ALL YOU NEED TO KNOW ABOUT TELEWORKING
Since the outbreak of the health crisis in March 2020, telework has become the common form of organization of work for many Luxembourgish and border workers. However, this was made possible thanks to the derogatory agreements signed between the Luxembourg and border authorities concerning the applicable social and fiscal rules. They thus allowed employees in teleworkable jobs to carry out their duties from home without impacting their payslip.
However, the so-called "derogatory" agreements on taxation officially ended on June 30, 2022. The tax rules applicable before the global epidemic are therefore fully applicable again since July 1, 2022 for border workers working from their country of residence. On the other hand, concerning the social rules, the tolerance should end on June30, 2023.
In order to keep you up to date with the ever-changing regulatory environment you will find below the answers to your questions regarding telework in order to set up an internal telework policy that will satisfy your employees and your management.
1. What is telework?
Telework is a form of organization/performance of work, generally using information and communication technologies, so that work which would normally have been performed on the employer's premises is performed away from said premises.
More specifically, a distinction is drawn between occasional and regular telework.
Telework is considered occasional when it:
- is carried out to deal with unforeseen events and/or;
- represents less than 10% on average of the teleworker's normal annual working time.
Consequently, telework is considered as regular in all other cases.
In all cases, the introduction of telework requires a bilateral agreement by and between the employee and the employer. However, this agreement is formally different depending on whether it is a regular or occasional telework (see question 3 below).
2. Does a home office policy need to be drawn up?
In Luxembourg, the implementation of this form of work is not subject to a collective agreement or internal regulations applicable in the company. A home office policy is therefore not strictly necessary in and of itself.
Such a document can be extremely useful, however, as it makes it possible to spell out the implementation of telework in the company in detail, particularly the places where telework is feasible (home, public spaces, countries other than the country of tax residence, etc.), the employees concerned/excluded, the tax and social limits defined by the company, etc. This policy could also usefully address the right to disconnect and recall the rules on personal data protection.
3. Should an amendment to the employee's contract of employment be drawn up?
When telework is occasional, the employer provides the employee who has requested to telework with a simple written authorization (in the form of an email or SMS).
When the telework is regular on the other hand, various elements must be defined by mutual agreement in writing between the employer and the employee:
- the place of telework or the procedures for determining this location;
- the hours and days of the week during which the teleworker teleworks and must be reachable for the employer or the procedures for determining these periods;
- the procedures of possible compensation in terms of benefits in kind;
- the monthly flat rate for connection and communication costs;
- the procedures for the transition or return to the traditional work arrangement.
This written agreement may take the form of an amendment or an employment contract for newcomers, but it does not have to. The different elements mentioned above can in fact just as well be determined in the framework of the specific telework regime defined at sector or company level.
In other words, the amendment to the contract is not strictly necessary in case of regular telework as long as a telework policy is established internally within the competence of the staff delegation (see question 4 below). However, it seems important to us that the employer can make sure that the employee is fully aware of his or her rights and obligations in terms of telework. The employee could therefore be asked to sign an acknowledgement of receipt in which he or she undertakes to respect the home office policy.
4. Does the staff delegation have a role in the implementation of telework?
According to Articles L.414-1 ff. of the Labour Code, the staff delegation must be regularly informed about the number of teleworkers and how it changes in the company.
When there is a staff delegation, the introduction or modification of the specific telework scheme is done after information and consultation of the staff delegation when the company has fewer than 150 employees.
In companies with at least 150 employees, there must be a mutual agreement by and between the employer and the staff delegation.
5. Should a fixed "telework" allowance be paid to the teleworking employee?
The answer differs depending on whether telework is regular or not. When the telework is occasional, the employer is not required to provide such an allowance.
On the other hand, when it is regular, the employer provides the work equipment necessary for telework and pays the costs directly generated by telework, in particular those relating to communications. This can be done by allocating a monthly lump sum, to be agreed in writing between the employer and the employee.
By way of illustration, the collective agreement applicable to employees in the banking sector provides for a fixed sum of approximately €26.31 (index 877.01) per month to be paid by the employer.
The Administration des Contributions Directes [Luxembourg Inland Revenue] explicitly states on its website that this type of fixed allowance for regular telework is taxable.
6. Is an A1 certificate necessary for border workers who telework?
In application of European rules, as soon as an employee is required to work temporarily or partially outside Luxembourg, it is necessary to obtain the A1 certificate attesting to the social security regime applicable to the worker.
Because he or she teleworks in his country of residence, the non-resident employee is in a situation of international employment. He is therefore concerned by this administrative formality which is now divided into two stages. In point of fact, in order to be issued with the A1 form, it is necessary to have first requested (and obtained) a Décision de Législation Applicable (DLA) [applicable legislation decision] from the social security organization of the country of residence, i.e. from the URSSAF for France, the ONSS for Belgium and the DVKA for Germany.
However, for this year 2022 and until end ofJune 2023, these are not be required. More specifically, the Administrative Commission for the Coordination of Social Security Systems decided in November 2022 to extend until 30 June 2023 the current measures, i.e. the neutralization of periods of telework in determining the applicable legislation, until the end of the year (see question 8 below).
7. What is the impact of telework on taxation?
Since July 2022 the derogatory agreements concluded by Luxembourg with neighbouring countries have not been extended as of 1 July 2022. Consequently, the tax tolerance thresholds provided for in the double taxation agreements will have to be respected, namely
- Threshold of 34 days for French residents as of January 2023 (29 days for the period between July 2022 and December 2022)
- Threshold of 19 days for German residents
- Threshold of 34-day for Belgian residents
These tolerance thresholds allow non-resident employees working for a Luxembourgish employer to work outside Luxembourg occasionally without triggering taxation in their country of residence. In other words, below the above-mentioned thresholds, frontier workers can telework without being taxed.
When calculating these tolerance days all days worked outside Luxembourg, whether in teleworking, training or on business trips should be taken into account.
Furthermore, each fraction of a day worked outside Luxembourg counts as a full day. Thus, an employee who teleworks for 2 hours from home before going to the office has his or her quota reduced by one day, even if he or she has not worked a full day from his or her country of residence.
The days worked outside Luxembourg must be monitored on a monthly basis. As the employer is responsible for the correct deduction of tax at source on the pay slips of the employees, the correct tracing of days outside Luxembourg becomes mandatory. At the same time, such monitoring provides the employee with a real-time view of his or her quotas and to anticipate whether or not the tax and social security limits have been exceeded.
If the above-mentioned thresholds were to be exceeded, all days worked in the country of residence in the framework of telework would be taxable in that country (and no longer in Luxembourg), starting from the first day (see question n°10 below).
8. What is the impact of telework on social security?
The European Regulation on the coordination of social security (EC 883/2004) lays down a general principle that an employee should only be affiliated in one state.
The important criterion in this case is the substantial activity of the employee in his country of residence. When an employee works at least 25% of his working time and/or receives 25% of his remuneration in his country of residence, all remuneration received in the different countries is subject to a single social security scheme, that of his country of residence.
Therefore, teleworking days add to this 25% limit, thereby limiting the possibilities for frontier workers to telework if they want to remain affiliated to the Luxembourg social security system.
If the 25% limit is exceeded, the Luxembourgish company will first have to register as a "foreign company" with the foreign social security institution. It will then have to pay the employer's contributions of this foreign country, which are higher than in Luxembourg. As for the employee, he or she will now benefit from the social security coverage of his or her country of residence (and no longer from that of Luxembourg).
In March 2020, at the beginning of the COVID-19 pandemic, Luxembourg and its neighbouring countries had decided that the periods of telework performed on their territories by their border residents due to the coronavirus would not be taken into account in determining the applicable social security legislation. This neutralization measure was to come to an end on 30 June 2022.
This neutralization measure had been extended and was scheduled to expire this December 31, 2022. In November 2022, the Administrative Commission for the Coordination of Social Security Systems decided to extend this measure until June 30, 2023.
9. What about part-time border workers? Do they benefit from the same limits in terms of taxation and social security?
In the case of part-time work, the tax tolerance thresholds are to be prorated for border workers who are residents in France. The rounding off into a number of full days is done downwards. For example, a part-time French employee will benefit from 14 days of telework without being taxed in his country of residence.
For border workers who are residents in Belgium, the tax tolerance thresholds do not have to be prorated in case of part-time work according to the clarifications made by the Direct Tax Administration on August 26, 2022. However, this clarification has not been validated by the Belgian authorities (who had adopted position in favour of prorating in an administrative circular of 2015). It is therefore strongly advised to apply prorating (see question 10 below).
For border workers who are residents in Germany, on the basis of a decision received by the tax administration in Trier, it would seem that the tolerance threshold of 19 days should not be prorated in case of part-time work. This was confirmed in the clarification provided by the Direct Tax Administration on August 26, 2022
As regards the 25% social security limit, it is also necessary to prorate the number of days according to the working time indicated in the contract in order to continue to benefit from Luxembourg social security.
10. How are the tolerance thresholds applied as of January 2023?
11. What are the consequences of exceeding these different limits?
If the tax thresholds are exceeded, the salary relating to all the days worked outside Luxembourg will in principle be taxable in the employee's country of residence. Only the days worked in Luxembourg will be taxed in Luxembourg.
In France, as of January 2023, the Luxembourg employer will no longer be obliged to calculate monthly the French withholding tax on income related to telework as long as the French resident employee remains subject to Luxembourg social security. However, the employer will have to declare once a year the taxable income in France of the employees having exceeded the tax threshold to the French administration. This declaration must be made in February of the following year via a PASRAU declaration, which implies that the Luxembourg employer must have a SIRET number in France. On his side, the French resident will be responsible for the payment of the income tax related to the telework. Therefore he will have to support monthly a advance payment, after having made the necessary steps directly online on his personal space DGFIP.
For the Belgian resident, the withholding tax is in principle not compulsory. Therefore, the Belgian tax resident employee will have to declare all his or her income including telework income in his personal tax return and will be taxed accordingly.
Finally, the German resident employee will have to declare all his or her income including telework in his personal tax return and be taxed. It should be noted that there is no withholding tax requirement in Germany for the Luxembourgish employer.
Turning to social security, if the limit is exceeded, each employer will have to take administrative steps, including affiliation as a "foreign company" with the foreign social security body.
However, switching to a social security system other than that of Luxembourg implies significant increases in social security charges, both for the employee and the employer. It is therefore important to be aware of the costs involved and of the loss of the advantageous benefits granted by Luxembourg, particularly with regard to family allowances or old age pensions.
12. How follow up the authorized telework days?
As an employer, you are free to set up any means of validating or monitoring your employees' teleworking days. In most cases, this will be done through your time/leave management tool. Initially, human resources will need to create a teleworking day counter based on the employee's residence, working hours or internal company policy. In a second step, the employee will have to make a telework request and get a validation from his manager. Thus, in the same way as the employee's leave counter, the telework counter will be adjusted at each request. This will allow both parties to have visibility on the number of remaining telework days and especially to refuse a telework request once the quota of days is exhausted.
Be careful, if your employees also travel abroad, you will have to think about creating another counter and taking these days into account for the calculation of the thresholds. Indeed, all work performed outside Luxembourg should be included in these tolerance thresholds (e.g.: training sessions outside Luxembourg, customer visits outside Luxembourg, visits to the head office...).
13. What proof can be provided in case of inspection?
In case of control by the competent authorities of the Teleworker’s country of residence and in order to guarantee a greater legal security to all parties concerned, frontier workers are strongly advised to provide proof of their physical presence on Luxembourg soil. This proof can be done by any means and in particular by the following documents:
- The employment contract or a certificate from the employer mentioning the functions performed and the place where they are performed;
- Nominal time sheets for hours worked;
- Nominal transportation documents (train or bus tickets, etc.);
- Nominal invoices related to accommodation expenses (hotel, car rental);
- Attendance lists for meetings or training courses;
- Documents related to material purchases or catering expenses in the state of activity (credit card bills, receipts);
- Travel orders by name;
- And any other relevant documents.
SECUREX AT THE READY TO ASSIST YOU
Securex is on hand to support you with the implementation of telework. Our HR consultants will inform you of the issues at stake and make you aware of the HR challenges that this particular mode of work organization represents.
Our legal team will answer the legal questions raised by the new telework agreement, and assist you in drafting a customized policy.
Then, in the month to month implementation, our payroll consultants will assist you with the follow-up and determination of the tolerance threshold, as well as in the registration of the Luxembourg company with the foreign authorities. They will ensure that the withholding tax is calculated correctly and coordinate, if necessary, the payroll management with the payroll providers of the border countries (tax exemption/withholding tax according to the rules of the country of residence).
With our services, our expertise and our international partnerships, you can rest assured of complying with your tax obligations and a correct calculation of the salaries while being able to anticipate the tax and social consequences relating to the teleworking of your employees.
For more information, please contact Virginie Echelin: @email