The social security financing correction bill was enacted on 28 July 2011 and an Interministerial Circular issued on 29 July 2011 (NORETST1121460C) which sheds some light on certain aspects of the draft bill.
The bill provides that companies with at least 50 employees which allocate dividends to their shareholders in an amount per share greater than the average of the two preceding fiscal years, must pay a bonus to all employees. In this respect, the Circular specifies that a company reaches the 50-employee threshold whenever it employs 50 employees over a six month period, consecutive or not, during the accounting period in relation to which the dividend is allocated.
If the company belongs to a group required to set up a group works council in compliance with the French Labour Code, it is the increase of the dividend paid by the holding company to its shareholders which is the relevant indicator to be assessed.
- If the holding company pays dividends in an amount per share greater than the average of the two preceding fiscal years, it shall, as well as all its subsidiaries incorporated under French law, pay a bonus to all employees, if these subsidiaries are commercial companies with at least 50 employees. When the holding company does not pay dividends in an amount per share greater than the average of the two preceding fiscal years, none of its subsidiaries is under the obligation to pay a bonus, even if some subsidiaries do allocate dividends to their shareholders in an amount per share greater than the average of the two preceding fiscal years.
- If the holding company is not a commercial company, its subsidiaries incorporated as commercial companies employing at least 50 employees are subject to the payment of the bonus in the same way as an independent commercial company if they satisfy the criterion of a dividends increase.
- If the holding company distributing dividends has its corporate office abroad, the French subsidiary could be subject to the bonus without any reference to the group to which it belongs. In that case, the triggering event (dividend criterion) must be considered at the level of the French company.
The bill sets forth the conditions relating to the setting up and payment of the bonus. Thus, the bonus should be instituted within three months of the shareholder’s meeting deciding the allocation of dividends to shareholders. The procedures relating to an in-house or a group profit-sharing agreement required under articles L.3322-6 and L.3322-7 of the French Labour Code shall apply. In the absence of such an agreement, the bonus amount shall be unilaterally set by the employer after consultation with the works council or staff representatives, as the case may be.
However, the bill provides that a bonus will not have to be paid if the companies granted a non-mandatory pecuniary advantage for their employees for the current year (in exchange for the increase of the dividend) by virtue of a law, agreement or collective bargaining agreement. In this respect, the Circular provides some further details, namely that the agreement must have been entered into after 25 May 2011. The pecuniary advantage must be (i) negotiated, (ii) benefit all employees, and (iii) the link with the dividends must be explained in the relevant agreement. Finally, it shall not substitute itself for any element of remuneration and must be paid during the fiscal year during which the shareholder’s meeting decided the distribution of dividends.
The bonus paid according to the conditions set forth by the bill would be exempted, within a limit of 1,200 euros per employee/per year, from any taxes or legal or contractual contributions except for the CSG, CRDS and fixed social contributions ("forfait social"). To benefit from such exemption, the agreement must be registered with the Labour authority.