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. Here 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 by all 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 better benefits.)
Neteem was created in 2002 by associates of a payroll outsourcing firm, to provide a compliant employed solution for autonomous consultants.
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 before income tax + employee contributions
Cost of employee = gross salary + employer contributions = net + employee contributions + employer contributions (+ expenses)
In France, the cost of an employee, with current rates of contributions, is approximately as follows :
- Employer contributions = 47-50% of gross (i.e. cost = gross + 47-50%)
- Employee contributions = 22-23% of gross (i.e. net before income tax = gross – 22-23%)
E.g. : 65K€ gross salary –> annual cost of approx 95K€ and net salary of approx 50K€ (excluding variable pay, bonuses – on which the 47-50% employer contributions will also be due – or expenses)
There are four other important costs/conditions to factor in :
- Paid time off = 10% of total cost (5 weeks or 25 workdays per year), paid either when the consultant takes holidays, or at end of contract according to number of days remaining, 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, it is proportional to tenure)
- 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 notice period (1-2 months, except for amicable termination or grave fault) + 5-6 weeks’ of dismissal procedure delay is due .
A tax-at-source system was introduced in January 2019 in France, so net salary is now paid after income tax. This income tax is calculated based on the tax rate provided to employers monthly, and on a ‘neutral’ rate the first month of a contract. The employee must still process their income tax return every year in May/June for the previous calendar year and settle any remaining income tax due directly with tax authorities, after amounts paid at source have been deducted.
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 is an exception that 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 45-50%.
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.
In a nutshell, short-term contracts are generally not recommended for France :
only compliant 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 indemnity (+ untaken PTO)
additional contributions (around 1%)
short trial period (maximum 1 month)
CDI : Indefinite term contract with a defined start date and no end date.
Dismissal is only possible if there is documented misconduct, underperformance or justified economic grounds (see FAQ on Employment termination).
Trial period by law is 4 months for PEO employees, and is renewable once by written mutual agreement for up to the same length (can be negotiated to a shorter length, if desired).
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, at most.
Most employees that have university-level education and some years of work experience are ‘cadre’ status. In PEO, all employees should have cadre status, as they are by law autonomous consultants with either a BA-level of training, or 3 year’s experience, and this status would thus be expected.
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 (+25% for first 8h/week, +50% thereafter), with a maximum of 220h/year. Additionally, an employee under 35h schedule cannot work more than 44h/week (average over 12 weeks, max 48h any week) and never more than 10h/day. Between 2 days of work, employees have to have 11h of rest time minimum, and 1 full day off every 6 days at least.
More flexible option : “day schedule” :
The employee may – in some cases – alternatively be placed under a day schedule (218 days/year in our CBA).
Criteria for this more flexible system :
be autonomous in management of worktime/agenda,
meet certain salary/responsibility criterion – in our CBA, min gross salary of 3205€ gross (before employer contributions and any variable compensation)
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 a meeting per year to discuss workload and work/life balance
Under a day schedule (218 days in our CBA), there is thus no overtime tracking or payment, however, in compensation for this, the employee is entitled to between 9-12 extra days off (e.g. 11 in 2020, 12 in 2021…) 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, 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 will carry over, unless there is written justification that the employee was given the opportunity to take the time off and chose not to. It is the employer’s responsibility to ensure the employee is given the opportunity to take the 5 weeks off.
Two 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.
For employees under the 218-day schedule, 9-12 RTT days will also be applicable on top of the above (see ‘Work time’ FAQ)
There are also 10 public holidays in France. However, if they fall on an unworked day, they are not replaced by another day.
- New Year’s Day (January 1st)
- Easter Monday (a Monday, date varies)
- Labour Day (May 1st)
- Victory 1945 (8 May)
- Ascension (a Thursday in May usually)
- National Day (July 14)
- Assumption (August 15)
- All Saints’ Day (November 1st)
- Armistice 1918 (11 November)
- Christmas (December 25th)
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 length of service in company and length of sick leave.
At Neteem, given the ‘Portage salarial’ CBA rules and our life/disability insurance :
Social Security pays benefits to employee (or to employer if pay maintained, see #2 below) for 50% of salary, capped at 45.45€/calendar day in 2020, from day 4.
Employer must maintain 90% of salary, not capped, for 30 days, but only after 1 year of service.
Social Security and life & disability coverage pays benefits to employee for 80% of salary, not capped, as long as sick leave is prescribed, after 30 days (or if it is an accident or hospitalization, will reimburse employer 80% earlier, from day 4).
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 (or compliantly archived scanned version) 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.
Regulations offer 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 URSSAF website.
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-work 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€ (also prorated as above for part-timers) for home-work transportation, but this is optional. The amount is increased to 400€ for the use of any eco-friendly method of transportation (e.g. bikes).
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’ and follows URSSAF regulations. This amount is calculated based on rental costs (or tax rental value), 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 (e.g. rental agreement, ‘taxe d’habitation’ (equivalent of UK council tax, or residence 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 professional equipment (e.g. computer, printer, 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 length already worked in company upon termination). Remember that the trial period is very short – at most 1 month.
After that, the termination indemnity 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. As a consequence, short-term contracts are very unflexible and costly.
Untaken paid time off is also due (max 10% of contract gross salary if none taken, or prorata) and the short-term contract indemnity of 10% is also due (i.e. if no PTO taken, 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 (4-8 months), cost = notice period payable only (24h-1 mos depending on length already worked 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 there is documented & serious misconduct)
The severance indemnity is based on average including variable and is (in our CBA, for cadre-level employees) 1/4th 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 severance indemnity 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 5-6 week procedure to follow to terminate a contract before the dismissal is final and the notice period starts (1-2 mos. in our CBA, depending on seniority), which is payable even if it is not worked.
In case of economic dismissal, there is a specific & compulsory system which can lead to improved unemployment benefits (75% instead of 57% of average salary for the 1st year and no wait time). If the employee chooses this system, the notice period is not worked, but is paid to the unemployment benefit to help fund this system.
If the employee disagrees with the grounds for dismissal, it is of course (and this happens due to low 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 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 are 57% of average salary capped at over 160K€, paid out for up to 2 years). An employee who wishes to leave will thus usually ask the employer for the below amicable termination, which does open unemployment benefits.
This relatively recent (2008) type of termination of contract enables the employer and the employee to agree mutually on the terms and conditions of termination.
There is a minimum settlement amount due, equal to what the employee would be entitled to if he were dismissed (1/4th 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 (5-6 weeks procedure as for dismissal, but no 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 negotiate the termination terms, during which either party can be assisted by an advisor and when an agreement is reached, a standard 2-page form is filled out and signed. There is then a ‘think time’ of 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 approx 3 weeks 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 approval deadline 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).
*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.
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 amongst EU workers)
- It is a lengthy and costly procedure, which may not succeed, despite wait time and paying appropriate fees.
Consequently, sponsoring a work permit for a non-EU worker would make sense if and only if it is absolutely 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). These procedures are currently the two that offer the highest chances of success.