Under new legislation certain French companies will now have to pay bonuses to their employees if they declare larger than average dividends to their shareholders.

The new rules came into force on 28 July 2011, but apply retrospectively to all dividends paid since 1 January 2011. They will remain in force until 31 December 2013. They apply to French commercial companies (including SASs, SAs and SARLs) which have more than 50 employees and pay dividends to their shareholders greater than the average dividend paid in the two preceding financial years. To be eligible for a bonus an employee must have a French law employment contract and have been on the payroll for at least six months of the relevant financial year. Such an employee will be eligible to receive a bonus even if he has ceased to be employed when the dividend is finally declared or paid.  

The new provisions are in addition to the existing rules in France concerning mandatory profit share plans, which apply to employers of more than 50 employees.  

There are complicated rules governing group companies. Where a French parent company of a group declares a dividend then its French subsidiaries will also be required to pay a bonus. This will be the case even if the financial situation of the subsidiaries would not otherwise warrant or allow the payment of a dividend. On the other hand, if the French parent company does not declare a dividend, its subsidiaries will not be required to pay a bonus even if they have paid a dividend. If the parent company is not French, then the position of any subsidiaries will be analysed independently of the parent.  

These new rules must be implemented using the same procedure for introducing mandatory and non-mandatory profit-sharing plans i.e. through a collective agreement negotiated and agreed with the relevant Works Council or employee representatives or via an agreement ratified by two thirds of the employees. Any collective agreement should be put in place within three months of the General Meeting at which the shareholders resolve to pay a qualifying dividend. Under transitional provisions, companies which paid above-average dividends in 2011 prior to the new rules coming into force on 28 July 2011 will have until 31 October 2011 to put their agreements in place. If the company is unable to reach agreement on the terms and conditions of the bonus, this disagreement must be recorded in writing and bonuses paid in line with the company’s original proposals.  

In terms of the amount of any bonus, there is no statutory minimum amount that must be paid. Companies are, however, required to enter into “serious” negotiations in good faith and a failure to do so could result in a fine and/or imprisonment.  

Any such bonuses will be exempt from most social security contributions up to €1,200 per employee per annum, provided that they are paid before the end of the financial year in which the dividend is declared. Employers will however be liable to pay 6% social tax on any relevant bonus payments and employees will have to pay employee social contributions and income tax in the normal way.