Participation is a profit-sharing mechanism that allows employees to participate in the financial success of the company they work for. It is mandatory in French companies with 50 or more employees, and one of a range of options for smaller companies to consider implementing under France’s Value-Sharing Law.
Companies must establish participation by a company agreement that covers all employees in the company (this may include a minimum length of service to benefit from the scheme). It may also be implemented by a unilateral employer decision (DUE), in order to comply with mandatory regulations.
How are participation payments calculated?
Payments made under participation are usually governed by a formula set by the French Labour Code. While a company agreement may provide for an alternative method, the payments must be equal to or greater than those calculated using the legal formula.
At the end of each financial year, the company must use the formula to calculate the participation payment amount. This is known as the réserve spéciale de participation (RSP), which is deducted from the company’s taxable profits.
It is important to note that since participation payments are dependent on the company achieving participation-qualifying profits, they may vary from year to year, and cannot be guaranteed.
How are participation payments distributed?
The RSP may be distributed among the company’s employees in the following ways:
- Uniformly, i.e. all employees receive the same amount with no specific criteria.
- Proportionally, according to salary or length of service.
The employer may also choose to combine the above options, in a fair distribution method of their choosing.
Can employees choose how to receive their participation payments?
Employees can opt for immediate payment of all or part of their participation amount. Otherwise, the money will be invested and unable to access for five years, except in specific, life-changing circumstances such as marriage, divorce, or termination of employment.
Participation payments cannot replace the employee’s usual salary payments, and they are not subject to social security contributions. However, if the employee chooses to be paid directly, payments are made via the company’s payroll and are subject to income tax.
What other considerations relate to implementing participation?
Companies that implement participation must also set up investment plans for employees to invest the funds such as a plan d’épargne entreprise (PEE) or a Plan d’Épargne Retraite Collectif (PERCOL) for example which are governed by separate agreements (for multiple savings plans, an individual agreement will be required for each one), if such a plan does not already exist.
Participation funds can be fully managed by most banks in France, which can be a helpful and cost-effective option for companies with limited admin resources.
Can we help you implement participation in your French company?
We provide bespoke HR services to international businesses operating in France. To learn more, please contact us to arrange a free initial consultation.