Navigating the European Union posted workers revised directive: Q&A with KPMG’s Daida Hadzic

EU Posted Workers Blog Post with Daida Hadzic.

Continued workforce mobility within the European Union (EU) has created challenges in defining and protecting posted and local workers. Companies with posted workers – commonly known as employees sent to an EU member state to carry out services for a limited period – must meet certain minimum employment terms and conditions of the host country.

While EU posted worker regulations date back to 1996, it’s proven difficult to ensure compliance across 27 EU members, and global companies are grappling with reputational risks and the complexities of various labor laws in member countries. That’s why the revised EU posted worker directive will be implemented in July 2020 to better ensure the same pay for the same work at the same workplace.

But what do the new EU regulations mean for managing your global workforce and assignees?

We asked Daida Hadzic, Director of the EU Tax Center, KPMG, to share her expert perspective on the updated directive and practical steps for how mobility professionals can prepare their companies today for the forthcoming changes.

The Posted Workers updated directive: a Q&A session

What are the current obligations for companies with posted workers in an EU country?

To be compliant with current requirements, companies must meet four standards:

• Labor law requirements. Companies must follow host country labor laws, including minimum wage, maximum working time, annual leave, health and safety and anti-discrimination.
• Companies need to register their posted workers with the proper authorities in the host country. This includes sharing information like the employee’s start and end date for work in the host country, and the nature of work.
• Companies are required to provide documentation such as work contracts, assignment letters, pay slips and timesheets. This documentation must be retained for a certain amount of time.
• Nomination of a representative. A company must have a representative in the host country. The representative is the main point of contact for authorities and audit purposes, and is responsible for keeping documents on each posted worker.

When and why did EU posted worker directives start?

A legal framework to guarantee fair competition and protect posted workers’ rights was originally created in 1996 with the EU Posted Workers Directive. The EU adopted the Enforcement Directive in 2014, strengthening the practical application of the original directive, to prevent companies from circumventing the rules, set joint liability standards for subcontractors, and introduce measures for inspection, monitoring and exchange of information about posted workers.

What’s driving the revised directive in July 2020, and why does it matter?

With constantly increasing workforce mobility in the EU, the current requirements for compliance with the posting of workers create a difficult landscape to navigate. Given the lack of consensus around implementation, enforcement of rules and clear definitions in the contemporary labor market, the initial goals of fair competition and protection of posted workers’ rights can’t be achieved to a satisfactory level with the current rules. Therefore, the EU defined new, clearer rules to guide current mobility practices and patterns.

What is expected to remain the same and change as a result of the revised EU Posted Workers Directive?

Companies will still need to register their posted workers with the appropriate administrative agencies in the host country, meet local workforce core terms and conditions, maintain documentation, and nominate a representative.

The revised directive aims to make significant changes in three key areas:

• Time limit to posting. The revised directive articulates time limits for consideration as a posted worker. Currently there’s no maximum duration. It’s just generally understood to be temporary and that can mean very different things in different countries. Under the new directive, employees can be posted to another EU country for up to 12 months. If posted employees need to stay longer than a year, their companies must provide specific reasons why it’s necessary in order to obtain approval for a six-month extension. If a posting is longer, an extended set of terms and conditions of employment in the host country will apply.
• Minimum wage levels. Under the 1996 directive, companies needed to meet minimum rates of pay in the host country. This is understood as base salaries. Now, companies will need to look at all mandatory elements of remuneration, which can be bonuses, severance, etc. Each EU member has a different renumeration, so companies will need to research each country to ensure compliance.
• Implementation of regulations. To promote observance with the new regulations, the EU established the European Labor Authority (ELA). In addition to acting as a knowledge center for the revised directive, the ELA will facilitate joint labor inspections to ensure compliance around registration requirements and terms and conditions like salary levels, holiday pay, sick leave, unpaid social security contributions and false postings. If companies are found non-compliant in these investigations, countries can impose financial sanctions. On top of the potential financial hit, non-compliance with the posted workers requirements is associated with “social dumping,” the undercutting of local labor with cheaper foreign labor. This could severely impact a company’s reputation and thus future business opportunities.

With the forthcoming directive, what do those in the U.K. need to consider, given Brexit?

As of now, Brexit won’t impact the new directive. Registration obligations still apply for U.K. companies posting workers in EU countries. In addition, the U.K. doesn’t have a registration system for posted workers in its country, and there don’t appear to be plans to have it available.

What steps should mobility professionals take now to prepare for the revised directive?

While details will become clearer towards July, there are three things mobility professionals can do now:

• Analyze current risk and level of compliance. Look at your company’s data to understand its current standing and revise your posting contracts. Determine how many posted workers your company has in the EU, which host countries they’re in, and how compliant you are against current regulations in each EU member country, both in terms of registration and in terms and conditions for employment. For instance, if you have long term postings, consider how the new directive will impact your employee packages, liabilities, etc. This exercise might inspire you to reconsider your business models for posted workers.
• Engage decision makers and stakeholders. Work with your company’s decision makers to assess your mobility strategies, business needs and any identified risks, as well as to ensure processes and systems are in place to comply with registration and labor law requirements. Plus, determine who at the company is responsible for managing the processes and requirements associated with the directive. It may be a team or it may be an individual.
• Understand host country definitions. Gray areas will remain with the revised directive. For example, business travelers who are in an EU country exclusively for meetings and conferences typically aren’t considered posted workers. However, some EU countries have flagged such business travelers as potential posted workers. To avoid financial and reputational risks, understand the local laws and definitions of host countries and align your company’s practices accordingly. When in doubt, it’s always better to register your employees who may travel to an EU country and pull back once you have a better understanding of how the host country defines a posted worker.

What resources or support are available to mobility professionals to navigate these changes?

There are three resources I’d point mobility professionals to:

• European Labor Authority. This is the central authority and main resource to provide information about the revised directive. It might not yet have all the details like renumeration for each country but check back as more information becomes available prior to the July directive.
• European Union Commission. As the ruling body for the EU, the Commission website will be closely tracking the revised directive and providing resources to help companies adapt to the new changes.
• Local labor authorities. Staying in touch with local labor authorities is the best way to learn each country’s regulations and where things stand. These connections will help mobility professionals learn specific terms and conditions and if regulations are listed in multiple languages outside of the host country language.

About the Author: Daida Hadzic, Director of KPMG’s EU Tax Center, brings 15+ years of experience in international law for mobile workforce and tax to oversee the company’s global client network. She previously worked at the Danish ministries, European Commission and Danish Pension Agency. She holds a bachelor’s and a master’s degree from the University of Copenhagen, in English and economics. She also holds a bachelor’s degree in law from the University of Southern Denmark. Daida is based in the Netherlands.