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.
France stands out as a leading option for international businesses because its economy has proved relatively resilient to global influences. It fared better than most of its neighbours during the financial crisis of 2008 and 2009, and bounced back well from the initial shock of the COVID-19 pandemic: indeed, it achieved a record-high GDP in 2021. France also stands to benefit long-term from the fact that one of its nearest neighbours and competitors, the United Kingdom, is no longer in the European Union.
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. However, France has high corporate tax rates, high labor costs, and strict rules regarding employee conditions that all companies should be aware of. This guide covers these, and all the other basics you need to know from a payroll perspective.
The three most common French business 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 (CFE), with everything getting final sign-off with the clerk of the Commercial Court where your company books are stamped. Which CFE you need to register with depends on which of four categories your business falls into: commercial/industrial, trades/artisan, agricultural, or independent/freelance professional.
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). Collective bargaining is commonplace in France, meaning that regulations around trial periods, salary, severance and other areas are often negotiable. It is also worth knowing that employment contracts must meet local standards and must 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 in total, in line with the EU Working Time Directive. Additionally, employees should not work more than an average of 44 hours per week over any 12-week period. However, with a collective bargaining agreement in place, these hours may differ. It’s important to note that employees also have the ‘right to disconnect’ from their work-related technology outside working hours. The overtime pay rate is 125% of normal salary for the first eight additional hours worked each week, and 150% for any hours beyond that.
Though there are different rules for certain categories of employees, 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 also imposes strict regulations around the collection of employee data, which includes payroll.
Probation periods are between one and three months, but can be extended to five through collective bargaining. Termination can only be done through redundancy or proven lack of performance, and ranges between one and two months depending on the length of service (three months for executives).
Compensation, Bonuses and Severance
Unless collective agreements apply, the minimum gross wage in France is one of the highest in Europe. For 2023, it’s €10.85 per hour, which works out at €1645 per month (approx. £1460; $1750). It has increased regularly in recent years, so expect it to rise again in the near future. Reduced rates apply to apprentices and to new employees under the age of 18. Salaries are typically paid on a monthly basis.
Bonuses are paid to French employees in a number of different ways: either on a discretionary basis for good performance; by meeting contractually-defined targets; or through collective bargaining agreements.
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-quarter of their monthly salary for each year of service (up to ten years) and then one-third for each additional year.
Tax and Social SecurityFrench income tax has worked entirely through a Pay-As-You-Earn (PAYE) scheme since 2019, which means all income is now taxed at the source and remitted to the authorities by employers.
Tax rates differ for official residents and non-residents. Residents are subject to a progressive tax regime with five bands: the first €10,225 (approx £9000; $10,900) of annual earnings is untaxed, while earnings above €160,336 (approx £142,000; $171,000) are taxed at the top rate of 45%. The intermediate bands run at 11%, 30% and 41%. For non-residents, France-sourced income is taxed at 20% for annual earnings up to €27,519 (approx £24,400; $29,400) and at 30% for income above this.
Social security contributions are made in a number of different areas:
- Health, maternity, disability and death: 13% employer
- Autonomy solidarity: 0.3% employer
- Old age insurance: 8.55% employer, 6.9% employee (up to a maximum of €3428)
- Family benefits: 2.45-5.25% employer
- Unemployment: 4.05% employer (up to a maximum of €13,244)
- Wage guarantee insurance: 0.15% employer
- Social security surcharge and contributions: 9.7% employee
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.
Holidays and Leave
There are 12 days of public holiday in France each year (14 in the Alsace and Moselle regions). However, only Labor Day on May 1 is a statutory paid holiday: pay conditions for all the others should be decided and set out in employment contracts, or through collective bargaining.
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.
If an employee has at least one year of service, then they are entitled to full pay for any sick leave, up to a maximum of 90 days. Social security payments cover a certain proportion of this, but employers are required to cover the shortfall; employers are not able to recover this money from the state.
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 and 26 weeks of leave.
Paternity leave entitlement is up to 28 days. All payments to parents during this time are covered by social security, except for three days of paternity leave which employers should cover. Employees can also apply for up to a year of unpaid parental leave if they have at least a year of service at the point a child is born, but approving these applications is at the employer’s discretion.
French Public Holidays
- New Year’s Day
- Easter Monday
- Labor Day (1 May)
- Victory Day (8 May)
- Ascension Day
- Whit Sunday
- Whit Monday
- Bastille Day (14 July)
- Assumption Day (15 August)
- All Saints’ Day (1 November)
- Armistice Day (11 November)
- Christmas Day
There’s much to get excited about when exploring new business opportunities in France. However, strong rights for employees and the major presence of collective bargaining can make payroll operations and compliance difficult. If you want to start your French expansion on the right foot, you may want to consider leveraging the support, expertise, and solutions of a global payroll provider.
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.