Editor’s Note: This post is written by John Tinsley, Managing Director and Owner of Compandben.com, a Geneva-based HR consultancy. John is an HR practitioner with over 25 years of experience in Europe and the Middle East. John’s company offers assistance to employers in finding reliable local payroll partners in over 100 countries. He also provides consulting services in areas such as labor contracts, employee handbooks, benefits, and compensation.
Employment in France has some unique requirements and challenges. For employers establishing businesses in France for the first time, the following checklist is a handy guide of what to consider:
- All employees in France are notionally attached to a “Convention Collective” or Collective Agreement for their industry. The agreements are very similar but there are variations between industry in terms of vacation, social charges, and termination indemnities, so employers need to define what their business is. As an example,”Telecoms” wouldn’t be detailed enough. “Provision and implementation of routers for wide area networks” would be ok.
- Apart from very senior executives, pension arrangements are normally provided by the French State. Private pensions are rare. However, “401(k)” type savings plans, common in the USA, are found. They are known as “Plans d’Epargne Enterprise” and the Employer agrees to match or exceed a saving level agreed to by the employee. The schemes need to be registered to be tax effective.
- Payment of salaries is normally monthly. Semi-monthly payments are almost unheard of, and may pose problems in calculating paysheets.
- Total MANDATORY “add on” for Employer social charges is around 40-46% of gross salary. This includes unemployment insurance, pension, medical insurance, and accident insurance.
- Additional Medical coverage insurance with organisations called “Mutuelles” is normally provided in multinationals. Some companies provide this at no charge; some require employees to pay a part of the premium. The private medical coverage complements the state run service, so if an employee pays a bill of €100 to a doctor or clinic, €70 or so might be reimbursed by the French state and the other €30 by a Mutuelle. The provision of medical coverage is a good value and tax effective.
- For “Cadre” or management employees, the Employer has to take out an insurance called “Prevoyance”. This is disability insurance and the applicable Convention Collective sets the minimum levels. It is supposed to be in place when the employee starts work but is frequently done retroactively. It is often combined with the “Mutuelle”. The payroll administrators will normally organise this.
- French payroll administration companies, called Experts Comptables are not permitted to touch client’s money, so they normally do the calculations of social charges and net pay and produce a paysheet, and send the paysheet to the employer. The employer pays the employee direct or through a payroll consolidator. Every 3 months, the payroll provider will send to the employer a summary of social charges payable, together with the account numbers and references, and these too are paid directly, or a consolidator can do this for you. There is an alternative whereby the client can open a payroll account and give the local payroll partners authority to authorise salary payment from the account.
- Tax is not normally withheld at source through the payroll. It is seen as an employee responsibility to pay his taxes once per year, and has nothing to do with the Employer. The only exception to this concerns employees seen as non-resident. For these staff, there is a requirement for a monthly tax withholding, and the administrative cost of this is steep because French payroll companies- “Experts Comptables” – are not geared up for it, and have to do it on more or less a bespoke basis.
- The employment contract must be in French.
- Social charges payable by the employee and deducted from salary are around 20% of gross pay. The taxable salary is then the Gross minus the Employee Social Charges deducted. When a French employee talks of “net salary” he or she often means net of social charges, but before income tax.
- As in most countries, if a company is carrying on a profit making business there should be at least a Branch of the company opened in France. When first starting up in a country, however, many foreign employers prefer to just register for Social Security as a foreign entity, with the employee being responsible for the good conduct of the company in France. There is in fact a special official form developed for doing just this. As long as the employee does not have power to conclude business and sign deals, then his work may be represented as being merely market prospecting. Obviously if the company expands, then it becomes more necessary to open a Branch to permit normal operations. A Branch will be subject to corporate profits tax. A way to minimize this is to reward the branch on a commission or “cost plus” basis, so that the Branch revenue just covers the Branch costs. Again usually the “Payroll Partners” will be happy to give advice on this aspect.
As you can see, there are some unique requirements for employers in France. If you are setting up a business there, you should seek competent advice and look for partners who can assist you in negotiating through the challenges.
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