In April 2017, the French government agreed to reform the country’s unemployment insurance system, specifically focusing on contributions made by employers. President Macron promised the changes during his election campaign as part of an effort to reduce the unemployment insurance deficit.
Coming into effect on 1 October 2017, the reforms have three broad effects on France’s insurance and tax landscape:
1. Introduction of a temporary, exceptional contribution
In addition to a statutory contribution to unemployment insurance, French employers will now have to make a further contribution. This temporary exceptional contribution is set at a rate of 0.05%, and subject to the standard rules regarding salary base, earnings ceiling, and so on. The exceptional contribution is due:
From all employers covered by the general insurance regime, public-sector employers signed up to the unemployment insurance regime, and any private individuals acting as employers.
For all types of employment contracts, including fixed-term, open-ended, and apprenticeship contracts.
The exceptional contribution effectively raises the employer insurance contribution from 4% to 4.05% - and is applicable to all compensation paid from 1 October 2017. With the standard employee insurance contributions unchanged at 2.4%, the new combined rate for unemployment contributions stands at 6.45%.
This temporary contribution will be in place until 30 September 2020, at the latest.
2. Abolition of surcharge on fixed term contracts
As of 1 October 2017, the surcharge on employer unemployment contributions for fixed-term employees has been eliminated - with standard contribution rates now applicable.
The change specifically applies to fixed-term contracts of 3 months or less which are concluded as a result of a temporary increase in business. Previously, the surcharge rate for this type of fixed-term contract was set at 3% for those lasting up to 1 month, and 1.5% for those lasting between 1 and 3 months. Under the new system:
- Employers hiring employees on open-ended contracts (at the end of their fixed-term), will now pay the standard unemployment insurance contributions, that is, 4% - or 4.05% for contracts arranged after 1 October 2017.
Employers can correct excess amounts paid as a result of the surcharge using a ‘personnel category code’ (codes types de personnels, CTP) on reports to the French tax authority.
3. Abolition of temporary exemption for employees aged 26 or under
Prior to the 2017 reforms, employers benefited from temporary exemptions from unemployment insurance contributions for permanent employees under 26 years of age. The exemption lasted for 4 months for businesses with less than 50 employees, and for 3 months in those with 50 or more.
Under the reformed system, this temporary exemption period has been eliminated - although exemptions in place prior to the 1 October implementation will be protected, and continue to apply up until contract end dates. Essentially, the (now eliminated) exemption benefits will be valid for employees with trial periods confirmed no later than 30 September, 2017.
The significant scope of the unemployment insurance reforms may well cause turbulence for employers, and call for the exceptional implementation of settlement procedures on a case-by-case basis. Looking to the future, President Macron has made clear his hopes that the changes will positively affect the unemployment insurance deficit, with savings of €550 million by 2018, and €900 million by 2022.