Cross-border remote working into Luxembourg

Many employees are currently requesting to be able to work remotely, and employers must address these demands in order to remain competitive and attract the best talent. However, cross-border working presents particular administrative and legal challenges which these employers may have to take steps to mitigate.

Determining the applicable law

The Luxembourg convention on teleworking of 20 October 2020 introduced ‘regular’ and ‘occasional’ remote working concepts. For the purposes of the convention, regular remote work is when at least 10% of an employee’s working time takes place remotely and requires a written agreement.

The mandatory national labour law provisions applicable to those working remotely in Luxembourg while resident in another country depends on how much of that employee’s work is actually done from the other country.

Where less than 50% of an employee’s working time is spent teleworking from their country of residence:

• Luxembourg law applies to the entire working relationship;
• rules of public order in the residence country apply to while the employee is working remotely in the residence country.

Where more than 50% of an employee’s working time is spent teleworking from their country of residence:

• resident country law applies to working time in the residence country as well as in Luxembourg;
• Luxembourg rules of public order apply to working time in Luxembourg;
• where the employment agreement is explicitly governed by Luxembourg law, the employee is also entitled to benefit from Luxembourg law provisions to the extent that these are more favourable than resident country law.

Recent and upcoming developments impacting on home workers

One area in which this will be increasingly relevant is in relation to the so-called ‘right to disconnect’, draft legislation on which is currently making its way through the Luxembourg legislature (bill no. 7890). Employers should pay particular attention to these new rules when implementing a policy around teleworking, particularly given the enhanced flexibility these employees are likely to have over organising their work and availability.

In view of the recent partial legalisation of private consumption of cannabis at home in Luxembourg, Luxembourg employers must also ensure that their telework policies fully prohibit any cannabis consumption during the employee’s working hours or to the extent that it would impact on the employee’s fitness for work, as well as any sanctions that may be imposed for breaches.

Taxation and social security

When setting terms and conditions for cross-border remote workers, employers must observe EU rules on the coordination of social security and applicable bilateral tax treaties along with national labour laws and the Luxembourg convention. However, the application and coordination of different thresholds of applicability may be challenging for employers.

The EU regulation on the coordination of social security rules across borders provides that employees should be affiliated to one national social security regime. In principle, this will be the EU member state in which their employer is based. However, if at least 25% of an employee’s work is performed in the employee’s country of residence, the employee should be affiliated to the social security scheme of their country of residence.

Agreements that Luxembourg has negotiated with neighbouring countries for the avoidance of double taxation must also be observed. Annual limits on remote work have been set to prevent income taxation in the employee’s country of residence and associated administrative burdens for the employer, such as pay slip adjustments and reporting obligations. These are:

• 19 days of remote work in Germany;
• 34 days of remote work in Belgium – although there is some uncertainty over whether this or a previously-agreed 24 day threshold applies as Belgium has not yet issued the relevant law; and
• 29 days of remote work in France.

The application of these thresholds was suspended at the height of the Covid-19 pandemic but, as of 1 July 2022, they are now again fully applicable. The French and German governments have officially confirmed that the thresholds will not be pro-rated for the remaining months of 2022. However, the Belgian government is yet to officially confirm its position, meaning uncertainty remains over the threshold application until the end of the year.

Co-written by Breeze Van Eck of Pinsent Masons.