New social security rules complicate the treatment of termination payments in France
In French law there are specific social security exemption rules for termination payments, depending on the status and seniority of the worker. The Social Security Finance Bill for 2016 introduced a discrepancy between the tax treatment of termination payments for employees (those with employment contracts) and ‘executive corporate officers’ (those who generally manage the company, but do not have employment contracts, e.g. Chief Executive Officers, Managing Directors). The new rules, which came into force on 1 January 2016, apply stricter conditions to the social security contributions for termination payments made to executive corporate officers.
What has changed?
Under the previous legislation, termination payments to either an employee or an executive were fully subject to social security contributions if the total amount exceeded ten times the Annual Social Security Ceiling (ASSC), that is if they were over €380,400. Termination indemnities were fully exempt from social security contributions if the total amount was below twice the ASSC, i.e. €76,080. Therefore any amount in between two and ten times the ASSC were partially subject to the contributions.
The new law allows for all termination payments of up to twice the ASSC (now €77,232 for 2016) to remain exempt from social security contributions. However, this exemption now applies to employees regardless of the total amount of termination payments. Previously it was only possible if the total did not exceed ten times the ASSC.
Unlike employees, this exemption will only apply to executive corporate officers if the total amount of their termination payments does not exceed five times the ASSC (i.e. €193,080 for 2016). Payments exceeding this are subject to social security contributions for the entire amount.
The new rules apply to all types of termination of contracts (for employees) and ‘corporate offices’ (the equivalent for executive corporate officers) made by the employer from 1 January 2016.
Rules related to CSG, (‘Contribution Sociale Généralisée’) and CRDS, (‘Contribution au Remboursement de la Dette Sociale’), which are compulsory social charges in France, however have remained unchanged. In addition, the Finance Bill for 2016 has lowered the personal income tax exemption ceiling for termination payments made to executives from six times the ASSC (i.e. €228,240) to three times the ASSC (i.e. €114,120).
What does this mean for my business?
The outcome of the Finance Bill 2016 has meant that companies have to deal with different sets of rules with respect to the treatment of termination payments made to employees (social security contributions, CSG/CRDS and personal income tax), and a new regime for executive corporate officers. Particular attention will need to be given to executive corporate officers combining their corporate duties with an employment contract. If such a situation arises then the ceilings applicable to corporate officers will prevail.
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