Employed or self-employed status for workers in France?
Although the self-employed status exists in France, it is often non-compliant for managing a full-time worker’s services and may lead to misclassification cases. Additionally, the vast majority of workers will prefer the employed route, due to the more protective legal framework of the employed status.
The employed status is usually a more compliant and appreciated route. This is why :
- Any client employing a self-employed consultant must carry out due diligence to ensure all consultants are compliantly set up and paying contributions. However, the documents a client must require by law for this are difficult to obtain for self-employed consultants. This constitutes a considerable risk for the end client, who could be held jointly liable for unpaid contributions if up-to-date documents cannot be produced.
- Self-employed status is admin-intensive, with significant amounts of paperwork and time consuming processes
- The budgeting of contributions is difficult : contributions are based on Y-1 turnover (1st year is a flat rate) & are adjusted the following year when real turnover is known.
- The self-employed benefits are very basic (no unemployment, additional pension funds, death & disability insurance, private health scheme that all employees have).
- It is culturally viewed as a precarious status : it is very difficult for a self-employed person to get a bank loan to buy a house, or sign a lease, for example.
- The difference in the cost-to-net ratio does not compensate the lower level of self-employed benefits (e.g. the net income of a self-employed will be on average 60% of his turnover, whereas the net salary of an employee is approximately 50% of his cost, but with much
Neteem Solutions was created by partners coming from payroll & HR outsourcing and PEO to provide compliant employed solutions for foreign companies.
Cost of French payroll
In France, gross pay (ie the amount that is on the employment contract and the base for all payroll calculations) means base salary before employer contributions.
In other words :
- Gross salary = net + employee contributions
- Cost of employee = gross salary + employer contributions = net + employee contributions + employer contributions (+ expenses)
In France, the cost of an employee with a foreign employer, with current rates of contributions, is approximately as follows :
- Employer contributions = 43% of gross (i.e. cost = gross + 43%)
- Employee contributions = 23% of gross (i.e. net before income tax = gross – 23%)
E.g. : 65K€ gross salary –> annual cost of approx 93K€ and net salary of approx 50K€ (excluding variable pay, bonuses (on which the 43% employer contributions will also be due) or expenses)
There are four other important costs/conditions to factor in :
- A paid time off accrual of 10% of total cost, paid either when the consultant takes holidays (25 workdays per year), or at end of contract, invoiced when taken or paid out to consultant)
- An end-of-contract accrual of a maximum of 10% of total gross (this is the cost for a short term contract; it will be less for a permanent contract, but is seniority-based)
- Where applicable, untaken RTTs that result from the more flexible ‘218-day schedule’ will also be payable.
- Notice :
Under a short-term contract, all salary until the planned end date is due. (Such contracts cannot be shortened unless the employee agrees in writing.)
Under a permanent contract, pay during the (usually 3-month) notice period + 5 weeks dismissal procedure is due (unless an amicable agreement is found).
N.B. There is no PAYE system in France yet, so net salary is paid before income tax. It is the employee’s sole responsibility to declare and pay income tax, the employer does not intervene apart from stating net taxable income accrual on the payslip every month. This is due to change in 2019 (pending final changes).
There are two different types of contracts available in France :
CDD : Short-term contract with a defined start and end date.
A short-term contract can only be used for a specific, clearly date-determined project or to replace an employee.
The maximum length, with two renewals maximum included, is 18 months. It can then be turned into a CDI (see below). At the end of a CDD, a short-term end of contract indemnity equal to 10% of total gross paid over contract is paid to the employee, unless it is continued as a CDI, or if employee resigns to start a CDI elsewhere. This is a gross indemnity, subject to normal employer contributions of approximately 43% for foreign employers.
The trial period lasts between 1 day (for 1-week contract) and maximum 1 month (for 6 months or more).
There is an additional 1% training contribution for short-term contracts.
Most importantly : a CDD cannot be stopped before its end date, except by mutual written agreement (which is very rare). If the contract is stopped early, the employer is still liable for the pay due to the employee right up to the end of the fixed term.
CDI : Indefinite term contract with a defined start date and no end date.
Dismissal is only possible if there is documented misconduct or economic grounds (see FAQ on Employment termination).
Trial period by law is between 2 and 4 months depending on the type of employee, and may be renewable once by written mutual agreement for up to the same length, depending on each CBA.
The use of short-term contracts is generally not recommended in France :
- only possible for temporary date-determined projects or to replace an absent employee
- no flexibility : must go through to end date, otherwise payable even if not worked, can only be renewed twice within 18 months
- 10% end of contract cost
- additional contributions (around 1%)
- shorter trial period (maximum 1 month)
2 options available
Executive (= “cadre“) or non-executive (= “ETAM“) : this is more of a social status / custom issue. The consequences are a few additional social contributions, but the difference in cost is only a couple hundred euros over a year, in most cases.
Most employees that have university-level education and some years of work experience are ‘cadre’ status.
General case : The employee is under a 35 hour schedule (most employees)
This is the standard worktime in France, and requires employer to set worktime (e.g. Monday-Friday, 9-5PM with one hour break). Overtime must be tracked by employer and is payable to employee (usually +25% for first 8h/week, +50% thereafter).
More flexible option in some CBAs : the “day schedule”
The employee may – in some cases – alternatively be placed under a day schedule (218 days in our consulting and technology companies for example).
Criteria for this more flexible system :
- apply a CBA that enables it
- be autonomous in management of worktime/agenda,
- meet certain salary/responsibility criterion
- be entitled to normal rest time of 11h between 2 days and 2 days/week (never more than 6 continuous days worked) with systems in place to enable disconnection during this time
- hold 2 meetings per year to discuss workload and work / life balance
Under a day schedule, there is thus no overtime tracking or payment, however, in compensation for this, the employee is entitled to extra days off (e.g. 10 in 2018, 9 in 2019, for a 218-day schedule) called RTT days (in practice, 1/12th of annual entitlement added per month). This is on top of the 5 week paid time off entitlement.
This “day schedule” exception to the 35h rule makes sense for remote workers, in particular for sales roles, for whom the liability for overtime above 35h may otherwise be high and difficult to track.
Paid time off and sick leave
Paid time off is 5 weeks per full year worked in France, i.e. 25 business days.
The employee earns every month 1/12th of 25 annual days. This is prorated for partial months worked according to number of business days in month. Acquired paid time off can be used as soon as it is acquired. There is a counter on the bottom of each payslip.
If the full entitlement is not taken within the year, it carries over. It is the employer’s responsability to ensure the employee is given the opportunity to take the 5 weeks off.
2 of the 5 weeks must be taken continuously between April and October, but never more than 4 weeks in a row (i.e. the 5th week must be taken separately).
All paid time off must be approved by employer prior to start date.
Any sick leave must be authorized by a doctor, who will provide the employee with a standard sick leave form (“arrêt de travail”), a copy of which needs to be given to the employer within 48h. There is no automatic sick day entitlement.
Payment differs according to the company’s collective bargaining agreement, length of service in company and length of sick leave.
- Employer may be obligated to maintain all or part of salary, for a certain duration, after a certain length of service.
- Social Security pays benefits to employee (or to employer if pay maintained) for 50% of salary, capped at 44.34€/calendar day in 2018, from day 4.
- Life & disability coverage may add to these by paying benefits to employee (or to employer if pay maintained) for a higher percentage of salary, which may or may not be not capped in amounts per day and in length of coverage, and may have an inital unpaid period.
Expenses in France
“On the basis of receipts only” rule
The URSSAF (Social Security) and tax regulations in France stipulate that in order for amounts to be reimbursed as expenses (i.e. exempt from Social Security contributions and income tax), they must be ‘professional’ in nature, ‘reasonable’ in financial terms and must be ‘justified’ by receipts.
The original receipts must be archived by the employer (or end payer if re-invoiced) and the employee can only be reimbursed for the amount strictly equal to amounts shown on the receipts. It is the employer’s (or end payer’s) responsibility to verify that the expenses were incurred solely for professional purposes.
URSSAF proposes an alternative to the “receipts-only” rule for business trip expenses without receipts which takes the form of lump-sum reimbursements. When this “lump-sum” system is used, it must be used for all business trip expenses of the same category, i.e. the employee must choose between receipts-based reimbursement and lump-sum reimbursement for his/her hotel bills, for examples, and cannot alternate between the two systems. As the level of reimbursement provided by these lump-sums is generally considered to be relatively low, the “receipts-based” rule is usually preferred.
Per kilometer travel with personal vehicle
An employee is reimbursed for the use of his personal vehicle for professional purposes through a per kilometer rate, determined by URSSAF and revised annually (usually in March). The applicable rate depends on the number of kilometers traveled professionally, the fiscal horsepower of the car, and the total number of professional kilometers traveled in the year. (The rates provided by URSSAF are the maximum amounts that can be reimbursed as expenses – it is possible to define a lower rate contractually with the employee.)
Again, it is the employer’s responsibility to verify that these kilometers are justified and that they are for a professional journey.
The currently applicable per kilometer allowance rates are available on the Social Security website here.
If the employee uses his/her vehicle for business purposes and claims reimbursement per kilometer, then a copy of the car registration document (certificat d’immatriculation) needs to be provided to Neteem annually, to justify the rate of reimbursement claimed.
Home to office transport costs
In urban areas with a public transportation system (e.g. Paris area), the employer must reimburse 50% of the cost of a 2nd class transport card (known as a Navigo), if the employee chooses this option to travel to work. The employee has to produce either proof of a subscription to an annual plan, or the monthly travel cards. (In the Paris area, for example, the amount reimbursed for an employee on an annual plan will be 34.47€/month)
For part-timers, the full 50% is reimbursed if the employee works at least half-time, and is prorated according to worktime if the employee works less than half-time.
For employees who cannot use a public transportation system, the employer may reimburse up to 200€ per year (also prorated as above for part-timers) for home-work transportation, but this is optional. An employee who uses a bicycle to travel to work can also claim reimbursement of the kilometers travelled, at a rate of 0.25€/km, up to a maximum amount of 200€ per year .
Working at home expenses
If an employee works from home, he/she is entitled to claim a home allowance that is processed as expenses (ie exempt from Social Security contributions and income tax) if the amount is ‘reasonable’. This amount is based on rental costs, electricity, insurance and residence taxes and is calculated in proportion to the surface area of the home that is used for professional purposes.
The employee will need to provide documents to justify and calculate the amount of the home allowance (eg rental agreement, ‘taxe d’habitation’ (equivalent of UK council tax) and/or ‘taxe foncière’ (homeowner tax), utility bills, insurance bills etc) at the beginning of the contract.
The allowance will then be fixed and paid every month in payroll, without putting it through the monthly expense reimbursement process. The amount can be reviewed if the employee’s costs increase or if the employee moves.
Expenses linked to Internet / mobile phone usage, etc. must be reimbursed as well. If the contracts have shared personal & professional use (e.g. in the case of an internet/phone package which is used both professionally and personally), then only 50% of the cost can be reimbursed.
All the equipment (both I.T. and furniture) of the home office must either be provided by the employer or expensed on the basis of receipts.
Under a short-term contract (CDD)
During the trial period, cost = notice period payable only (24h-1 mos depending on period already worked in company upon termination). Remember that the trial period is very short – at most 1 month (for over 6 mos. length contracts).
After that, the dismissal amount will be equal to the entire salary owed had the worker stayed the end of his contract, including an average of past commissions, except if the termination is voluntary on the employee’s part, or if there is a grave fault. Consequently a short-term contract is very unflexible.
Untaken paid time off is also due (max 10% of contract gross salary if none taken) and the short-term contract indemnity of 10% is also due (i.e. last payslip has a total payment of 21% of total contract gross, for PTO & end of contract, both subject to usual 46% contributions).
Under indefinite term contracts (CDI)
During the trial period (up to 8 months), cost = notice period payable only (24h-1 mos depending on length of work in company upon termination).
Dismissal is possible after this trial period for two reasons:
- Economic dismissal (e.g. company is performing badly and needs to reduce number of employees or close company, or French market is not working out
- Personal dismissal (e.g. the employee is under-performing or has committed a fault)
The severance cost is based on average including variable and is (in our CBA, for cadre-level employees) 1/3 of an average month’s salary per year of presence in the company. Employees with under 1 year seniority are not entitled to any severance pay. The cost is thus low, but the grounds for dismissal need to be real & serious and documented, to avoid any litigation.
Severance indemnities are not subject to income tax or to any contributions. They are paid net as long as the amount is equal to the amount defined by the CBA.
There is a relatively complex and rigid procedure to follow to notify the employee of the end of the contract and explain the reasons, which takes approx. a month before the start of the notice period. The notice period lasts 3 mos. (for our CBA and cadre status), which must be paid even if it is not worked.
If the employee disagrees with the grounds for dismissal, it is of course (and often done due to small dismissal indemnity and strict Labour legislation) possible for the employee to claim unfair dismissal, although there are limits to amount that can be claimed since 2017. It is also possible to settle after the dismissal to avoid a court case.
Untaken paid time off is also due of course, as is leftover at the end of contract.
Resignation is relatively rare in France, unless the employee has secured another position, as it does not entitle the employee to unemployment benefits (which is 57% of average salary for up to two years, not capped). An employee who wishes to leave will thus usually ask the employer for the below amicable termination, which does open unemployment benefits.
This recent (2008) type of termination of contract enables employers to agree with the employee on the terms and conditions of termination freely.
There is a minimum settlement amount due, equal to what the employee would be entitled to if he were dismissed (1/3rd of a month’s average pay). However, unless the request is an employee wishing to resign, the amount is usually increased to compensate for the fact the termination occurs quickly (no 3 months notice payable) and it mitigates litigation risk, if the procedure is correctly followed and the employee is not coerced into the amicable termination.
From a process standpoint, one or several meetings will be held to determine the conditions of termination, during which either party can be assisted by a counsel and when an agreement is reached, a standard government 2-page form is filled out and signed. Both parties then have 2 weeks during which either party can change their mind.
At the end of this “think time”, the form is sent to the Work Inspectorate who has 15 open days to decide whether the process was compliantly followed. Either they approve it (or don’t answer within the deadline), in which case the contract ends at the end of the 15 open days at the earliest (or at a later date if agreed) or they reject it, in which case the procedure needs to be redone from scratch.
NB. Amicable termination cannot replace an economic dismissal (which has a more advantageous unemployment benefit system and so cannot be bypassed).
Immigration and EU workers
A worker from any EU country* can work freely in France, there are no specific authorisations or procedures to follow.
The worker will only need to be registered with Social Security (which may take some time but will be retroactive to hiring date when effective) and to this end, will need to provide us with a permanent French mailing address.
*i.e. Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Roumania, Slovakia, Slovenia, Spain, Sweden, United Kingdom.
New member states
There is an exception to this freedom of mouvement of workers from countries who recently joined the union, which can go up to 7 years after the country joined the EU. During those 7 years, each country can decide under what conditions they welcome (or not) workers from the new member States.
Currently, there are no countries in the transition period.
There are complicated and lengthy procedures and conditions to introduce a non-EU worker in France.
Two points must be emphasized :
- Any sponsored immigration procedure will be subject to checking that no EU worker could be found to fill the role (by posting an ad with the unemployment board + at least one other recruitment method for a “reasonable” period – at the very minimum 1 month – and showing absolutely no worker with the adequate skillset was found wamongst EU workers)
- It is lengthy a lengthy and costly procedure, which may not succeed, despite waiting and paying appropriate fees.
Consequently, sponsoring a work permit for a non-EU workerwould make sense if and only if it will be impossible to find an EU worker to fit the job, and it is worth the wait & cost.
The worker himself may alternatively request for a residence permit (which usually includes the right to work), if his/her spouse is from the EU, or through a Blue Card application (for highly-skilled workers).