Understanding Payroll in France: What Global Companies Need to Know About France Payroll

Feb 19, 2017  | Topic: Country Payroll

The most visited country in the globe, France is the world’s sixth largest economy (and the third largest in Europe) with a nominal GDP of $2.48 trillion. The country is among the top exporters and importers in the world and boasts a low poverty rate and high standard of living. Though there is currently a high rate of unemployment in France, the IMF forecasts the country's GDP growth rate to increase in the years to come.

The overall regulatory framework in France is relatively efficient for companies, but the labor market is burdened with rigid regulations that make it one of the world’s most complex and challenging countries for processing payroll. In addition, France’s rapidly changing political climate may make for an uncertain economic future in France (as with other countries across Europe).

Despite the current uncertainty, France remains an economic powerhouse and an important location for many multinational organizations in agriculture, machinery, chemicals, tourism, and many other industries. For those companies launching or expanding operations in France, the following business, payroll, and employment considerations are a primer for achieving success.

Getting Started

Despite its many strengths, France is not regarded as an entrepreneurial or free enterprise country. Yet the government (which is heavily involved in business) has taken steps to encourage a more vibrant economy by reducing earlier restrictions on setting up a business inside France’s borders.

Companies generally must complete incorporation to register the business as a subsidiary company, branch office, or liaison office. The specific rules for payroll and taxation in France depend upon the type of business structure used. As there are many business restrictions imposed on branch and liaison offices, the locally incorporated subsidiary company is the most common entity form used by foreign investors looking to operate in France long-term. (In addition, the French tax system allows for many tax exemptions for subsidiaries.)

To set up a subsidiary, an organization must furnish articles of incorporation, register with the French Patent and Trademark Office, deposit the minimum share capital in a bank account, and publish an incorporation notice in the official journal. From there, they must file documentation of all those steps with the Centre de Formalites des Enterprise and have their company books stamped at the clerk of the Commercial Court.

Businesses can typically start commercial activity around seven days after completing the above steps. Though recommended, it is not mandatory to make payments to employees or French authorities from an in-country bank account.

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Employment Considerations

At the basic level, France’s employment laws outline the rights of the employee and the responsibilities of the employer and dictate typical employment policies around work hours, time off, and so on. Employers also must contend with the 1000+ collective bargaining agreement outlining different standard, requirements, and expectations across various industries and professions. These agreements are more specific than the employment laws and address areas like trial periods of employment, minimum salary, and severance payments.

France requires that workers have employment contracts that meet local standards and are drafted in the French language. The employment law guidelines stipulate that employees can work no more than 48 hours per week, but a 35-hour workweek is common.

Foreigners working in France are employed under the same working conditions as French citizens, although there are different rules for certain categories of employee. Part-time employees are entitled to the same rights and benefits (on a pro rata basis) as full-time employees. French law includes strict regulations regarding the collection of employee data, including for payroll, and employees have a "right to disconnect" from work-related technology outside working hours.

Compensation Considerations

Unless collective agreements apply, the minimum gross wage in France is €9.76 per hour, which translates to €1,480.30 per month. Young people under 17 years old with less than 6 months of professional practice can be paid 80% of the legal minimum wage between 16-17 years of age and 90% between 17-18. Salaries are typically paid monthly.

French Labor Code allows probationary periods to be from two to four months depending on the employee’s position. In the event of termination, severance pay is only awarded if the employee is on an indefinite-term contract, or has met a minimum length of service required by the Labor Code or applicable collective bargaining agreement. Generally, employees receive one fifth of monthly salary for each year of service for the first ten years of service, and then one third for each additional year above ten years.

Tax Considerations

The standard corporate income tax rate is 33.33%. Organizations with a permanent presence in France must pay taxes every year, on the 28th of February. As mentioned earlier, subsidiaries can deduct certain expenses (such as training costs or trainee wages and indemnities).

Income tax in France is assessed at a scale from 0-45 percent based on the individual’s income. Personal income taxes are not withheld on payslips as they are directly paid by each employee to the State at the end of each tax year.

To maintain payroll compliance, both employers and employees must contribute to France’s mandatory social insurance system that covers health (maternity, disability and death), family allowances, retirement, housing benefits, and occupational accidents (including illness). Employers’ contributions vary depending on the type, size, and location of the business but generally amount to approximately 50% of the employee’s gross pay. The employee contributions, which typically comprise 20% of their gross pay, are deducted at source from their salary payments and paid by the employer on the 15th following the end of the month. To remain compliant with France’s many regulations, employers must report a variety of reports and declarations to French authorities annually.

In January 2017, a new automated process was implemented. Called Déclaration Sociale Nominative (DSN), it is a mandatory process that needs to be implemented with the payroll system to comply with the social welfare reporting requirements. 

Holiday & Leave Considerations

Though certain collective agreements may stipulate otherwise, workers in France are generally entitled to 25 days holiday per year (based on Monday-Friday days unit or 30 days if you consider the unit as monday to saturday). Depending on seniority, employees can receive paid sick time up to 90 days, provided they have at least one year’s service with the employer and provide a medical certificate within 48 hours of the absence.

Women receive between 16-44 weeks of maternity leave depending on their number of children and whether it is a multiple birth (i.e. twins or triplets). Men can receive up to 11 days of paternity leave and 3 days of child leave.

Lastly, France observes 11 public holidays each year, but only May 1 (Labour Day) is classed as a statutory paid holiday in France. The entitlement to other paid French holidays and the conditions for working on French national holidays (such as higher pay) are otherwise left to the discretion of the employer-employee contract or subject to any applicable collective agreement.

In January 2017, a new automated process was implemented. Called Déclaration Sociale Nominative (DSN), the new system is how social declarations are required to be filed. The new requirement includes 

Date   France's Public Holiday Schedule
 January 1st  New Years Day
 Monday before Easter Sunday  Easter Monday
 May 1st  Labour Day
 May 8th  V-E Day
 40 Days After Easter  Ascension Day
 7th Monday After Easter  Whit Monday
 July 14th  Bastille Day
 August 15th  Assumption Day
 November 1st  All Saints Day
 November 11th  Armistice Day
 December 25th  Christmas Day

In Conclusion

The penalties and fines for organizations that are unable to comply with the many rules and nuances of France’s employment laws can be steep and damaging. As such, conducting payroll in France places a huge burden on many organizations when they opt to operate payroll in-house. Working with a trusted global payroll managed services solution with experience in France’s complex payroll environment can alleviate many of the challenges organizations experience when executing payroll in France.

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.