Home / National Industrial Relations / Countries / France / Financial Participation / Legal background

Financial Participation

The French state plays an active role in regulating employee financial participation. There are many provisions for employee financial participation and savings, some compulsory for companies. The different participation instruments are eligible to tax and social security incentives and can be combined with one another.

In support of employee financial participation two new laws were adopted in 1993 and 1994 encouraging companies to let share-owning employees participate in decision-making. The 1993 Law on Privatization also stipulates that, in companies to be privatized, workers’ representatives must be on the executive board if more than 5% of company equity is in employees’ hands.

Employee financial participation is compulsory in France for companies over a certain size. Profit-sharing is compulsory for companies employing 50 workers or more. This regulation has been in force since 1967 with the objective of achieving broad-based employee financial participation.

On 31 December 2006 a new law on employee financial participation came into force, strengthening support for employee savings. The law provides for the introduction of a “dividend on work” („dividende du travail“). Companies will receive tax incentives encouraging them to provide additional benefits to their employees such as free employee shares or profit-sharing/gain-sharing. The value of any free employee shares issued to all staff is deductible from a company’s taxable income. The law also permits employee shares issued to be transferred to a company-run PEE employee savings plan. This is intended to strengthen a company’s equity base. There are obligations in some sectors for companies to enter into participation agreements within the next three years, though SMEs are exempted. The new legislative initiative strengthens co-determination. The regulations stipulate that workers’ representatives must belong to the supervisory board in companies where a dual system (executive and supervisory boards) is in operation and employees hold at least 3% of all listed shares.

The 4 August 2008 Act on Modernising the Economy (“Loi de modernisation de l’économie”) makes the establishment of a solidarity fund (“Fonds solidaire”) mandatory in every PEE and PERCO valid after 1 January 2010. Investments of this fund in solidarity bonds (“titre solidaire”) rose from €480 million at the end of 2008 to €1 billion in 2009.1

The new version of the Law on Income from Work (“Loi sur les revenus du travail”) adopted on 3 December 2008 provides for increased flexibility in dealing with pay-outs from voluntary profit-sharing schemes and deferred profit-sharing schemes. Before the new version of the law came into force, income from profit-sharing schemes remained inaccessible for five years (8 years when no collective agreement existed). As a way of increasing the general purchasing power of the French workforce, the amount can now be made available immediately. When coming under a collective wage agreement, the amount is liable to “social tax” (“prélèvements sociaux”), but not to social security contributions (“Cotisations sociales”). Income tax is levied. This was not the case under previous regulations (the 5- / 8-year obligation not to touch the mount). Where no collective wage agreement exists, social security contributions are also levied.2

The law also contains the provision that a company’s senior management or other members of the management board can only be given shares when at least 90% of the total workforce ín the French subsidiaries or sites are entitled to share options, free shares or an increase in the level of profit-sharing.3

The Social Security Funding Act (“Loi de financement de la sécurité sociale”), which came into force on 1 January 2011, provides for an increase in the taxes levied on free share options and free shares from 10 to 14% for the employer and from 2.5 to 8% for the employee, when the annual total exceeds €35,352. The social tax (“Forfait social”), levied on proceeds from profit-sharing and share holdings was raised from 4 to 6%.4

Wilke, Maack and Partner (2014) Country reports on Financial Participation in Europe. Prepared for www.worker-participation.eu. Reports first published in 2007 and fully updated in 2014.