When sending expats on assignment it's essential to thoroughly check terms for coverage - especially with assignments not covered by a bi-or multilateral social security agreement. Written by Stephanie Reckmann and Ulrich Buschermoehle, PricewaterhouseCoopers, Germany.

• Which expats can stay covered under German social security?
• Checklist for assignments to non-treaty countries
• Alternatives to compulsory social security coverage

The majority of German companies retain their expatriates in the German social security system, regardless of possible alternatives that might be more favourable concerning benefits or costs.

This reflects the fact that many companies and their employees are still reluctant to initiate any changes in the employees' social security status, eg by a switch to the host country system.

Which expats can stay covered under the German social security system?

This depends on respective domestic regulations on social security as well as effective multi- and bilateral agreements.

In the case of intra-EU/EEC assignments the relevant EEC regulation should be checked (EEC Regulation No. 1408/71).

For assignments to countries with which bilateral treaties have been agreed upon, these regulations are applicable.

At present Germany has bilateral social security agreements with 17 countries. These are: Bosnia, Bulgaria, The Federal Republic of Yugoslavia, Chile, Croatia, Canada/Quebec, Hungary, Israel, Japan, Macedonia, Morocco, Poland, Slovenia, Switzerland, Tunisia, Turkey and The United States (the agreement with Korea has already been signed but has not entered into force yet, the Chinese one is actually in negotiation).

Assignments to host countries that are not part of the EU/EEC and are not covered by any bilateral agreement (so called non-treaty countries as for example most countries in Asia, Africa and South America) have to be reviewed according to the domestic regulations.

The process of checking these regulations is quite complex in Germany, and should be supplemented by additionally having a look on the actual jurisdiction of the German Federal Social Court (FSC) to get an idea about the legal interpretation of the regulations.

Checklist for assignments to non-treaty countries
(In line with the German code of social law (SGB), Section 4 as well as the actual jurisdiction)

Compulsory coverage under the German social security system, which is normally linked to the principal of territory, is given for German expatriates working abroad upon the following terms:

A German employee is working abroad:

Whether all of these 3 terms are fulfilled in each individual case can be checked as follows:

1. The meaning of "on the basis of an assignment":

An employee goes:

• From his home country abroad
• On instruction of his employer
• To take up employment

An assignment consequently is not given in the case that the employee has been recruited in a third country or the host country directly, thus has not been assigned out of Germany.

2. The meaning of "in the scope of a domestic employer-employee relationship":

• The German employer is still entitled to issue directives concerning point of time, duration, location and kind of work done abroad.
• The employee can still address his payment claim towards the German employer.

Thus, an employee has not been assigned in the scope of a domestic employer-employee relationship if:

• This relationship is incomplete in such a way that the main duties on the part of both the German employer and the employee are set dormant during the time of the assignment, as for example payment of salary and job performance (jurisdiction of the FSC dated 25/01/1994).
• The subsidiary abroad that the expatriate is assigned to, is charged with the remuneration costs by the German company, eg via inter-company invoicing, and declares these costs as operating expenditure. This is quite often the case in German allied companies, which normally continue having their expatriates on the German payroll but regularly pass on the costs to their foreign subsidiaries (jurisdiction of the FSC dated 07/11/1996).

The meaning of "for a duration pre-limited in time"

A duration pre-limited in time is given if:

The deadline of the assignment has been set out in writing right at the beginning
or
The deadline results automatically from the character of the job abroad (eg the completion of a defined project).

But, the duration of an assignment is not pre-limited in time if:

• The assignment contract includes a clause saying that the assignment is extended automatically unless the contract is terminated explicitly (jurisdiction of the FSC dated 04/05/1994).
• A deadline is set up not at the beginning of the assignment but at a later point of time.
• The deadline is defined as the date the expatriate achieves his retirement age.
• An expatriate is recruited just for working abroad, that is he will probably not return to Germany (jurisdiction of the FSC dated 25/08/1994).

A compulsory coverage under the German social security system is given should all three terms be fulfilled.

In case one of the terms has not been met it has to be checked thoroughly whether the main focus of the expatriate's employment from a legal point of view is still in Germany, meaning that the connection to the German company should be sufficiently strong to ensure the German regulations on social security remain applicable.

It is essential for this check to have a look on the real circumstances and not just on what was written in the assignment contract.

A thorough check could avoid serious problems. For example in the case of a costly insured event like permanent disability - no benefits would be paid by the social security authorities should coverage under the German system not be justified.

So follow the regulations and jurisdiction, and consider alternatives if coverage is not given.

Alternatives to compulsory social security coverage

1. Agreeing upon a voluntary insurance or an insurance on application with the home country social security authorities (eg this is possible for pension and long-range nursing insurance under defined terms).
2. Closing of insurance contracts with private insurance companies, eg health, accident and pension insurance. Some private insurers already offer quite profitable group insurance guaranteeing benefits like old-age, permanent disability and survivor benefits.
3. Switching to the host county system, eventually supplemented by private coverage if required.

Such alternatives may provide a complete insurance coverage at a fraction of the cost.

Stephanie Reckmann and Ulrich Buschermoehle are International Human Resource Management specialists with PricewaterhouseCoopers in Germany.

This website is provided as an informational service only. Although we endeavour to ensure its accuracy and timeliness no one should act upon it without appropriate professional advice after a thorough examination of the facts of the particular situation.