Yellow jackets: the measures to stop tensions

In response to the “yellow jackets” movement, the French Parliament adopted a law providing different measures to calm down the protests and take into consideration some of the claims.

The law provides in particular for the granting of (i) an extraordinary bonus which may, under certain conditions, be exempted from income tax and social security contributions and (ii) a tax exemption of overtime.

The Government also commits to provide an evaluation report on the efficiency of these measures within six months.

1. Extraordinary bonus

Companies have the opportunity to grant an exceptional bonus to employees (a), which will be free from income tax and social security contributions under strict conditions (b).

a. Labor law considerations

The bonus must be set up by a company or a group-wide agreement, or if need be by an unilateral decision of the employer. In this case, the decision will have to be taken before January 31st, 2019, and be followed by an information of the staff representative (if any) before March 31st, 2019 (works council/social and economic council, or failing that staff delegates).

The agreement or the decision specifies:

• Bonus’ recipients: the company may decide to grant the bonus to all the employees or only to some of them. However, the favorable tax and social security treatment is limited to employees earning less than a fixed cap (see below).
• Bonus’ amount: the bonus may be adjusted to standards enumerated by the law, such as employees’ salary, classification, working time or effective presence. However, standards chosen by the company must not generate for any employee a bonus equal to zero. That is why, companies must be careful and define a lower limit. Furthermore, any discriminatory feature is prohibited. For instance, the bonus cannot be reduced or removed for an employee who benefited from a maternity or a parental leave. Failing that, the tax and social security contributions exemption will be denied, not only for that employee but for all of them.

b. Social security considerations

In some cases, the exceptional bonus will be exempted from income tax and social security contributions.

Indeed, although companies may grant the exceptional bonus to all their employees, the exemption will only apply to those who receive an annual gross salary lower than 3 annual minimum wage (3 annual SMIC equivalent to €53.499,80).

Besides, the bonus will be exempted up to a limit of €1.000 even if the agreement or the unilateral decision provides for a higher amount.

On this basis, the benefit of the exemption is subject to the following conditions:

• The recipient’s employment contract must have been concluded before December 31st, 2018.
• Even if companies are able to pay employees by salary advance, the definitive payment must be made before March 31st, 2019. Besides, the payment must appear on a specific pay slip’s line of the corresponding month.
• The extraordinary bonus must not replace a remuneration due to employees under a collective agreement, an employment contract or a common practice (for instance a thirteenth month bonus, a performance bonus…).
• The bonus’ amount is not adjusted to discriminatory standards.

2. Overtime work

Since January 1st, 2019, employees benefit from an income tax exemption on overtime up to a limit of €5.000 gross per year. Moreover, their retirement insurance contribution on overtime is reduced.

Nevertheless, employer contributions are not concerned by the exemption and are still owed.

Even if these measures had a certain effect on the protesters, the fact remains that their application has already raised many practical questions for companies. Employers should be cautious when applying it to avoid any risk of reassessment by the S.S. authorities who could possibly challenge these exemptions.