How to adapt employment contracts for international teleworking
International teleworking has become a highly sought-after work modality for both workers and companies, partly thanks to the consolidation of teleworking during the pandemic.
However, adapting employment contracts for international teleworkers involves numerous challenges, especially in terms of social security , taxation and labor legislation.
With the entry into force of the Framework Agreement relating to Article 16.1 of Regulation (EC) No 883/2004 and the flexible approach of the General Treasury of Social Security (TGSS) , important new developments have been introduced to improve the coordination of Social Security systems in the European Union (EU), providing a clearer framework for international teleworking.
In this article, we detail how international employment contracts should be adapted to ensure regulatory compliance and the rights of teleworkers.
Teleworking: What it is and how it is applied internationally
Teleworking is a modality that allows employees to perform their duties from a place outside of traditional offices, usually from their homes.
During the pandemic, teleworking became established as an effective solution to maintain the economic activity of many companies.
However, international teleworking involves additional challenges when employees provide services from other countries, requiring the adaptation of international teleworker employment contracts to comply with applicable regulations in each jurisdiction.
Social Security in international teleworking
One of the most complex aspects of international teleworking is social security contributions.
According to the Framework Agreement relating to Article 16.1 of Regulation (EC) No 883/2004 , teleworkers who carry out their activity in several EU Member States may pay social security contributions in the State where the company is located, provided that the time worked in their country of residence does not exceed 50% of the total.
This agreement, which came into force on July 1, 2023 , introduces an important exception to the general rule, which until now required cross-border teleworkers to pay social security contributions in their country of residence.
This new provision offers greater flexibility for companies wishing to hire remote workers from other countries without incurring complications related to Social Security.
Furthermore, the TGSS's flexible criteria, also in force since July 1, 2023, apply to teleworkers who provide services occasionally or temporarily in another EU Member State.
In these cases, the teleworker will continue to pay contributions in his or her country of origin, provided that the transfer is temporary and does not exceed certain limits.
Key points for adapting the employment contract:
- Specify the percentage of time the worker will spend in his/her country of residence and in other countries.
- Define the rules for Social Security contributions in the contract, applying the exceptions of the Framework Agreement or bilateral agreements.
Applicable labor legislation in international teleworking
Another crucial aspect is the labor legislation applicable to the contract.
According to the Rome I Regulation , the parties may agree on the legislation that will govern the employment contract.
However, in the absence of an agreement, the legislation of the country in which the worker habitually performs his duties will apply.
This means that, when adapting an international employment contract, companies must take into account both the regulations of the country where the worker resides and those of their headquarters.
If the worker changes country or provides services in several countries, it will be necessary to review the applicable legislation to ensure that his or her minimum labor rights are not violated.
Aspects to consider in the contract:
- Clearly establish which legislation will be applicable, depending on residence and country of work.
- Include in the contract the minimum guarantees applicable according to the legislation of the country where the worker provides services.
Taxation and tax residency of international teleworkers
One of the main challenges of international teleworking is tax residency.
According to international tax regulations, a worker is considered a tax resident in a country if they spend more than 183 days a year in it.
This can lead to conflicts if a worker provides services in several countries, as he or she could be considered a tax resident in more than one country.
In these cases, bilateral agreements between countries are essential to avoid double taxation.
Employment contracts for international teleworkers must clearly specify in which country the worker will pay taxes and how possible double taxation will be handled.
Keys to adapting the contract in tax matters:
- Define the teleworker's tax residence and specify where taxes must be paid.
- Ensure that the contract complies with bilateral or international agreements to avoid double taxation.
Examples of successful teleworking in international companies
Numerous companies that use teleworking have successfully implemented this modality internationally.
Companies like Buffer, GitLab, and Zapier operate almost entirely remotely, managing teams distributed across the globe.
These companies have been pioneers in demonstrating that international teleworking is not only viable, but can also be an effective tool for attracting and retaining talent.
In these examples of teleworking, companies have adapted their employment contracts to comply with tax and social security regulations in several countries, offering flexibility to their employees without compromising legal compliance.
Advantages and disadvantages of international teleworking
International teleworking presents a series of advantages and disadvantages for both companies and employees.
Among the most notable advantages is geographic flexibility, which allows companies to hire talent without geographic restrictions.
In addition, employees enjoy greater flexibility in their working hours.
However, the drawbacks are mainly related to the complexity of managing social security and taxation in several countries, which requires constant monitoring and proper adaptation of employment contracts.
Advantages:
- Greater flexibility for employees and employers.
- Access to a global labor market.
- Increase in talent satisfaction and retention.
Disadvantages:
- Complexity in managing the Social security and taxation.
- Need to comply with labor and tax regulations in several countries.
Conclusion
Adapting employment contracts for international teleworking requires taking into account key aspects such as Social Security, taxation and labor legislation.
The recent updates introduced by the Framework Agreement and the TGSS provide greater clarity and legal certainty for companies that implement this work arrangement.
However, each situation must be analyzed individually to ensure that both the worker's rights and the company's obligations are properly fulfilled in each country involved.
International teleworking is a powerful tool for attracting global talent, but it must be carefully managed to avoid legal and tax issues.
RRYP Global , lawyers specializing in residence permits for teleworkers.
