Managing cross-border commuters: complexities and solutions

What is a cross-border commuter?

A cross-border commuter is an individual who lives in one country but works in another country. This arrangement often involves daily or weekly commutes across national borders. The status of a cross-border commuter can affect tax obligations and social security coverage, which may vary between the home and work country depending on the country combination and the distribution of workdays between the two.

Hear about what cross-border commuters are and what are the compliance aspects of managing them from WorkFlex co-founder, Pieter Manden LLM MBA.

The complexities of managing commuters

Commuting employees often create significant compliance challenges for organizations. Historically, the daily routine for cross-border commuters was simple: get into a car, drive across the border to work, and return home the same day – every day. However, this straightforward sequence has been disrupted. The number of “classic” commuting days have decreased significantly. Nowadays, commuters may work from home on some days, stay overnight in their employer’s country on others, or go on business trips and work-from-anywhere trips to different destinations. As a result, tracking the days spent across countries has become increasingly important to address tax and social security implications.

HR departments often struggle to accurately track the location of these employees. And even if they would, it is difficult to understand how the actual presence impacts the tax and social security status of the commuter. The regulations in this regard are very complex. The lack of tracking data and the complexity of the regulations lead to compliance risks, as we will address in more detail below. Additionally, commuters are often not informed and feel not guided in what they are supposed to do and where they are supposed to be.

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What are the compliance implications for cross-border commuters?

1. Social security​

It is complex to determine whether a cross-border commuter is supposed to pay social security contributions in the work country, the home country, or maybe even in both. This depends on specific agreements between the two countries, the contract status, and the actual number of days spent in each country. Paying social security contributions in the wrong country will lead to a significant administrative burden to recover paid contributions in the one, and remit contributions in the other country retrospectively. This exercise is likely to result in financial damages for professional support, interest and penalties, and potentially double payment of contributions.

Within the European Union, commuters used to be able to remain socially insured in the work country as long as they worked a maximum of 25% at home. Over the past years, more than 20 EEA countries have entered a Framework Agreement concerning cross-border telework within the EU/EEA/Switzerland, which came into force on 1 July 2023. Commuters between countries that have both entered into this framework agreement, can work up to 50% in the home country yet remain socially insured in the work country.

Clearly, it is important to track that the commuter does not exceed this maximum of 25% resp. 50% in the home country. An additional layer of complexity in tracking working days arises when employees travel to other destinations - whether for business trips or work-from-anywhere arrangements. Days spent in destinations outside the work and home countries should also be counted toward the overall balance of employee working days and considered for social security implications

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2. Tax

The tax status of commuters can be even more complex than the social security status. In principle, tax treaties prescribe that income from employment is taxable in the country where the work activity takes place. For commuters, this means that workdays in the work country are taxable in the work country, and workdays in the home country are taxable in the home country. This results in a so-called spit payroll. Without tracking where the commuters actually worked from, it is impossible to run a split payroll in a compliant manner.

As an exception to the main rule above, some tax treaties have included a special commuter arrangement. Examples of tax treaties that include such a commuter arrangement are the treaties between Germany and Austria, Germany and Switzerland, Germany and Luxembourg, Belgium and France, and France and Switzerland. The special commuter agreement generally provides for the possibility that the commuters income is only taxable in the work country, if certain conditions are met. These conditions differ per tax treaty. A commuter between Germany and Austria needs to both live and work within the so-called border zone, and is only allowed to work a maximum of 20% (45 days) outside of this border zone. The tax treaty between Germany and Luxembourg does not speak of a border zone. Here, a commuter should limit the working days outside the work country to 34 days per year. For commuters between France and Switzerland, this number is 45 days – yet a special exception for 40% telework from home is allowed. Without appropriate instructions to the commuters and tracking the actual presence, the aforementioned thresholds can be easily exceeded. This results in having to retrospectively correct payroll. Just as with correcting the social security contributions, this exercise is likely to result in financial damages for professional support, interest and penalties, and potentially double payment of contributions.

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WorkFlex solution

WorkFlex has developed an automated software solution that streamlines commuter management for HR teams while enhancing the employee experience for commuters.
With our solution, employers receive:

• Ongoing compliance management based on real-time commuter presence data
• Proactive warnings in case of non-compliance
• Easy tracking and report generation

The objective of the WorkFlex commuter solution is to track the presence of employees in their home and employment countries, or any other locations, such as business trip destinations or work-from-anywhere locations, and to continuously assess their tax and social security status. Additionally, WorkFlex will help both HR and the commuter to easily understand if and how the actual presence should impact the social security country and/or the payroll split.

Two main indicators are monitored on an ongoing basis:

• Ongoing tax compliance status: This metric evaluates the accuracy of the commuters´ reported tax status (payroll split), by comparing it to their actual and projected presence in each country. It determines where employment taxes should be paid - whether in the home country, work country, or split between both (with specific percentages for each). This assessment helps ensure compliance with international tax regulations based on the employee's work patterns and locations.
• Ongoing social security status: This indicator checks if the country where the commuters is socially insured, actually matches the legal requirements. It compares the status claimed by the employer or employee (whether it's assigned to the home or work country) against the employee's actual time spent and expected future presence in each country.

With WorkFlex’ commuter solution, HR teams can effortlessly navigate the complexities of managing cross-border commuters. Our platform simplifies the process by automatically monitoring legal requirements across different countries and ensuring that all commuter presence data is accurately captured in the system. This means less administrative hassle for your team and more time to focus on strategic initiatives. Trust WorkFlex to streamline your commuter management and enhance compliance, allowing you to attract and retain top talent in a globalized workforce.