France - New legislation: increase of human resources costs in France

By Roselyn S. Sands – Ernst & Young Société d’Avocats - Paris, France *

New legislation: increase of human resources costs in France – Part 1

As promised during the presidential campaign, the new government has enacted several reforms this summer in France. These reforms have a significant impact on human resources matters and will generally increase costs for employers as well as employees.

1)       New Finance Bill for 2012

The Finance Bill for 2012, published on August 17, 2012, contains several measures affecting tax costs for employers in France:

a)       Increased taxation on stock options and free grants of shares;

b)      Increased taxation on profit sharing payments and other employee savings vehicles;

c)       Increased taxation on overtime work;

d)      Increased taxation on termination indemnities.

a)                   Increased taxation on stock options and free grants of shares:

The Finance Bill for 2012 provides that:

·         The employer contribution to be paid upon the grant of stock options or free shares is increased from 14% to 30%.

·         The employee contribution to be paid based on profits when the options are exercised is increased from 8% to 10%.

This new measure is effective for options and free shares granted as from July 11, 2012.

b)                   Increased taxation on profit sharing and other employee company savings vehicles:

The Finance Bill for 2012 contains measures increasing from 8% to 20% the employer social contribution (forfait social) applicable to the following programs:

·         Compulsory profit sharing (participation)

·         Optional profit sharing (intéressement)

·         Company contribution to retirement plans (known as ‘PEE’ or ‘PERCO’)

·         Company contribution to optional supplementary retirement plans

·         Director’s fees (jetons de presence)

·         Bonus on profit sharing (prime de partage de profit)

This new measure is effective for payments made as from August 1, 2012.

The rate of 8% remains applicable for company contributions to supplementary welfare insurance plans.

c)                   Increased taxation on overtime:

The law of  August 21, 2007 (known as ‘TEPA’ law) provided for exemptions of employer and employee social security contributions on overtime pay.

The Finance Bill for 2012 contains cancels this TEPA law as follows:

•         Employee social security contributions and personal income tax on overtime performed will no longer be exempt.

•         Employer social security contributions on overtime pay will no longer be exempt in companies with 20 employees or more.

This new measure will generally be applicable for overtime pay as from September 1, 2012.

d)                   Increased taxation on termination indemnities

Prior to the Finance Bill for 2012, the indemnities paid to employees or corporate officers upon termination of their employment contract or office were exempt from social contributions, within certain limits, but were fully subject to social contributions when they exceeded 1 million Euro.

The Finance Bill for 2012 decreases this 1 million Euros ceiling down to 363,720 € effective for indemnities paid as of September 1, 2012. This means that if termination indemnities surpass 363,720 €, they are fully taxable for social security and employee personal income tax purposes.

2)       Key HR issues submitted to unions for negotiations

In addition to the foregoing, and in keeping with the tradition of labor relations consultations in France, the Government also released guidelines encouraging union negotiations and discussions on several HR matters prior to potential legislation on these matters in 2013–14.

These guidelines are currently under discussions and may impact HR flexibility and the costs of doing business in France over the next few years.

-         The “Generations Contract”

To manage the increasing need to keep older employees working longer discussions have been launched with the aim of promoting the employment of older employees and young employees. Exemption from social security contributions in the context of hiring both a ‘younger’ and an ‘older’ employee are being discussed as a potential incentive measure.

These negotiations could result in a draft ‘Generations Contract’ bill to be put before Parliament in early 2013.

-         Measures to secure employment and potential modifications to redundancy procedures

A guidance paper was presented to unions in September 2012 on “securing” employment including fighting against precarious employment, improving measures to avoid dismissals, clarifying mass redundancy procedures. This could result in a bill to be put before Parliament in the first quarter of 2013.

-         Mass Redundancies

A draft bill is under discussion to clarify/limit of mass redundancies in companies paying dividends to their shareholders.

-         Remuneration

An official consultation was organized by the government on remuneration paid to senior executives and increased corporate governance monitoring of very high compensation.

This could give rise to a draft bill to be put before Parliament by the end of 2012.

-         Gender equality

In an effort to achieve ‘true’ equality between men and women, negotiations started in September 2012 around current penalties for discrimination and revisions to increase the efficiency of measures that promote equality. The first measures are expected for 8 March 2013 (International Women’s day!).

-         Employee representatives

In an effort to promote social dialogue, negotiations have started in September 2012 to revisit the role of the existing employee representative bodies and simplify the numerous existing compulsory negotiations that must take place on a recurring basis within larger companies.

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The French government will continue to pass legislation on these human resources matters. We will be sure to provide a new update (Part 2) in the next issue.