Previously, the termination indemnities (including the severance indemnity and the settlement indemnity) paid as of January 1, 2012, were subject to:

  • social security contributions, if they exceeded the cap of two times the annual French social security ceiling, i.e.. €72,744 for 2012, and/or the greater amount between:
    • the legal severance indemnity or the severance indemnity under the collective bargaining agreement; 
    • twice the annual salary paid to the employee, during the previous year;
    • one-half of the total termination indemnities.
    • The cap of three times the annual French social security ceiling, i.e., €109,116 for 2012, is temporary maintained under certain conditions, e.g., if the legal severance indemnity or the severance indemnity under the collective bargaining agreement (as of December 31, 2011) is higher than €72,744 but lower than €109,116, it will be freely exempted.
  • the generalized social contribution (“CSG”) and the contribution to repayment of the social security debt (“CRDS”), if they exceeded the legal severance indemnity or the severance indemnity under the collective bargaining agreement.

The termination indemnities exceeding the threshold of 30 times the annual French social security ceiling, i.e., €1,091,160, were subject to social security contributions for their total amount.

The public finance act modifying the 2012 budget, dated August 16, 2012, reduced this threshold to 10 times the annual French social security ceiling, i.e., €363,720 for 2012 (articles L. 242-1 and L. 136-1 of the French Social Security Code).

Therefore, as of September 1, 2012, the payments made on termination of employment contract and/or corporate office at the company’s initiative exceeding €363,720 will be subject to social security contributions from the first euro.  

In case of payment of indemnities made on the employment contract termination and the corporate office termination (e.g., an employee holding both an employment contract and corporate office), these amounts will have to be cumulated to appreciate if the above threshold is reached.

It is recalled that:

  • except the cap of 30 times the annual French social security ceiling, the social treatment of the termination indemnities above-mentioned is still in force;
  • the portion of termination indemnities which are subject to CSG and CRDS cannot be less than the portion of termination indemnities subject to social security contributions;
  • the temporary exemption is still in force until December 31, 2012.