The basic rule in EU Regulations
The basic rule in the current Regulations is that people are subject to the social security legislation of the Member state where they carry on their work. They pay their contributions only to that Member state. That will continue to be the basic rule under the new Regulations. So for most people moving around the EU to work they will notice no change.
Here in the UK that means that just like under the old rules, employees coming to the UK from other Member states and their employers have to pay National Insurance contributions as soon as the employee starts work here.
Similarly, when people go abroad to work in the other Member states they generally have to pay social security contributions in that country and stop paying here in the UK.
There are some important exceptions to this basic rule:-
Employed posted workers: employed persons who normally work in the UK but who work temporarily in another Member State
Current Regulations 1408/71 and 574/72
- Subject to certain conditions, a worker posted from one Member state to work temporarily in another Member state will remain subject to the legislation of the first Member state if the work is not expected to last more than 12 months at the outset.
- To qualify, the employee and the employer have to satisfy certain conditions, most of which are set out in Administrative Commission Decision 181.
- HMRC Residency will tell you whether an employee and employer has to continue to pay UK National Insurance under these rules.
- Under this rule, qualifying UK employers have been able to send employees who are normally in the UK paying Class 1 National Insurance to work temporarily in other Member states but to continue paying Class 1 National Insurance and be exempt from foreign contributions.
- Employers must apply to HMRC Residency for Form E101 to show that the employee is entitled to continue to pay UK Class 1 National Insurance.
- If the work unexpectedly lasts longer than 12 months, the employer can apply for an extension of up to a further 12 months. Subject to the agreement of HMRC and the other country, this extension is granted by the issue of Form E102.
New Regulations 883/2004 and 987/2009
- From 1 May 2010, under the new Regulation 883/2004, the maximum 12 months posting period will be extended to 24 months – doing away with the need to apply for an extension at 12 months.
- Form E101 and E102 will be replaced by a single Form A1 – which is very similar to the old E101.
- HMRC Residency will tell you whether an employee and employer have to continue to pay UK National Insurance under these rules.
- Employers must apply to HMRC Residency for Form A1 to show that the employee is entitled to continue to pay UK Class 1 National Insurance.
- A new Decision A2 (which is expected to be published when the new Regulations come into force) will replace the old Administrative Commission Decision 181. Most of the new rules are expected to be similar to the old rules.