Emergency measures to respond to the “yellow-vest” protests were voted through Parliament in Paris at the end of last year.

Among these measures, employers should pay attention to 2 in particular: an optional bonus capped at €1,000 fully exempt from social security contributions and income tax, and the partial exemption also of pay for overtime hours.

1. Optional bonus

Companies can opt to pay a bonus of up to €1,000 which will be exempt from social security contributions (both the employer’s and the employee’s) as well as income tax (for the employee).

To benefit from this exemption, the bonus must be paid before March 31st 2019, subject to a suitable collective agreement. The agreement needs to define the amount of the bonus, who will benefit from it, and explain why some employees will not benefit from the bonus (it being specified that the main reason could be the level of remuneration above the threshold of 3 times the minimum wages since that would trigger social security contributions on the bonus paid).

There are 3 requirements for the bonus payment to entitle the parties to benefit from that social security and tax exemption:

– this bonus cannot replace a salary increase or a bonus already provided for by an in-house or national collective bargaining agreement, employment contract or company practice. It must be “new money”:

– it can be paid only to employees whose monthly gross salary in 2018 did not exceed €4,495.41 (which is 3 times the minimum wage)

– it must be paid before March 31st 2019.

Companies can decide not to pay the bonus to all qualifying employees. In this case, companies must use objective criteria such as the level of salary, the classification, the amount of hours worked per week and/or the attendance during 2018 to decide who gets it and who does not. It can be based on individual performance or output provided that individual performance can be assessed objectively. Otherwise, there is a risk that some employees challenge the distribution, claiming that it is subjective and/or discriminatory.   Up to that €1,000 ceiling the bonus number can be different between employees if the variance is based on the criteria quoted by the law, i.e. the level of salary, the classification, the amount of hours worked per week and/or the attendance during 2018, and potentially individual performance or output based on objective criteria.

2. Overtime hours

The social security exemption only benefits employees within France’s lowest tax bracket (i.e. “tranche 1”). Employers will continue paying social security contributions on pay for overtime hours, but as from January 1^st 2019, employees will not pay income tax on overtime pay up to €5,000 per year. The intention is to encourage the working of overtime (hence boosting productivity) while not doing too much damage to overall tax receipts.