Pacte: standardization of workforce thresholds, encouragement of retirement savings and employee savings

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The Action Plan for Business Growth and Transformation, known as the “PACTE law”, which was definitively passed by the National Assembly on 11 April 2019, has been referred to the French Constitutional Council. From a labor perspective, besides employee savings and retirement savings, the law affects workforce size thresholds and redefines night-time work. This now corresponds to work performed during the hours from midnight to 5 o’clock in the morning, and no longer 9pm-7am.

The standardization of workforce thresholds

A standardization of the method of calculation under the French Social Security Code is expected as of 1 January 2020.

The annual salaried workforce of the employer will be equal to the average number of persons employed during each month of the prior calendar year. A slight difference for is applicable for the risks associated with occupational injuries and diseases, as only the last known year will be taken into account, i.e., the penultimate year preceding the contribution year (for example, the year 2017 is taken into account for the application of 2019 contribution rates). The categories of employees and the counting methods still have to be defined by regulation.

With respect to the crossing of thresholds, the PACTE law approach is to mitigate the effects of these thresholds. The upward crossing of a workforce size threshold will only be taken into account when this threshold has been reached or exceeded for five successive calendar years. However, any decrease below a threshold will be taken into account once the threshold has been reached or passed for only one full calendar year. Note that this does not apply for the Social and Economic Committee (CSE).

For changes to pre-existing thresholds, we note above all that internal rules will now be compulsory in companies or establishments in which the threshold of 50 employees had been reached for 12 consecutive months compared to 20 employees before (French Civil Code, Art. L. 1311-2).

Encourage retirement savings plans.

The purpose of the PACTE law is to encourage retirement savings and to standardize the rules that are defined in Articles L. 224-1 et seq. of the French Monetary and Finance Code. Depending on the implementation decrees, the relevant measures will enter into force no later than 1 January 2020. The reduced rate of 16% of additional employer’s contributions up until now limited to the single payments made under a group pension plan (Perco) (and under certain conditions) is extended to all company retirement savings plans, facilitating “delegated management”.

The retirement savings plans will be supplied indifferently by diverse sums, coming from profit sharing or incentive schemes, time savings accounts or employer contributions to the retirement savings plan. *

If repurchase of rights is not possible, their early release is however expressly provided for in six separate scenarios, common to all retirement saving schemes: death of the holder’s spouse or Pacs partners; disability of holder, their children, spouse or Pacs partner; insolvency of holder; expiration of holder’s unemployment benefits; cessation of holder’s self-employed activity after a judicial liquidation order; use of the sums for the purchase of the principal residence.

If the payment of annuities had been favored in the past at the time of retirement, the PACTE law introduces the choice between paying annuities or a capital payment. An exception should be made for entitlements from compulsory contributions by the employee or employer paid for compulsory contracts, for which the lifelong annuity remains the only authorized form of withdrawal.

The PACTE law introduces the portability of acquired rights between different retirement savings plans. The expenses for the transfer of a retirement savings plan to another shall not exceed 1% of the acquired rights.

Simplifying employee savings

With the aim of promoting employee savings, the PACTE law facilitates the rules governing incentive schemes, profit sharing and employee shareholding and favors information for savers regarding their rights.

The sectors are encouraged to negotiate an employee incentive, profit sharing scheme or employee savings plan in favor of companies within the sector, which must be put in place no later than 31 December 2020. If management do not take the initiative between now and 31 December 2019, then the trade unions shall begin negotiations within the following 15 days.

As for employee incentive schemes, the cap of the incentive payment is increased and aligned with that of profit sharing: three quarters of the social security limit (compared to half before).

In order to benefit from preferential tax treatment, the incentive scheme must have a random character and result from a calculation formula related to the company’s performances over a period of one year or less. This formula may now be based on a multiyear target related to the company’s results or performances. The PACTE law now provides the conditions to continue or renew the incentive agreement following changes to the company’s legal situation, notably by merger, sale or split off.

The undistributed amounts remaining in the incentive scheme may be redistributed between employees who have not reached the threshold of their entitlements, like that for the system already governing profit sharing.

With respect to profit sharing, the new calculation methods for workforce thresholds are applicable: profit sharing becomes mandatory as from the first financial year opened after a period of five consecutive calendar years during which the threshold of 50 employees has been reached or exceeded.

For reasons of fairness, the special profit sharing reserve between beneficiaries, calculated proportionally to the salary received, is now limited to three times the Pass, i.e. €163 572 in 2019 (and no longer four times).

With respect to employee shareholding, the employer may unilaterally increase the collective investment funds with respect to an employee savings plan, by paying the capital gains generated by the sale of shares.