Exemption from social security contributions on termination payments reduced

January 1, 2012

The portion of termination sums that may be exempt from employment social security contributions has been further reduced by the 2012 Social Security Financing Law as part of the austerity plan.

The exempt termination payment is limited to twice the annual social security ceiling.  This corresponds to EUR 72,744 in 2012.  The previous limitation was three times the annual social security ceiling (EUR 109,116).

The new restriction covers all sums paid to employees or executives upon termination of their employment contracts or tenure.  The limitation does not apply to payments made within a redundancy or social plan.

In practice the new limitation will apply to termination payments made from 1 January 2013.  Transitional rules have been introduced for payments made in 2012.  Such payments may continue to be exempt from social contributions within the limit of EUR 109,116, if they are related to a termination decided and notified in 2011.  Termination payments made in 2012 in relation to termination decided in 2012 will also benefit from the favorable limitation of EUR 109,116 if they exceed EUR 72,744.

The tax treatment of termination payment remains unchanged.  For income tax purposes, termination payments are totally tax exempt if they do not exceed the termination entitlement as stated by the law or the applicable collective agreement.  When the payment exceeds the legal entitlement as would generally be the case, the tax exemption is limited to the higher of (i) two year’s gross salary or (ii) 50% of the total termination payment, but the tax exempt amount under (i) and (ii) may not exceed six times the annual social security ceiling (EUR 218,232 in 2012).


2012 Social Security Financing Law (Law no.2011-1906 dated 21 December 2011 Journal Officiel 22 December 2011 p. 21682).

For further information or to discuss any of the issues raised, please contact Pascal Ngatsing on +33 (0)1 43 59 43 12.


CELIA Alliance
CELIA Alliance members are identified here. Members of the CELIA Alliance are each independent law firms and do not practice law jointly with any other member of the CELIA Alliance. “CELIA Alliance” and “CELIA” are not trading names. For more information about the CELIA Alliance click here.

Content is for general information purposes only. The information provided is not intended to be comprehensive and it does not constitute or contain legal or other advice. If you require assistance in relation to any issue please seek specific advice relevant to your particular circumstances. In particular, no responsibility shall be accepted by the authors or by Abbiss Cadres LLP for any losses occasioned by reliance on any content appearing on or accessible from this newsletter. For further legal information click here.

If you would like to copy or otherwise reproduce this article then you may do so provided that: (1) any such copy or reproduction is for your own personal use or if it is made available to any third party it is done so on a free of charge basis; and (2) the article is reproduced in full together with the contact details, disclaimer and any logos as they appear on each article.

Leave a Reply

Your email address will not be published. Required fields are marked *