What is the inflation premium?
The one-off inflation premium was announced by French Prime Minister Jean Castex in October 2021 and was introduced primarily to help mitigate the impact of rising energy prices. Although the prime minister suggested that the rising cost of energy would be temporary, the premium was deemed necessary to help wages keep pace with the prices of other goods and services, and to manage the ongoing economic effects of the Covid-19 pandemic which has left millions of French people facing financial difficulties. Accordingly, the premium will not only be paid to individuals with specific energy needs (such as vehicle fuel costs) but to anyone that meets the eligibility criteria.
The inflation premium announcement follows the French government’s decision last year to freeze natural gas prices, and reflects a sensitivity to the unrest that prompted the ‘yellow vest’ protests against rising fuel costs. The premium is expected to cost around 3.8 billion euros and benefit around 36 million people across France.
Who is eligible for the inflation premium?
In order to qualify for the inflation premium, recipients must be French residents, have received an income of less than 2,000 euros net per month between 1 January 2021 and 31 October 2021, and fall into one of the following beneficiary categories:
- Active workers
- Non-salaried workers
- Participants of work-study schemes
- Disabled people
- Retirees with pre-tax incomes of up to 2,000 euros per month
Premium payment eligibility takes into account all income that an individual has received during the January to October period but does not take into account income from November and December. The premium is applicable to every type of employment contract (part-time, full time, etc.), regardless of whether an employee has taken a leave of absence during the qualification period or remains employed on the day the premium is due to be paid.
The premium will also be paid to students that receive housing assistance, and young people on vocational traineeships. The government will conduct special assessments of the income of individuals that receive benefit income (unemployment, disability, retirement, etc.) during October 2021 to determine whether they may receive the premium.
How will the premium be paid?
The 100 euro payment is tax free, does not involve any social deductions, and has no spending conditions attached. It will not be counted towards an employees’ income tax calculation or towards social assistance means testing.
Private sector employers must implement the premium payment as part of their December payroll and pay it to their employees in its entirety. Public sector employees will receive the payment in January 2022. If a recipient does not have an employer, the premium should be paid by the relevant body, such as CAF, CNAM, or Pôle Emploi.
Successive employment: Where employees have held successive jobs with two different employers during the qualification period, their current employer will be responsible for making the premium payment - otherwise, the payment should be made by the employer that the employee worked most hours for in October. In these circumstances, it is the employee that is responsible for determining which employer should make their premium payment.
Short term contracts: Employees who are on short contracts (less than one month), or who combine several employment contracts in the same month, will not receive their premium payment automatically if they have worked less than 20 hours for an employer. Here again, the employee should request their premium payment from their current employer or from the employer that they worked the most hours for during October.
How will employers be reimbursed for their premium payments?
Employers will be fully reimbursed for the premium payments that they make. To trigger reimbursement, employers should declare the employee premium payments that they make to the relevant social security body (URSSAF or MSA), and then deduct that amount from their subsequent social security contribution.
If you are interested in doing business in France, find out everything you need to know about payroll, tax, social security, employee benefits, work permits, employment law, and more in the activpayroll Guide to Doing Business in France. This is available as a free PDF to download.