Mandatory profit sharing bonus for companies

Social security Law of 28 July 2011

Overview

Announced by the French government as "the promise of €1,000 for 8 million workers", a revision to “profit sharing” schemes will require bonus payments to be made to employees in the event of an increase in dividend distributions. The mandatory bonus must be paid to employees by 31 October 2011 for companies which have already awarded an increased dividend at the date of the Law’s enactment i.e. 28 July 2011.

Scope

The new law applies to all employers with at least 50 employees and provides that, where a  dividend is paid to shareholders or partners and is greater than the average paid over the two previous financial years, the company will need to enter into negotiations with employee representatives regarding the payment of a bonus to employees. This applies to all commercial enterprises, from  partnerships, limited partnerships and limited liability companies  to corporations, including limited companies, joint-stock companies, simplified joint-stock companies and European companies.

Companies with fewer than 50 employees may voluntarily pay the bonus when they award an increase in dividends to their partners or shareholders. Those companies forming a part of a group are not subject to the bonus if the parent company falls outside the scope of the legislation, even if a subsidiary or associated company fulfils the conditions. However, if the parent company is subject to the bonus payment requirements, other companies in the group having fewer than 50 employees may voluntarily pay the bonus.

The payment of the bonus is not mandatory for companies which have voluntarily granted their employees a financial reward on a company-level or group-level agreement.

Procedure

Affected  companies must start negotiations with employee representatives so that within three months following the award of dividends:

  • an agreement has been signed, whether in the form of a labour agreement, agreement with trade union representatives, one negotiated through a works council or obtained with a two thirds majority of the employees, or
  • if negotiation has failed, the company has prepared a notice of the failure to agree which sets out the employer’s original proposals, the last proposals of the parties and the bonus proposed by the employer.

Amount and social treatment

The bonus to employees can be a fixed amount or calculated with reference to  a formula. The agreement must define the amount and the allocation procedure. For  group companies, the group-level agreement must contain the bonus per employee and the allocation arrangements for all the companies within the group.

The bonus payment is exempt from all usual tax and other deductions save for the “contribution sociale generalisée”, the “contribution au remboursement de la dette sociale”  and the social forfeit (“forfait social”) to the extent of €1,200 per employee per year.