Incentive and profit-sharing schemes apply to companies governed by the Syntec collective bargaining agreement. What do these bonuses correspond to? How can they be paid out?
Incentive and profit-sharing agreements are employee savings schemes designed to define the terms and conditions for redistributing company profits and results. They can thus encourage employee motivation by associating them with the company’s economic performance.
The law of November 29, 2023 introduced a new mandatory experimental value-sharing scheme for small businesses. This means that employee savings schemes can now be applied to an ever-increasing number of companies. We explain the details of this law below.
What is a profit-sharing agreement?
A profit-sharing agreement pays employees a bonus linked to the company’s performance. Setting up such an agreement is optional.
The Syntec Convention therefore makes no specific provision for this agreement.
To be implemented, profit-sharing must be the subject of a collective agreement. This agreement is concluded for a period of 1 to 5 years and provides for :
- Reasons for introducing profit-sharing ;
- Criteria for distributing the total amount of profit-sharing among employees ;
- The choice of profit-sharing calculation method ;
- Dates and conditions for payment of the profit-sharing bonus ;
- Procedures for dealing with profit-sharing disputes.
In companies with fewer than 50 employees, profit-sharing may also be introduced by unilateral decision of the employer. In this case, a “procès-verbal de carence” must be filed, less than 4 years old, proving that no employee representative body has requested the introduction of such a scheme, or establishing the failure of negotiations.
The agreement specifies the profit-sharing calculation formula and the criteria for allocation among employees. The distribution can be :
- Uniform, i.e. all employees receive the same amount;
- Proportional: the bonus received by employees is proportional to their salary or time spent with the company;
- Depending on these two modes, the choice of allocation may combine several of these criteria.
What is a profit-sharing agreement?
Profit-sharing is a mandatory employee savings scheme for companies with more than 50 employees. It enables employees to share in the company’s profits.
It can be set up by means of a company-wide collective agreement. The profit-sharing agreement must contain provisions concerning :
- The formula used to calculate the special profit-sharing reserve (RSP),
- The period of unavailability of beneficiaries’ rights and cases of early release,
- Conditions and deadlines for requesting immediate availability of sums,
- Reserve allocation methods and ceilings,
- The nature and management of beneficiaries’ rights.
The law provides a formula for calculating the amount of the special profit-sharing reserve, i.e. the share of profits to be distributed among employees: [½(B – 5% C)] x [S/V].
B: net income
C: shareholders’ equity
S: salaries
V: company added value
It is possible to provide for another formula, which must then be just as favorable to employees.
As with the profit-sharing scheme, the distribution among employees is based on selected criteria:
- Uniformly across all employees,
- Proportionally according to salary or time worked,
- Or a combination of the above criteria.
The amount of profit-sharing paid out is, by its very nature, uncertain: it depends on the company’s profits for the previous financial year, which may vary from one year to the next. It cannot therefore be determined in advance.
For employees
Each company is required to provide its employees with an employee savings booklet, setting out the employee savings schemes set up within the company, such as a PEE (company savings plan) or a Perco (collective retirement savings plan).
The employee can then request immediate payment of the profit-sharing bonus within 15 days of being informed of the amount due.
Otherwise, the bonus will be placed in the employee’s company savings plan. It will then be available at the end of the blocking period for the plan concerned (5 years for the PEE, until retirement for the Perco), except in the case of early release applicable to the plan.
Premiums invested in an employee savings account are not subject to income tax.
For the company
Amounts paid out under incentive and profit-sharing schemes are exempt from social security contributions and social security charges when the company is below certain thresholds (fewer than 250 employees for incentive schemes and fewer than 50 employees for profit-sharing schemes).
These sums are also deducted from taxable income.
However, two cumulative limits must be respected in order to benefit from profit-sharing exemptions:
- Total profit-sharing bonuses paid to all employee beneficiaries may not exceed 20% of total gross salaries paid,
- The total amount of profit-sharing received by an employee per year may not exceed €34,776.
What changes?
Since November 29, 2023, a new mandatory experimental value-sharing scheme has also been in force for small businesses. It will run for 5 years from the law’s promulgation, i.e. from November 29, 2023 to November 2028. It concerns :
- Companies with 11 or more employees who are not required to set up a profit-sharing scheme.
- Companies that have made a net profit for tax purposes equal to at least 1% of sales for three consecutive years.
Please note: Net profit for tax purposes corresponds to the profit taken into account in the legal formula for calculating the special profit-sharing reserve, set out inArticle L.3324-1, 1° of the French Labor Code.
When these conditions are met, you must implement one of the following three measures:
- Set up a profit-sharing agreement;
- Set up a profit-sharing scheme;
- Contribute to an employee savings plan;
- Pay a value-sharing bonus.
Important: If your company already implements one of these three schemes, then you will be exempt from this obligation, which you are already implementing in practice.
This obligation will apply to financial years starting on or after January 1, 2025, and the three previous financial years will therefore be taken into account to determine whether or not you need to implement one of these systems.
Naturally, DESRUMAUX AVOCATS will be happy to provide you with further information on these systems, and to help you set them up.
