France - Change to the social security treatment of severance pay

Article 18 of the Social Security Financing Act for 2011 n°2010-1594 amends the social security regime for severance pay upon termination and forced termination of an employee or a director of a company or any person listed in article 80 (3) of the French Tax Code.

France - The new regime

Severance pay is subject to Social security contributions as follows:

  • to the extent it exceeds 3 times the applicable annual Social Security ceiling at the time of the payment (i.e. €106,056 for 2011). In such cases, the excess above this amount will be subject to contributions. Indemnities paid pursuant to a redundancy plan are now also subject to contributions.
  • when severance pay exceeds 30 times the annual Social Security ceiling (and is classed a "golden parachute"), it is subject to contributions in relation to the whole of the amount.

France - Transitional regime for severance payments in 2011

As a transitional measure, the cap beneath which Social Security contributions are not due will be maintained at 6 times the annual Social Security ceiling in the following cases:

  • severance payments made in 2011 further to a termination which came into effect on 31 December 2010 at the latest;
  • severance payments made in 2011 further to a termination forming part of a redundancy plan that was notified on 31 December 2010 at the latest;
  • severance payments made in 2011 further to a termination taking effect in 2011, up to the limit of the amount set by a collective bargaining agreement applicable on 31 December 2010.