Affected companies
Group companies
Implementation and beneficiaries
Social security and tax regime
Deadlines and penalties for failure to negotiate


The amended Social Security Financing Law,(1) adopted by Parliament on July 13 2011, entered into force on July 29 2011.

This law has created a controversial new obligation for commercial companies with at least 50 employees to pay an additional profit share to their employees for any year during which the dividends paid to shareholders have increased compared to the average of the two previous years.

Much of the controversy is linked to the lack of clarity in the scope of the legislation, while the measure is seen to have only a limited impact.

Although the Ministry of Labour has further clarified the obligation through a circular letter of July 29 2011,(2) several questions remain.

Affected companies

The law applies to companies with at least 50 employees. Smaller companies have no obligation to provide profit-share bonuses to employees but can do so voluntarily, either through negotiation or unilaterally.(3) In practice, unless such companies have established no alternative profit-sharing options (eg, intéressement and participation), using the option to grant profit-share bonuses is likely to be less advantageous than the other alternatives available to them.

Companies which have already granted a similar benefit to employees in the current year (on the basis of a collective agreement linked to an increase in dividends, but not based on a compulsory obligation) are not required to negotiate the payment of a profit-share bonus.

Companies are subject to the obligation to negotiate only if they distribute higher dividends in the year in question than they did on average over the two previous years. The law and circular letter do not clearly define the term 'dividend' so it remains open to interpretation, at least to a certain extent. The law expressly refers to "dividends distributed pursuant to Article L232-12 of the Commercial Code", which thus limits such dividends to the distribution of profits in the scope of the annual general meeting. The circular letter confirms that the wording of the law excludes distributions which do not directly constitute dividends, but does not distinguish distributions on the basis of the origin of the funds. It therefore indicates that distributions of reserves must be considered as dividends, despite such distributions being governed by Article L232-11 of the Commercial Code and thus not covered by the legislation.

This signals ambiguity over the scope of the distributions of capital that should be taken into account – for example, including the distribution of reserves could result in social security exemptions not being applied, whereas excluding them could be considered as non-compliance. Each company or group must therefore establish its own approach.

Group companies

Groups(4) are treated in a specific manner under this legislation, whereby the obligation to negotiate and provide profit-share bonuses to employees depends on whether the dominant company's dividends have increased. However, the dominant company must be based on French soil, so higher dividends paid by a foreign parent company would not trigger the obligation – whereas if those subsidiaries were owned by a French parent which distributed higher dividends, all subsidiaries with at least 50 employees would be subject to the same obligation.

Where the dominant company is a foreign entity, the French subsidiaries are considered independently and the increase of the dividends is evaluated for each company separately.(5)

Implementation and beneficiaries

The bonus scheme can be established in the same way as standard profit-share agreements,(6) namely by:

  • a collective agreement;
  • a group agreement;
  • an agreement between the employer and the representative trade unions in the company;
  • an agreement signed with the works council; or
  • ratification of an agreement by referendum with a two-thirds majority of employees.

If no agreement can be reached, minutes must be drawn up detailing:

  • the proposal made by the company;
  • counter-proposals made by the employee representatives; and
  • the fact that no agreement has been reached.

The company must indicate in these minutes the bonus that it has decided to grant unilaterally due to failure of negotiations (subject to consultation with the works council or employee representatives).

The agreement or minutes must be filed with the Labour Administration before the bonus is granted. Companies must use a specific form, for which the ministry provides a template. Failure to do so will prevent the company from benefiting from the social security exemptions that would otherwise apply (see below).

Companies must also provide each employee with an information document notifying them of:

  • the amount of the bonus, or the way in which it was calculated;
  • the allocation of the bonus between employees; and
  • the date on which the bonus is to be paid.

All employees must be entitled to benefit from the bonus resulting from the distribution of dividends. However, it is possible to limit the grant of a bonus to employees with more than three months' service, if this limitation is expressly provided for by agreement.

There is no minimum bonus amount provided for by the law, although the forumla used for calculation must provide for more than a "symbolic amount".(7) It can be either granted uniformly to all employees or modulated in the same manner as other profit-sharing schemes (eg, linked to salary, pro-rated for presence during the year).(8)

The bonus cannot be used to substitute any elements of the employee's salary or other bonuses provided either contractually or by a collective bargaining agreement.

Social security and tax regime

While there are no limits as to the amount paid under this legislation, the bonus is exempt from social security contributions only up to a maximum of €1,200 per employee per year.

However, this exemption excludes a 6% social tax (forfait social) and 8% in social charges (ie, the contribution sociale généralisée and the contribution au remboursement de la dette sociale) (following a deduction of an allowance of 3% up to a certain threshold). These contributions remain due but are significantly lower than standard social security contributions, which are around 45% for the employer and 25% for the employee.

Unlike other forms of profit sharing (eg, intéressement and participation), there is no possibility of exemption from income tax.

Deadlines and penalties for failure to negotiate

Negotiations must be entered into by all affected companies with the aim of reaching an agreement within three months of the decision to distribute dividends, generally taken at the annual general meeting at which the annual accounts are approved (within six months of the end of the financial year).

For annual general meetings approving 2010 financial year accounts and distributing dividends within the scope of this law that have taken place between January 1 and July 29 2011, the deadline to negotiate an agreement (or to execute minutes providing for a unilateral scheme where negotiation is not possible) has been extended to October 31 2011.

Failure to attempt to negotiate can render the chief executive officer or individuals with delegated powers liable for a fine of up to €3,750 and a prison sentence of up to one year. The corporate entity can also be fined up to €18,750.

For further information on this topic please contact Chris Ivey at Bird & Bird AARPI by telephone (+33 1 42 68 60 00), fax (+33 1 42 68 60 11) or email ([email protected]).


(1) Law 2011-894, July 28 2011.

(2) Circular letter ETST1121460C.

(3) Circular letter, FAQ 27.

(4) The definition of a 'group' is that applied by Article L2331-1 of the Labour Code.

(5) Circular letter, FAQs 8 and 10.

(6) Articles L3322-6 and L3322-7 of the Labour Code.

(7) Circular letter, FAQ 34.

(8) Article L3324-5 of the Labour Code.