Tax

The PACTE Act and employee incentives in France

Written on 22 Jul 2019

The “PACTE” Act was adopted in France on 11 April 2019. Its aim is to encourage and improve profit sharing, employee share ownership, employee participation and employee savings in companies.

The main measures are as follows:

Employee share ownership

In order to promote employee share ownership, simplified joint stock companies (SAS) can now offer securities to their managers and employees. Until now, this option was reserved to joint stock companies (SA).

In addition, the conditions for granting free shares (“actions gratuites”) have been simplified. The purpose of this measure is to allow the companies to renew their free share plans. The following free shares are no longer taken into account in order to assess the threshold of 10% of the share capital that can be allocated for free by a company to its employees and managers:

  • shares that were not definitively awarded at the end of the vesting period (for example, due to unfilled conditions or award criteria);
  • shares that are no longer subject to the holding obligation and have become ordinary shares.

Employee Profit sharing (“Intéressement”)

The Act makes profit-sharing more attractive by raising the cap on the premium and allowing a redistribution of the residual balance. The cap is raised to three quarters of the PASS (the annual social security threshold, which is €40,524 for 2019), meaning that the cap stands at €30,393 compared with €20,262 for the two previous quarters.

The Act also strengthens the security of the agreements: the social and tax exemptions are guaranteed for the entire duration of the profit-sharing agreement, if the “Direccte” (an external administration created to enforce labour law) does not present any observations within six months of filing.

Until now, in companies or groups already having a profit-sharing agreement and participating with other companies in a characterised and coordinated project, an agreement could be concluded to provide that all or part of the employees would benefit from a profit-sharing associated to the project. The new law provides that a project can be internal to a company itself and benefit to the employees of such company. 

Employee savings (“Plan d’Epargne Entreprise” or “PEE”)

Even in the absence of an employee contribution, the employer can now make “unilateral” payments on the PEE, which are subject to the same social and tax regime as the contributions.

The PEE can also be fed unilaterally as part of a new system that involves sharing with employees the capital gain on the sale of securities to third party investors. In such case, the information about the beneficiaries of a PEE is reinforced by the mandatory introduction of an annual statement of situation and decision support.

Employee participation in the results of the company

The employee participation consists of the obligation for companies to redistribute to the employees part of the profits they realise. As from 1 January 2019, this obligation applies only from the first financial year after a period of five consecutive calendar years during which the workforce exceeds 50 employees.

The cap of the wages taken into account fixed by the participation agreement cannot exceed three times the PASS (the limit had previously been four times).  The purpose of this measure is to establish a more egalitarian distribution of the participation when it is proportional to the wages.

All these measures have been applicable since 1 January 2019.

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