What is workation under German employment law?
From German employment law perspective, workation is strictly speaking a form of mobile or agile work. In contrast to remote work where employees usually work from their own home and therefore have a fixed place of work, mobile work is neither location-bound nor workplace-bound.
Are employees entitled to workation in Germany?
There is no legal entitlement to workation under German law. This means that employees are not allowed to perform work activities in foreign countries before, during or after their vacation without the approval of their employer. Under German law, the right to determine the employee’s place of work principally lies with the employer. Moreover, the employee’s place of work is often explicitly defined in the employment agreement. If such regulation exists, changes require mutual agreement, meaning the employer and employee must be in agreement.
Employers are nevertheless allowed to offer workation to their employees, but solely at their discretion. Even where the employee has already agreed mobile/agile work with their employer, including the right to choose freely where that work should be performed, this will not usually include the right to work in a different country. It usually only means that the employee is free to choose their place of work within Germany. Working from abroad without the employer’s approval may violate the employment contract and result in far-reaching consequences such as a warning or even dismissal.
How can employers offer workation to employees?
Workation is a good way for employers to be attractive, especially to a younger generation which has an increasing desire for flexible work. Due to the lack of legal provisions under German law, it is advisable to conclude a detailed agreement supplementing or amending the employee’s employment contract and defining the conditions of the planned workation. In particular, such agreements may seek to regulate the work location, the duration of the arrangement, the distribution of working hours and respective availabilities, reimbursement of costs as well as tax and social security aspects. It might also make sense to set up a policy or other guideline where general principles of workation can be defined in more detail and applied to all employees.
What needs to be considered from a German tax law perspective?
From a tax law perspective, there are particularly two main questions to be clarified: is there a change in the employer’s obligation to deduct income tax; and is there a risk of establishing a permanent establishment in the foreign country if an employee works from abroad?
As a general rule, an employee continues to be subject to taxation in Germany if the employee who is principally resident in Germany and employed with a German employer does not spend more than 183 days abroad. Short-term activities in a foreign country generally have no effect on the employer's obligation to withhold income tax. Therefore, for typical workation stays abroad, there is no change in taxation. However, the longer the stay in the foreign country, the closer one should look.
It is also important for employers to avoid the tax risk of establishing a permanent establishment abroad, which would result in corresponding tax obligations in the respective foreign country. Where an employee regularly works from abroad, there is an increased risk involved so special attention should be paid by the employer. A detailed examination must always be conclusively clarified in each individual case before the employee’s workation starts, taking into account the respective foreign tax law and relevant double taxation agreements, if any.
What needs to be considered regarding social security law?
What social security law applies principally depends, among other things, on the place where work activities are performed (the so-called territoriality principle – Territoritalitätsprinzip). In a workation scenario, the social security law of the foreign country where the employee performs work activities could therefore apply and the employer would be obliged to pay social security contributions in the foreign country in which the employee is staying.
However, the territoriality principle does not apply without exception. Within the EU, EEA and Switzerland, EU law stipulates that there is the possibility of concluding an exemption agreement in line with article 16 of the EU regulation on the coordination of social security systems – but this is hardly relevant in practice. Additional regulations in article 13 deal with a scenario in which employees usually carry out work in two or more EU member states, but this is not suitable for multiple, shorter, occasional work periods as is the case with workation. While EU law states that, for postings, the social security law of the employee’s home country remains applicable, a posting principally requires that the employer instructs the employee to work from abroad whereas workation is in the employee’s interest and is granted by the employer solely due to the request of the employee so that this regulation does most likely not apply.
Requests for pragmatic solutions have been raised. Currently, German authorities act on the basis that it is irrelevant that the initiative for workation comes from the employee and is predominantly in their interest. For the posting rules to apply and German social security law to remain applicable, it is sufficient that during temporary work abroad:
- the employer is aware of the arrangement and agrees to it;
- the employer accepts and continues to remunerate the work performed abroad; and
- a posting certificate is applied for at the competent German authorities.
That said, it is important to note that the view of the German authorities is not legally binding. At this point it cannot be predicted if, when and how the German government will implement regulations to enable mobile work including workation, at least throughout the EU, without any problems – although respective plans can be found in the coalition agreement of the German governing parties.
If workation is planned in a third country outside the EU, a work or residence permit may be required from an immigration law perspective before work activities can be carried out in that country.
Are there further registration obligations?
In most EU and EEA countries there is an official registration process for the posting of employees within the meaning of the EU posting directive. From the German perspective, it is rather unlikely that a workation will be considered a posting in the sense of the EU posting directive or the national German Posting Act (Arbeitnehmerentsendegesetz); however, this interpretation cannot be totally excluded. In Germany, the registration obligations only apply to employee posting in certain sectors, which are designated in the Posting Act. However, in our experience, authorities in other countries make no difference between workation and regular employee posting, so employers should also check the legal situation at the destination in this regard.