The purpose of the profit-sharing scheme is to allow the company to collectively associate employees with the company’s results and performance.
1/ Setting up a profit-sharing scheme for employees
1.1 Why implement it ?
The implementation of profit-sharing within the company makes it possible to remunerate collective performance, according to relevant and pre-defined criteria, and thus to reinforce employee cohesion, to improve productivity, quality and performance (art. L.3312-1 of the French Labor Code).
The advantages for the company :
- the amounts paid are deductible from the company’s taxable profit ;
- the amounts paid are exempt from social security charges, within the limits of the ceilings ;
- the amounts paid are exempt from social security contributions for companies with between 1 and 250 employees.
Advantages for employees :
- the profit-sharing bonus is exempt from social security contributions, except for CSG and CRDS ;
- if it is invested in a savings plan, it is not included in the calculation of income tax ;
- if it is invested in a savings plan, it can be supplemented by a company contribution.
1.2 Who can set up the plan ?
Any company under private law, qwhatever the nature of its activity and its legal form, but also a group made up of legally independent companies that have established financial and economic links between them (art. L.3312-2 of the French Labor Code).
This group must include at least one employee (who is not the head of the company).
1.3 Who can benefit ?
The profit-sharing scheme is collective. This implies that all employees, regardless of the particularities of their contract (employees on fixed-term contracts, apprentices, employees on professional training contracts, home workers, temporary workers, etc.) must in principle benefit from it.
In companies with between 1 and less than 250 employees : the head of the company and, in the case of legal entities, the chairmen, managing directors, managers and members of the management board (art. L.3312-3 of the French Labor Code ).
1.4 How to set it up ?
In principle :
- By agreement or collective bargaining agreement ;
- By agreement between the employer and the representatives of representative trade unions in the company ;
- By agreement concluded within the CSE ;
- Following the ratification, by a two-thirds majority of the staff, of a draft agreement proposed by the employer.
- In companies with less than 11 employees and no trade union delegate or CSE : by unilateral decision
- Since the Law n°2022-1158 of August 16, 2022, the profit-sharing scheme can also be set up by unilateral decision in a company, when no approved branch profit-sharing agreement covers it, if the company employs less than 50 employees and has no trade union delegate or CSE and when the company employs less than 50 employees and has at least one trade union delegate or has a CSE. (Art L.3312-5 of the French Labor Code)
1.4 Can we apply the provisions of a branch agreement ?
Once the branch agreement has been approved, any company can apply the provisions of this agreement, under the following conditions :
- Companies with 50 or more employees must conclude an agreement for this purpose in accordance with the procedures laid down for profit-sharing and employee savings plans ;
- Companies with less than 50 employees have the possibility :
- to conclude an agreement according to the terms and conditions specific to profit-sharing agreements, participation agreements and employee savings plans,
- opt for the direct application of the system provided for by the industry agreement, by means of a unilateral adherence document if the industry agreement provides for this option and proposes a standard agreement setting out the various options left to the employer.
In case of options left by the branch agreement :
- if the membership takes the form of a company agreement: the signatories of the company agreement must indicate in the agreement the option(s) proposed by the industry agreement chosen or, if the industry agreement so provides, the content of the choices left to the company ;
- if the agreement takes the form of a unilateral document: this document must indicate the choices made from among the options left by the standard branch agreement (Article D.3345-7 of the French Labor Code).
1.5 What is the duration of the profit-sharing agreement ?
The profit-sharing agreement is concluded for a period of between 1 and 5 years. (L.3312-6 of the French Labor Code)
Please note that the agreement must be concluded before the first day of the second half of the calculation period following the date on which it takes effect.
Example : an agreement using an annual calculation period, when the financial year coincides with the calendar year, must be concluded at the latest on June 30th of the year N in order to be applicable from the same year N.
1.6 What are the limits ?
Overall limit : maximum 20% of the total gross salary of the current year or of the professional income of managers taxed at the IR for the previous year.
Individual ceiling : maximum 75% of the PASS (i.e. 30 852 €).
2/ How to set the calculation and distribution formulas for employee profit-sharing ?
2.1 How to set the calculation formula ?
The profit-sharing scheme must be random and result from a clear calculation formula, based on objectively measurable elements (art. L.3314-2 of the Labor French Code). The calculation formula is linked to the company’s results or performance and must be based on objectively measurable elements (results, ratios, etc.) (art. L.3314-2 of the French Labor Code).
In a group, the results of one or more of its subsidiaries may be used in a company as long as, on the date the agreement is concluded, at least two-thirds of the employees of these subsidiaries located in France are covered by a profit-sharing agreement.
In principle, the objectives are assessed over anannual period, or over a period of lesser duration, expressed as a whole number of months at least equal to three. It is possible to add a multi-year objective (this does not mean that a multi-year formula can replace the annual or sub-annual formula, the multi-year formula is only complementary).
2.2 How to determine the allocation formula for employee profit-sharing ?
The distribution of the profit-sharing among the beneficiaries of the profit-sharing may be (art. L.3314-5 of the French Labor Code) :
- Uniforme, i.e equal.
- Proportional to salaries. For managers, the distribution takes into account the annual remuneration or the taxed professional income, up to a ceiling equal to the highest salary paid in the company.
- Proportional to the length of presence in the company during the reference year. Please note that certain periods are considered as periods of presence (paid leave, maternity leave, adoption leave, bereavement leave, suspension of the employment contract due to an accident at work or an occupational disease, period of quarantine).
- On the basis of a joint consideration de of several criteria.
However, the distribution cannot depend on the individual performance of employees, on their personal qualities or on professional categories.
3/ Little use is made of profit-sharing arrangements
3.1 Work units
The work unit is mentioned in the Labor Code but is not defined. The Administration considers that the work unit, in fact, refers to different structures that are a function of the activity carried out by the company during the term of the agreement.
- It may be an office, a department, a workshop, a production unit, a store, etc.
- These structures must be sufficiently stable to be compatible with the calculation periods used in the agreement.
- The Administration considers that employees belong to the same work unit for the following reasons :
- they usually work together ;
- they have similar or identical work content (tasks) and working conditions ;
- they are placed under the responsibility of the same managementt.
- The work unit cannot be confused with a category of employees.
3.2 The profit-sharing supplement
An employer who has already awarded profit-sharing to its employees may decide to pay them, in addition to the basic amount, a supplement for the year ended s (art. L.3314-10 of the French Labor Code).
- the decision to pay a profit-sharing supplement is discretionary ;
- the decision is taken once the financial year has ended ;
- the amount is freely determined by the company ;
- the methods of distribution among the beneficiaries are set out in the profit-sharing agreement; failing that, the distribution is made under the same conditions as those set out in the initial agreement.
- the profit-sharing agreement must provide for this possibility ;
- sums must have been paid out as profit-sharing for the year in question ;
- the profit-sharing supplement is collective, all employees and managers falling within the scope of the initial agreement must receive the profit-sharing supplement, without it being possible to limit it to certain work units.
3.3 Project-based profit-sharing
External projet : in companies or groups that have a profit-sharing agreement and work together with other companies on a specific and coordinated activity, an agreement may be concluded to provide for all or some of the employees to benefit from a profit-sharing scheme linked to this project (art. L.3312-6 of the French Labor Code).
Internal Project : in companies with a profit-sharing agreement, this agreement may include a project-based profit-sharing scheme defining a common objective for all or some of the company’s employees (art. L.3312-6 of the French Labor Code).
- possibility of introducing it at the level of the company, of all or part of the companies of the group, inter-company ;
- possibility to go beyond the perimeters of the establishment and the work unit ;
- possibility of motivating employees assigned to a specific project ;
- taking into account the actual duration of the project, which may not exceed 3 years.
- a profit-sharing agreement must be applicable and applied in each company concerned ;
- the sums paid under the project profit-sharing scheme are taken into account to determine whether the ceiling has been exceeded ;
- the project and its objectives must be precisely defined ;
- the participants in the project must be clearly identified.
4/ How to secure profit-sharing agreements ?
Following the filing on the TéléAccords platform, the agreements are checked (art. L.3313-3 of the French Labor Code) :
First control carried out by the DREETS, control of negotiation and filing formalities :
- 1 month to issue the receipt attesting to the filing and control of the validity of the conclusion modalities.
- It may request additional documents or make observations.
- At the end of the one month period or as from the delivery of the receipt, the agreement is transmitted to the URSSAF.
Second control carried out by the URSSAF, control of the content of the agreement or the plan :
- first deadline : 3 months
- To request the withdrawal or modification of clauses contrary to the legal and regulatory provisions, with the exception of the rules relating to the modalities of denunciation and revision of agreements.
- At the end of this first period, and in the absence of observations, the tax and social security exemptions are deemed to be acquired for the current fiscal year.
- Second deadline : 2 months
- At the end of this period, in the absence of requests for withdrawal or modification of clauses contrary to legal provisions by the URSSAF, the tax and social security exemptions are deemed to be acquired for the entire duration of the agreement.
On the same subject, you can consult our article : Employee savings : control of agreements / Employee savings: control of agreements.