Employee Participation In Company’s Profits

The profit-sharing agreement aims to redistribute a portion of the company’s profits to employees based on the minimum amount derived from a calculation formula set out in the Labor Code (Articles L3324-1 and following).

Which Companies Must Implement a Profit-Sharing Agreement?

• Any company that has employed at least 50 employees without interruption per month over the last five years. The profit-sharing agreement must be established during the first fiscal year following this continuous employment of 50 employees. The calculation rule follows that of the Social Security Code.
• The profit-sharing scheme remains optional for companies with fewer than 50 employees.

Who Can Receive the Profit-Sharing Bonus?

• All employees holding an employment contract can benefit from the profit-sharing agreement. However, a seniority condition of a maximum of 3 months may be included in the agreement.
• For companies with between 1 and 250 employees, and in the case of establishing an optional or derogatory profit-sharing agreement (only for the portion exceeding the legal obligation), the following can benefit from profit-sharing: business leaders if they hold both a corporate mandate and an employment contract, collaborating or associate spouses (marriage or civil partnership), certain corporate officers: presidents, general directors, managers, or members of the management board.
• Employees of an employer group under certain conditions.

What Are the Implementation Modalities?

• Through collective negotiation: within a convention or collective agreement concluded at the company or branch level.
• Specifically through a profit-sharing agreement:
• Between the business leader and representatives of the employee organizations representing the company,
• Within the works council or social and economic committee,
• Following ratification by a two-thirds majority of employees.

In the absence of an agreement, a “default” regime applies to the company. The company retains tax and social security exemptions but does not have the option to negotiate the elements usually subject to negotiation. In the case of optional implementation, a profit-sharing agreement must be concluded. Unilateral implementation is possible if negotiations fail. The agreement can be set for a fixed term (a minimum of one year) or an indefinite term based on the negotiated terms. The profit-sharing agreement must be concluded within one year after the closure of the fiscal year for which the profit-sharing is due. It must be submitted to the DIRECCTE to benefit from tax and social security exemptions; if the agreement is not submitted, it still applies but without the benefit of exemptions.

What Are the Calculation Modalities?

• The law provides a legal calculation formula to compute the special profit-sharing reserve (RSP): RSP = ½ (B – 5% C) x (S / VA)
• where: B = net taxable profit – C = equity – S = salaries (according to the rules set for calculating Social Security contributions; other elements may be included) – VA = added value.
• A different calculation method is possible if it meets two conditions:
• The result must be at least equivalent to that of the legal formula.
• The signatories of the agreement define one of the following ceilings:
• Half of the net accounting profit,
• Net accounting profit minus 5% of equity,
• Net taxable profit minus 5% of equity,
• Half of the net taxable profit.

In all cases, the amount of profit-sharing must be random and cannot be determined in advance. It is the result of the profits made by the company during the fiscal year in question.

What Are the Distribution and Capping Modalities?

Profit-sharing is a collective benefit that benefits all employees, regardless of the form of their employment contract, and without distinction based on individual performance or job category. Each company can choose to distribute profit-sharing uniformly, proportionately to salary, proportionately to time worked, or by combining several of these criteria. The amounts distributed under the profit-sharing scheme must respect a collective cap equal to three times the annual social security ceiling (PASS) and an individual cap equal to 75% of the annual ceiling, which for 2023 is €32,994. For employees present for part of the fiscal year, the individual cap is prorated. 

What Are the Deadlines to Respect: Payment and Availability?

• Payment must be made no later than the last day of the fifth month after the closure of the fiscal year for which profit-sharing is calculated. In case of delay, interest is owed.
• Beneficiaries may request immediate payment of all or part of the profit-sharing (within 15 days after notification) or allocate it to an employee savings scheme.
• If the employee does not specify the allocation of the amounts, they are paid by default according to the modalities provided in the profit-sharing agreement, and the rules specific to each support apply.
• Amounts paid into an employee savings plan are blocked for 5 years or 8 in the case of a default regime but can be released early according to the cases provided by law.

When Can Profit-Sharing Be Recovered?

• Profit-sharing can be paid immediately into the beneficiary’s account at their request and will be subject to taxation.
• It can also be allocated to an employee savings plan, in which case it will be blocked for 5 years for the PEE and until retirement for the PERCO. The taxation will then be that of these plans.

What Is the Taxation for the Company?

The company that pays a profit-sharing bonus will be exempt from employer contributions, and the bonus will be deductible from taxable profits under certain conditions.