Understanding Payroll in France: What Global Companies Need to Know About France Payroll
A key member of the European Union and one of the world’s most modern countries, France sees itself as a leader among European nations. As the seventh-largest economy in the world, it’s a truly major player, offering an investment-friendly business environment that’s both well-established and diverse.
While France fared better than most of its neighbors during the financial crisis of 2008 and 2009, high levels of unemployment persisted but then dropped sharply in 2019. In recent years, France has undergone significant reform to help bolster the economy and attract foreign interest. Post-Brexit, many UK businesses are now choosing France as their base in the EU.
The workforce in France is skilled, productive and brimming with a modern business mindset. The country boasts a strong reputation for company success across many industries – and is increasingly seen as the home of tech start-ups outside Silicon Valley. Despite the global economic slowdown, 2019 was an exceptional year for international investments in France.
France offers excellent incentives for foreign companies. However, its complex and rigid labor laws are partly responsible for limiting employment growth. Alongside this is a high cost of labor and one of the highest corporate tax rates in the world. Exploring the following important aspects of French payroll and working regulations will help you gain an understanding of how you can succeed doing business in France.
Regulation is a big deal in France, so when it comes to ensuring payroll success you will need to check if your type of business is regulated, and then decide on your company structure. The specific rules for payroll and taxation in France depend upon the type of business structure used.
The three most common structures are SARL (a limited liability company), SA (a French joint stock company), and SAS (a simplified stock company). Companies generally must complete incorporation to register the business as a subsidiary company, branch office, or liaison office. The locally incorporated subsidiary company is the most common entity form used by foreign investors looking to operate in France long-term, because there are many business restrictions imposed on branch and liaison offices. Plus, the French tax system permits many tax exemptions for subsidiaries.
There are several steps to take when setting up a subsidiary. First, the organization must provide articles of incorporation, register with the French Patent and Trademark Office, deposit the minimum share capital in a bank account and then publish an incorporation notice in the official journal. Next, the documentation of those steps should be filed with the Centre de Formalites des Enterprise, with everything getting final sign-off with the clerk of the Commercial Court where your company books are stamped.
Following this process, businesses can typically start commercial activity in as little as seven days. It is recommended to make payments to employees or French authorities from an in-country bank account, but this isn’t mandatory.
At the basic level, the rules and regulations governing employment are set out in the French Labor Code (the Code du Travail). This outlines the rights of the employee and the responsibilities of the employer and dictates typical employment policies around work hours, time off, and so on.
Then there are collective bargaining agreements (Conventions Collectives), which outline different standards, requirements and expectations across various industries and professions. These agreements are more specific and can cover a variety of areas such as trial periods of employment, minimum salary and severance payments. It is worth knowing that employment contracts must meet local standards and be drafted in French.
A typical working week in France is 35 hours, with no more than ten hours permitted per day and no more than 48 hours per week. However, with a collective bargaining agreement in place, these hours may differ.
Though there are different rules for certain categories of employee, foreigners working in France are employed under the same working conditions as citizens of France. Part-time employees are entitled to the same rights and benefits as full-time employees (on a pro rata basis).
French law imposes strict regulations around the collection of employee data, which includes payroll. Employees also have the ‘right to disconnect’ from their work-related technology outside working hours.
Unless collective agreements apply, the minimum gross wage in France (one of the highest in Europe) is €10.48 per hour as of October 2021 (approximately £9.05; $11.20). This equates to €1521 per month (approx. £1380; $1700). People between 16-17 years of age with less than six months of professional practice can be paid 80% of the legal minimum wage and 90% between the age of 17-18. Salaries are typically paid on a monthly basis. Probationary periods are between two and four months, depending on the employee’s position.
When it comes to termination, severance pay will only be awarded under certain conditions. The employee needs to have been on an indefinite-term contract or met a minimum length of service required by the Labor Code, or, if applicable, the collective bargaining agreement. In general, employees receive one-fifth of their monthly salary for each year of service (up to ten years) and then one third for each additional year.
Tax and Withholding Considerations
As of 2019, the PAYE (Pay-As-You-Earn) system was adopted universally throughout France. So instead of paying taxes every year, income is now taxed right at the source from the monthly salary.
Tax does differ for official residents and non-residents. Residents are subject to a progressive tax regime with five bands: the first €10,064 (approx. £9100; $11,400) of annual earnings is untaxed, while earnings above €157,806 (approx. £142,000; $178,000) are taxed at the top rate of 45%.
For non-residents, France-sourced income is taxed at 20% for annual earnings up to €27,519 (approx. £24,800; $31,000) and at 30% for income above this.
To maintain payroll compliance, employers and employees must both contribute to France’s mandatory social insurance system. It covers many areas such as health (maternity, disability and death), family allowances, retirement, housing benefits and occupational accidents (including illness).
Contributions made by employers come down to the business type, size and location and usually equate to around 50$ of the employee’s gross pay. Contributions made by employees typically comprise 20% of their gross pay and are deducted at source from their salary payments. All contributions are paid by the employer on the 15th of each month.
To remain compliant, employers must report on several areas and make any necessary declarations to French authorities on an annual basis. In early 2017 the Déclaration Sociale Nominative (DSN) was implemented. This automated and mandatory process requires employers to align with their payroll system, in order to comply with social welfare reporting requirements.
Paid Leave and Sick Leave
Holiday entitlement is generally 25 days per year for workers in France (based on the typical Monday to Friday working week, or 30 days if you consider the unit as Monday to Saturday). Certain collective agreements may stipulate otherwise.
When it comes to sick leave, employees can receive paid time for up to 90 days, depending on seniority. An employee must also have had at least one year’s service with the employer and provide a medical certificate for the absence within 48 hours.
Maternity leave depends on the number of children and whether the birth is a ‘multiple’ birth (e.g. twins and triplets). Based on this, women may receive between 16-44 weeks of leave.
Paternity leave follows a similar pattern, with men receiving up to 11 days of leave for a single birth, 18 days for multiple births and 3 days of child leave. Paternity leave must be taken consecutively.
There are 11 public holidays observed in France each year with only May 1 (Labor Day) classed as a statutory paid holiday in France. Any entitlement to other paid French holidays and the conditions for working on them (such as higher pay) are left to the discretion of the contract between employer and employee and, of course, any applicable collective agreement.
The benefits of taking any business into a new country are always accompanied by a variety of challenges, and France is no exception. France offers a great deal to multinational businesses but brings with it numerous obstacles around employment law, high costs of labor, high tax rates, and complexity around collective bargaining agreements. That’s why it makes sense to consider a global payroll solution that can equip you with the expertise and experience required for these challenges, and make your French expansion as seamless and hassle-free as possible.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.