Social Security - New Regulations for Seafarers
Posted Dec. 2, 2011, 9:57 a.m.
By Bruce Maltwood
As we read in the press and hear on a daily basis of the reports of yacht boardings, arrests and investigations by customs and the fiscal police across the EU, our minds automatically draw to one subject, VAT and tax. There are however, other areas that require careful consideration, social security contributions being one of them. With so much tightening up of the rules, the clamping down on abusive tax practices, the new place of supply rules, pressure to be EU flagged to charter in the EU and more stringent policies regarding commercial charter operation, there seems to be no end to the raft of changes and interpretations. Few have noticed the stealth like approach of the new EU social security regulations that have somehow remained under the radar to the marine industry since their inception back in 2004. As highlighted on numerous occasions including the recent UK emergency budget there is an ever growing problem as life expectancy and demands on social services increase far outweighing the revenue that is generated through social security contributions. Changes were inevitable in an attempt to balance the flow in, and out, and these regulations are one of the first steps to achieve this.
A Brief History
The first EU regulation no 1408/71 on the application of social security schemes was implemented back on 14th June 1971 with amendments and updates encompassing numerous changes in legislation at both Community and also national level resulting in complex and lengthy rules that were extremely hard to interpret and difficult for members to enforce.
A thorough revision of the rules and regulations was required in order to enable citizens to exercise their right to move freely within the European Union by guaranteeing that they are not disadvantaged in terms of social security. The new regulation 883/2004 (known as “the basic regulation”) was adopted in 2004, coming into force after agreement of the Implementation Regulations. The European parliament reached this agreement on the Implementation Regulations in 2009 under agreement 987/2009 with entry into force then scheduled for March 2010, this date was then pushed back to May 2010.
These regulations were designed to co-ordinate, simplify, accelerate and digitise the social security systems of the European Community with text also having relevance for the EEA and for Switzerland. One word that has not been associated with the EU, even though it was supposed to be the cornerstone of the foundations that the EU was built on, is harmonisation. These new social security regulations are one of the first signs of harmonisation across the EU with a pan European database to boot. The new regulations aim to simplify understanding but as with most areas of our industry, a number of grey areas also arise with it.
How Do The Rules Affect Us
The new regulations have a major effect on both employers/owners and crew members. “The activity of employment normally pursued on board a vessel at sea flying the flag of a Member State shall be deemed to be an activity pursued in the said member state”. In simple terms, if your yacht flies an EU flag you need to consider employer contributions and employee deductions to that flag state as that is where the crew member is deemed to have pursued a gainful activity (lex loci laboris).
One exception to this is if the crew member is resident in the same Member State as the remunerator then that crew member will be subject to the legislation of the said Member state. There are therefore two possible triggers being EU employer and EU remunerator remembering also that as previously mentioned, the text has relevance to EEA and Switzerland. The above mentioned pressure to flag EU for charter therefore pushes those yachts that previously had no concern or consideration for contributions straight into the mouth of the social security net.
These regulations apply to EU resident crew which is where the grey area comes in. A large number of factors could contribute to whether a crew member is considered an EU resident for the purposes of this legislation including property owned, length of time a yacht is remaining in one port, time spent living in crew quarters ashore to name a few. When a yacht takes on a new crew member, does the yacht owner/employer clearly know where the crew member is resident?, if the residency of a crew member changes while under employment do you know if and when they possibly give rise to a social security obligation?. This social security obligation is not just for the crew members’ deductions but also for employers contributions which could add a large percentage to the payroll. The administration of the various contributions will also be a cost to consider with a possible three variances to the salary calculations for your crew and contributions/deductions needing to be filed with the relevant member states.
The legislation stipulates that all persons residing in the territory of any Member State are subject to the same obligations and enjoy the same benefits under the legislation of any Member State as the nationals of that State. While the original Regulation 1408/71 applied the principle of equal treatment to persons residing in the Member State, this prior condition is no longer required. These Regulations encompass all the usual areas of social security including unemployment benefits, family benefits, death grants, accidents at work, maternity, retirement and pre-retirement benefits. The principle of aggregation means that a crew member can add together his periods of employment in different member states in order to meet any required qualifying years. Periods of employment in a number of EU countries can therefore be added together to meet any qualifying period in the crew members Member state of residency irrespective of the contribution levels in that Member state.
The Regulations do assist the clarification of the rules on social security for crew and is a step forward by providing the rights and benefits that any EU resident employee should be entitled to. As with most regulations however, although it attempts to clarify what is a confusing and disjointed issue, it has created its own set of problems and anomalies for employers and owners to try to decipher for themselves. With further regulations surrounding crew employment on the horizon including ILO/MLC who knows what the future holds. One thing is for sure though, it will not stand still for long.
Sarnia Crew Services Limited