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Which Country's Leave Law Applies to a Remote Employee?

For a remote employee in the EU or UK, the leave law of the country where they habitually work applies as a floor — whatever the contract says. How the Rome I Regulation, posting rules and social security fit together, with the US state-of-work rule.

Reviewed · By Thoth· 4 primary sources

Short answer

The law of the country where the employee habitually works — not where the company is based. In the EU that is fixed by the Rome I Regulation: a contract can choose another country's law, but it cannot remove the mandatory protections, including minimum paid leave, of the country the person actually works from. In the US, the state where the work is performed governs PTO payout.

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The rule: where the work is habitually done

For employment contracts inside the EU, the applicable law is set by the Rome I Regulation. Article 8 does two things:

  1. It lets the parties choose which country’s law governs the contract.
  2. It says that choice cannot deprive the employee of the protection of mandatory rules of the law that would apply without a choice — which is the law of the country in which, or from which, the employee habitually carries out the work.

“Habitually” means the ordinary, physical place of work. The employer’s registered office is irrelevant to that test. A company in Berlin that employs someone living and working in Vienna has an employee whose habitual place of work is Austria. Austria’s statutory minimum of 25 working days is the floor — not Germany’s 20 — even if the contract is written under German law.

What “applies as a floor” means in practice

The chosen law still governs most of the contract. But wherever the habitual-work country’s mandatory rules are more protective, they win. For leave, that reliably includes:

  • the statutory minimum number of paid days;
  • the rule that leave cannot be swapped for cash while employed;
  • payout of the untaken balance when employment ends;
  • public holidays, which sit on top of annual leave in almost every European country.

You can always give more than either country requires. You cannot give less than the floor of the country the person works from.

Temporary postings follow a different rule

Sending an employee to another member state temporarily — a project, a secondment — is a posting, not a change of habitual workplace. The Posting of Workers Directive requires the host country’s core terms to apply from day one, and minimum paid annual leave is one of those core terms. After 12 months (extendable to 18 on notification), nearly all of the host country’s employment terms apply.

Social security is treated separately: under Regulation 883/2004 a posted worker can normally stay in the home-country system for up to 24 months, evidenced by an A1 certificate.

Social security and payroll are decided by another regulation

Which country’s leave law applies and which country’s social security system the employee pays into are separate questions. Regulation 883/2004 uses a single-state principle: normally the country where the work is performed. Two common exceptions:

  • Postings of up to 24 months stay in the home system (above).
  • Working in two or more member states: the country of residence applies if a substantial part of the work — in practice at least 25% — is done there; otherwise the employer’s country.

Income tax is decided by bilateral treaties and residence rules and is outside the scope of this guide; if someone works from a second country for months, involve a tax adviser early.

The United Kingdom after Brexit

The UK kept the Rome I rules in domestic law, so the test is the same: an employee who habitually works from the UK gets the UK floor of 5.6 weeks regardless of a foreign choice-of-law clause. Social security coordination with the EU now runs under the Trade and Cooperation Agreement rather than Regulation 883/2004, with broadly similar posting rules.

The United States: state of work, not state of headquarters

The US has no federal paid leave law, so the question is which state’s rules apply. As a general rule, wage-and-hour law follows the state where the work is physically performed. A Texas-headquartered company with an employee working from California has a California employee for PTO purposes — and California treats accrued vacation as wages that must be paid out, where Texas leaves it to policy. Multi-state remote teams need the rule for each state, not the head-office state.

Digital nomads and short stays

A few weeks working from a holiday rental does not move someone’s habitual place of work. Several months can. There is no single EU-wide threshold, so most employers set one in writing: a cap of so many days per year abroad, prior approval, and a list of countries. The risks that build up with duration are the habitual-workplace test itself, social security registration, and — for the company — creating a taxable presence in the other country.

What to do about it

  1. Record the actual work location for every employee, and update it when it changes.
  2. Map the statutory floor for each location using the country pages and, for the US, the state pages.
  3. Encode one leave policy per location in whatever you use to track leave, so accrual, public holidays, carryover and payout follow the right rules automatically.
  4. Run payroll and social security according to the work-country rule, or use an employer of record where you have no entity.
  5. Write the remote-work policy down — day caps, approval, countries — before anyone asks.

Common questions

Can we just write 'governed by the laws of our home country' into the contract?

You can, and that choice is generally valid — but under Article 8 of the Rome I Regulation it cannot deprive the employee of the mandatory protections of the country where they habitually work. Minimum paid leave, payout on termination and public holidays are mandatory almost everywhere in Europe, so the local floor applies regardless of the clause.

Our remote employee moved to another country mid-contract. What changes?

The test looks at where the work is actually and habitually done. Once the new country becomes the settled place of work, its mandatory rules become the floor, and social security and payroll registration usually have to move too. Treat a permanent move as a new employment set-up, not a change of address.

Do we have to give the higher of the two countries' leave entitlements?

In practice, yes. The mandatory minimum of the country where the person habitually works applies as a floor, and you are always free to give more than either country requires — never less than the floor.

Does any of this apply to contractors?

No. Article 8 of Rome I covers individual employment contracts. If a "contractor" is in substance an employee, however, reclassification brings the whole employment floor with it — including years of untaken paid leave.

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Sources

General information, not legal advice. Rules change and national implementations differ — confirm against the current text or a local employment lawyer before acting. See our methodology.