Monday, October 20, 2014

France - Measures to Reinforce the Economy

By: Roselyn S. Sands / Nicolas Etcheparre
EY Société d’Avocats, France

Ever since French President, François Hollande, promised to reduce unemployment figures by the end of 2013, the issue of unemployment has been and continues to be at the heart of French politics, and therefore French legislation. Indeed, over the past year, the French government has passed several pieces of legislation aiming to reduce unemployment.

First, the government passed a series of laws which aim to encourage both employee mobility within France and training. Each employee is entitled to a certain number of hours of employee financed training per year. These hours are acquired pro rata of the number of days worked and are “potable.” Consequently, even if the employee changes employer, he will still be allowed to benefit from the acquired training hours. This mechanism replaces a more complex mechanism where employee rights were transferable to a new employer only under specific conditions and for a limited time only. The aim of the legislation is to ensure that all employees benefit from training throughout their career, even when they change jobs, in order to ensure adequacy between the job market’s needs, and the job pool’s qualifications.

Second, unemployment figures for youth and senior citizens are the highest of any category in France. The government has thus implemented a twofold plan in order to reduce unemployment in these specific populations. The first part of its plan is the “Contrat de génération”, or the “Generational contract”. Its aim is to encourage employers to hire youth and senior employees, thus ensuring a transfer of experience within the company. Therefore, in 2013 the government passed a law which gave a yearly 4.000€ tax incentive, for 3 years, to companies of less than 50 employees who hired a youth under the age of 26 and kept employed a senior citizen of more than 57 of age. However, this measure was not as effective as hoped for, therefore the government increased the tax incentive to 8.000€ in September 2014, to all companies of less than 300 employees.

Last, in order to encourage in-house investment, the government has implemented a tax incentive applicable to low salaries. This tax incentive, called the “Tax Credit for Competiveness and Employment”, offers a tax credit on social contributions paid on salaries which are approximately 20% above the legal minimum. Therefore, part of the social contributions paid on these salaries is reimbursed through a tax credit. Companies are free to use the tax credit as they wish, under the condition that it is reinvested within the company in order to favor competitiveness and employment. There is one catch: the works council must be kept apprised of the way in which the tax saving is spent on investment. The figures for fiscal year 2014 prove that the tax credit has been a success, even if the government hopes to increase awareness of the tax credit and encourage more companies to request it for financial year 2015.

In conclusion, the French government continues to implement targeted legislation and mechanisms which aim to reduce unemployment throughout the country. Given that the economy and unemployment are at the heart of the political debate in France, it is to be expected that the government will continue to work towards these goals.