The introduction of the Corporate Sustainability Reporting Directive (CSRD) has created more transparency requirements on how European companies conduct their business. In current times, greater attention is paid to how companies deal with Environmental, Social, and Governance (ESG) matters in their daily operations.

In the case of the social aspect, there is a trend visible where more attention is given to how employees are treated. Company policy and metrics with respect to (e.g.) adequate wages, social protection, gender pay gap, and work-life balance will become available and visible to the wider public. Therefore, it is important to ensure these matters are properly addressed to uphold good standing in the labour market as well as with investors, trade unions, and other stakeholders (such as social security agencies, tax authorities and other governmental organizations).

This article is written by Hendrik Bastiaans and Brian James . Hendrik and Brian are part of RSM Netherlands International Tax Services with a focus on Global Mobility and ESG.

When preparing your CSRD report, there is a requirement to do a double materiality assessment. A materiality assessment requires the identification and acknowledgement of ESG impacts as well as risks and opportunities in the company’s operations and their supply chain. It is designed to help companies assess the importance of specific ESG topics to their organization. Social topics to be included in the assessment include the impact on the own workforce regarding social protection. In this respect, the company is required to disclose whether all its employees are properly covered by social protection either through public programs or through benefits offered by the company against the important life events such as sickness, unemployment, Injury and acquired disability and parental leave. 

Source: ESRS - Disclosure Requirement S1-11-Social Protection. 

Companies that rely heavily on workforce, especially those that rely on internationally posted workers, need to aware of possible ESG-related risks. The complexity of international tax and social security regulations, human resource policies (including compensation & benefits structures), collective labour agreements, pension schemes, etc. can make it difficult to recognize certain direct risks and how to deal with them appropriately. At EU level, there are related regulations that are targeted at international workforce protection and social security coordination.

Posted Workers EU Directive and Social Security Regulation (EG) no. 883/2004

With respect to checking for possible ESG risks in your workforce, we would like to single out two regulations: (1) the Posted Workers EU Directive (PWD) and (2) Social Security Regulation (EG) nr. 883/2004 (Regulation no. 883/2004). 

Posted Workers Directive

The PWD establishes requirements and conditions for employers who send their employees to a Member State of the European Union for a limited time to perform a service. 

Introduced by the European Commission, the PWD aims to uphold standards of equal employment conditions and fair competition within the European market, thus attempting to prevent instances of "social dumping." 
To guarantee that rights and working conditions for posted workers are protected throughout the EU and to ensure a level playing field, the EU law defines a set of mandatory rules regarding the terms and conditions of employment to be applied to posted workers such as minimum salary requirements (including overtime rates), working hours and time-off, allowances or reimbursement of expenditures to cover travel, board and lodging expenses for workers away from home for professional reasons, parental & maternity leave. 

Under the PWD, companies posting workforce abroad are amongst others required to notify the authorities of the country where the work will be performed and keep an easily accessible administration with respect to the posting. In addition, the recipient of the services must verify the notification and is also subject to administrative requirements.

EU regulation 883/2004

The coordination of social security systems within the EEA and Switzerland is regulated by Regulation no. 883/4004. This regulation is in first instance aimed at ensuring social security in at least (but also not more) than one country. Employees working – or that have worked – in more than one EU/EEA country are also covered by this regulation.  The rules on social security coordination for employees provide for a series of rules that enable social security institutions to determine which country’s legislation applies to persons who are in a cross-border situation between two (or more) countries.  Once determined, the country whose legislation is applicable issues a declaration (Portable Document A1) which certifies the country is competent for the social security coverage of the person and thus where social contributions are due. 

Forward Thinking

At an international level, governments and organizations are focusing more and more on social well-being and governance. The EU social security regulation and PWD are (historically) prime examples of this. With the introduction of the CSRD, further attention to social matters throughout the supply-chain at employee level will be required. 

Now more than ever, employers with internationally active employees will be required to address how they deal with these employees and how they ensure compliance. Detecting and dealing with issues will be paramount in managing financial and reputational risks, as well as impact on workforce and other stakeholders. Knowing where your internationally mobile workforce is physically active, is a first step in understanding where and which compliance obligations exist. Once the international moves are known, further steps can be taken to manage and ensure compliance.

RSM is a Thought Leader in the field of Global Mobility, HR support, and Sustainability consulting. We offer frequent insights through training and sharing of thought leadership that is based on a detailed knowledge of regulatory obligations and practical applications in working with our customers. If you want to know more, please reach out to one of our consultants.