Pension market update: France updates rules for mandatory profit/value sharing  

Following the new mandatory profit/value sharing rules announced earlier this year, a French decree has been issued which changes the Full Time Equivalent (FTE) headcount threshold per legal entity, above which companies must comply with the new profit/value sharing rules.

Previously, this threshold was set at 50 employees on average, falling to 11 employees after 5 years, but the latest decree states that the 11-employee threshold will apply immediately from 2025. Therefore, if your French entity has more than 10 FTE on average during 2024 and a net tax profit greater than 1% of turnover over the last 3 years, you must implement a profit-sharing mechanism in 2025.

If your company meets the requirements above, you must implement one of the following mechanisms:

• A profit-sharing agreement (“participation”): A predefined bonus legal formula based on the company’s result.

• An Incentive agreement (“Intéréssement”): A company performance-based bonus, with a more flexible bonus-calculation formula.

• A value-sharing bonus (“prime Macron” or “PPV”): A tax-favored bonus plan, limited to maximum amounts per year (generally EUR 3,000 in 2024) that can be distributed to all employees. 

• A PEE/PERCOL savings plan with matching contributions: These plans are financed by profit sharing (intéressement/participation), matching contributions and voluntary contributions. For PERCOL, the money is available at retirement as an annuity or a lump sum. In the case of a PEE plan, the sums are unavailable for 5 years. Early withdrawals are possible for both plans, but only in determined cases set by decree.

 

The Value Sharing Bonus (PPV), launched in 2019, will no longer be exempt from tax and social security charges from 2025, except to the extent that bonus payments are made into a Retirement Savings Plan (PER) or an approved Employee Savings Plan (PEE).

If a value sharing agreement (Incentive Agreement, profit sharing agreement) is used, then payments will usually be exempt from tax and social security contributions up to €3000 per year, or €6000 per year if the employer implements or concludes an incentive or participation scheme at premium payment date.¹

From 1 July 2024, the investment options offered in a PEE or PER plan must include, at a minimum, a fund that incorporates criteria for financing the energy and ecological transition or socially responsible investment, in addition to the socially responsible fund (mandatory since 2010). 

Footnotes

¹ République française, Entrependre.Service-Public.fr, available at https://entreprendre.service-public.fr/actualites/A16971?lang=en.