subject to the social security regime of that country. A specific application process applies and approval from the two countries involved is needed.
If an employee (partially) performs employment activities outside of the EU/EER, the aforementioned framework agreement is not applicable. In that case, it will depend on the applicable social security treaty (insofar as applicable) as to what the social security implications will be. We stress the importance that this must be assessed upfront as social security premiums, as well as fines, may be applicable in case of non-compliance. Also from an immigration point of view (see hereafter) significant implications may be applicable.
EU countries have the right to regulate and monitor immigration. The general rule for immigration is that if an employee is working in a specific country, they must have the work and residence authorizations to do so. For many EU citizens, the ability to work and live in another EU state is freely permitted. However, this becomes more difficult for third-country nationals (TCNs) from outside of the EU who plan to move and work in other countries.
For TCNs, the general rule is that a work permit is needed for any work conducted in the EU; this however, varies depending on the country in question and consultation with the local rules and authorities is strongly advised before remote working is permitted long-term.
It is important to clarify the employee’s length of stay in the secondary country, and whether or not a visa (typically for more short-term purposes) or a residence permit (for long-term residence) is needed. Most short-term visas have specific durations, and exceeding that period without extension with the proper authorities could result in penalties. In general, if working remotely from another country in the Schengen Area, it should be noted that non-EU nationals can stay up to 90 days out of 180 without a visa. However, appropriate tax and social security implications should also be assessed for such a long-term stay.
The Netherlands has specific rules for cross-border workers who live in another country (for example, Belgium or Germany) and work in the Netherlands. A cross-border endorsement sticker is needed for employees from outside of the EU, and certain requirements must be met (for example, the employee must return to their home outside of the Netherlands at least once a week). Immigration cases should be assessed on an individual basis with particular attention paid to immigration rules in both the home and host country.
When it comes to remote work, several key labour law considerations must be carefully addressed by both employers and employees to ensure legal compliance, safeguard workers' rights, and maintain a productive and healthy work environment.
First and foremost, the employment contract should explicitly define the terms of remote work. This includes clarifying whether remote work is an option and specifying under which conditions employees can work from home or other locations outside of the traditional office. Employers must also outline any expectations regarding working hours, availability, and the communication channels to be used during working hours. Clear guidelines help prevent misunderstandings and disputes over work arrangements.
Employers also have a legal obligation to maintain a safe and healthy work environment, regardless of whether employees work in the office or remotely. This includes ensuring that employees have an ergonomically sound workstation that promotes good health and productivity. While employers are not required to visit employees’ homes to verify their home office setup, it is essential that they provide guidance or resources to support employees in creating a safe and suitable work environment. Additionally, employers should be mindful of mental health concerns related to remote work and make efforts to offer support, such as regular check-ins or resources for managing work-related stress.
Regarding working hours, it is essential for both parties to agree on expectations for daily and weekly schedules. Flexible working hours may be offered to employees, but clear boundaries should still be established to ensure compliance with labor laws such as the Working Time Directive, which governs maximum working hours, rest periods, and break times. Employers must ensure that remote employees are not overworked, especially given the potential blurring of lines between work and personal life when working from home. Overtime arrangements must also be agreed upon, including how it is to be recorded and compensated, either through time off or financial compensation.
Another critical issue is protecting employee privacy, which is especially important when remote work involves the use of company equipment and digital communication tools. Employers should be transparent about their monitoring practices, including the use of software or tools that track work activity, and ensure that any monitoring is compliant with privacy laws, such as the General Data Protection Regulation (GDPR). Employees must be made aware of what data is being collected, how it will be used, and for what purpose. Employers should also ensure that company provided devices (e.g., laptops, phones) are secure and that personal data remains protected from unauthorized access.
Additionally, employers should consider offering reimbursements or allowances for expenses incurred by employees when working remotely. These may include costs for home office equipment (such as desks, chairs, or computers), as well as ongoing expenses such as internet access, phone bills, or electricity. If the employer provides financial support for these expenses, it can help foster a more positive remote working experience and ensure employees are not financially burdened by the logistics of working from home. It’s important for employers to clarify what expenses will be covered and the process for submitting reimbursement claims.
Lastly, employers should be aware of the potential for employees to experience burnout or isolation when working remotely. To mitigate these risks, employers should provide opportunities for social interaction, team collaboration, and professional development. This can be achieved through regular virtual meetings, online team-building activities, and maintaining an open line of communication to ensure employees feel connected to the company culture and supported in their roles.
By addressing these key legal and practical issues, employers can create a remote work environment that complies with labor laws, protects employees’ rights, and promotes productivity and well-being. Both parties benefit when clear expectations are set, and legal obligations are respected, ensuring a fair, efficient, and sustainable remote work arrangement.
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