All details of information you need to know about French regulations and business behavior.

Firing in France – how to save time and money?

Firing in France – Abstract


Is Firing in France as difficult as it is said? You have recently hired an employee using a permanent contract. Unfortunately, her/his trial period is over and her/his achievements are below expectations.  How can you separate at minimum costs to the company?  Providing you with the first tips how to deal with the issue requires to prepare the legal background before dealing with the stake and finally the behaviour to use.


Firing in France – Legal background

There are legally 3 ways to end a relationship with an employee.

– Simple redundancy (Le licenciement pur et simple),

– Settlement (La transaction),

– Amicable agreement (La rupture conventionnelle)

Except in the case of an employee who has committed a serious fault (faute grave), redundancy is the best option , and especially if the employee has been with the company for a long time. In the eyes of the law, the damages and severance pay for redundancy depend on how long the employee has worked for the company. If they have been there for less than a year, the damages will amount to 1-2 months’ pay. However, after 2 years of service these damages can rise to 5 or 6 months of salary. Severance pay  for the employee is small.

To avoid the unfortunate consequences for the employer of a court case, the parties can come to a settlement immediately following a redundancy. This agreement removes any possibility of the employee taking legal action thanks to the payment of a negotiated amount of severance pay, which is often inferior to what an employment tribunal would award.

Finally, since 2010 there has been the option of the ‘rupture conventionnelle’, through which the parties sign a mutual termination agreement to cease contractual relations. The main advantage of the ‘rupture conventionnelle’ is that it is a lot less costly than a settlement. But the other side of the coin is that it provides a lot less security for the employer. The employee still has the right to bring the employer before an industrial tribunal, arguing that the employer forced his or her hand.

To remove the possibility of grievances after the conclusion of a ‘rupture conventionnelle’, some lawyers used to propose adding a settlement to the latter in order benefit  from the financial advantages of a ‘rupture conventionnelle’ and the legal advantages of a settlement. But this practice was banned by the labour chamber of the Cour de Cassation (France’s highest court of appeal) on 25 March 2015. The ‘rupture conventionnelle’ cannot be followed by a settlement.

Also note it is strongly recommended not to negotiate a mutual termination agreement if the employee a protected status (such as trade-union representatives, etc.).


The legal bakground of Firing in France can be summarized as follows:

Firing In France

Firing In France -Laying off in France

Risk in such a legal context

The main risk is to keep on the employee, hoping that he will make progress and overcome his shortcomings. In reality, if at the end of a year the employer’s efforts are in vain he will probably we forced to pay damages and severance pay that is a lot larger while he will have spent a lot of energy and time in trying to improve the employee’s performance. And the employee will be just as frustrated.

So the essential question is to know if the employee is has it in him to improve – in short, if he will be better today than tomorrow.

In consequence, it is important when supervising an employee to understand the kinds of errors they commit. And even though they admitted to making them, it is still not enough if they reoffend .


What to do in this case?

Push him into a corner by applying the strategy of ICHIKWA – in other words, until the employee reveals the deep nature of his error. Because this pressure should result in one of the 4 following responses: I don’t care (or I am not motivated), I don’t want to do it, I don’t know how to do it, I have a serious personal problem (objectivity).

This will allow you to broach the subject of their leaving and how that may be done: ‘rupture conventionnelle’ (if he says he is not motivated) or redundancy followed by a settlement.


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Accounting in France

Accounting in France: overview

Individual entrepreneurs are generally not subject to any accounting regulations whatsoever. However, practically, the are required to hold a double-entry accounting for tax purposes.

However, companies in principle are under the obligation of presenting their (individual) financial statements every 12 months and eventually their consolidated financial statements.

Individual annual financial statements are drawn up according to the rules provided in the French General Chart of Accounts, which differ from the IFRS in two ways. First, all French rules originate from or are acknowledged by General Tax Code. Second, most of them use the principle of prudence and historical cost. Thus, (i) the net result per individual annual financial statements never differs from that of corporate tax return and (ii) they should give a view of the company in terms of equity/or heritage.

How accounting in France differs from the IFRS

The IFRS give priority to the true and fair view rather than the principle of prudence. Financial statements give an economic view of the company. In other words, they allow one to measure the company’s capacity to generate cash flow.

These differences require that the financial statements be re-drafted in order to shift from French accounts to financial statements meeting the IFRS.

French subsidiaries of foreign groups are not under the obligation of presenting consolidated financial statements, under the dual condition that (i) they are not listed companies, and (ii) their parent company presents consolidated financial statements in conformity with the European Union’s Seventh Directive. Financial statements complying with the IFRS are deemed to be in conformity with this Directive.

Finally, Incorporated Companies (S.A.), on the one hand, and Simplified Incorporated Companies (S.A.S) and Limited Liability Companies (S.A.R.L.), under certain conditions, are under the obligation of appointing an auditor for a term of 6 years.

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Cost of labor in France

Cost of labor in France: overview (general principles)

The remuneration paid to wage earners is subject to social security contributions in France, provided that the wage earner works in France.

On average, the sums paid by employers represent an average of 45% of the remuneration per contract of wage earners, and the sums paid by the wage earners amount to around 23% of that same remuneration. The net remuneration paid to a wage earner amounts to around 53% of the total cost borne by the company (1-23%) / (1+45%) = 53%.

Conversely, for a high remuneration, the percentage of employer costs decreases very slightly. For a gross annual remuneration of €100 K, the employer contributions average 43%. For a remuneration of €200 K, the employer rate is just 40.70%.

Under certain conditions, social security law authorizes an exemption from paying social security in relation to profit-sharing schemes paid to employees.

And exceptions: how to substantially decrease the cost of labor in France

They are three ways manners to manage such a decrease: the first one is when a company has a research and development center in France, and therefore develops an innovative technology. The company can profit from the Research tax credit (CIR), eventually the statut JEI  Young Innovative Company Status and the innovation subsidies and grants.

Benefiting the CIR can result in a decrease of labor costs up to 45-50%.  This decrease can rise up to 90% if it can profit by the Young Innovative Company status as well. And if the company benefits also from innovation this rate can be even higher..

The second way is to get employment subsidies (aides à l’emploi). All companies are eligible to such subsidies, regardless of their activity.

Finally, remuneration not exceeding 1.3 times the SMIC benefits from a reduction allowing a substantial decrease in the social security contributions by employers. For a «Smicard» (a worker earning the minimum wage), the reduction limits the social security costs to 15% of the gross wages. Therefore the cost for a fulltime “Smicard”  borne a company amounts to 1661 € per month.

Employment subsidies can be accumulated with the aforementioned decrease as outlined in the above paragraph.

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Business practices in France

Business practices in France: context

When foreign companies want to settle in France, they tend to refer to the legal system and the professional practices of their own country.

But, their referential and professional practices are often very different. And these companies know little of the business practices in France. For instance:

  • How do you negotiate a salary in France?
  • When does the employer have to pay their employee?
  • Which type of American company does the SARL or SAS stand for?

Here are some of the answers.

7 tips on French business practices

business practices in france - French Business etiquette - Champs Elysées

1. Business practices in France: employer employee relations

The net salary is always after deduction of payroll taxes, but before deduction of income tax.

In France, as opposed to many countries (USA, Canada, UK, Northern European countries, Germany), income tax is not prepaid by the employer. It’s separately paid directly by the employee the following year.

Unless specified, when negotiating a salary in France gross salary is always implied. And it is this gross salary that is mentioned in the employment contract.

Nonetheless, nothing prevents the parties from negotiating a net salary, as is the practice in some countries (USA, Germany). Moreover, this practice has been growing in recent years. However, the hiring company will have to calculate from this net salary a gross salary that will be mentioned in the employment contract. In order to find the gross salary, the net salary must be divided by about 0.77.

The salary is always paid at the end of the month, except in some cases (resignation, dismissal, end of a contract).

Pay slips are the size of a novel!The reason: as opposed to many countries, there is not only one body that collects payroll taxes; the company is in charge of redistributing the amounts to each beneficiary body.

However, since the beginning of 2011, the collections from URSSAF (health and retirement) and POLE EMPLOI (unemployment benefits), the two major insurance funds have been unified.

2. Business practices in France: payroll taxes

Welfare taxes are paid monthly unless the company employs less than 10 people, in which case they are paid quarterly.

Since the taxes are collected from both the company as well as the employee, they represent 88% of the net salary.

It is a large amount that surprises many foreign companies’ CFOs at the start of an activity in France.

3. Business practices in France: VAT

The VAT, as its name implies, is the tax collected at each step of the value chain. Consequently, every company is subjected to this tax.

The VAT charging mechanism on purchase and sales make the VAT neither a burden nor revenue for companies. However, the VAT is a cost to the final consumer. It is not the case of State sales tax in the USA, which in its principle is also a tax on the final consumer, but only some activities are liable and the rate varies from State to State.

In principle, the VAT is paid monthly. Companies whose turnover is below a certain amount can pay it quarterly.

4. Business practices in France: corporate tax

France has a very centralized administration; companies only have one income tax return to fill, and pay corporate tax solely to the French State.

In other words, there is no income tax return to fill or to pay at a regional, provincial, Lander or departments’ levels, as opposed to federal states (USA, Canada, Germany) or confederate states (Switzerland).

5. Business practices in France: relations with administrations

Thanks to the generalization of information technology it has been possible in recent years to declare and pay corporate tax and most payroll taxes paper free.

For companies beyond a particular size, the use of electronic documents to pay VAT, corporate tax or CVAE (cotisation sur la valeur ajoutée des entreprises) is even mandatory or else a fine can be issued.

6. Business practices in France: relationship customer-supplier

In France, payment terms extend from 30 to 90 days. They are twice as long as in northern Europe and North America. For high value-added companies, this means an important working capital requirement, since employees are paid monthly and payroll taxes often paid quarterly.

If wire transfers have a more and more important role in financial transactions between companies, checks remain a largely used means of payment. The reason being: checks are a means of payment that benefit from a strong legal protection in France, as opposed to other countries (USA, Canada in particular), where checks are a non protected means of payment.

Indeed, issuing a bad check is severely punished in France. Unlike many countries, check processing is free for the issuer. And they are not returned after payment. In return, the bank accounts don’t receive interest.

For small transactions, the use of the credit card is very widespread. Consequently: You should expect that the sales people of your future French subsidiary will ask for a personal credit card (called so because the company’s account is debited at the end of the month).

However, French people don’t like to carry cash as opposed to northern Americans, Germans and other Northern countries. Most businesses won’t accept bills over 50€.

7. Business practices in France: mortgages

In France, retail selling businesses benefits from a legal protection. Hence, it is possible to mortgage it for a credit.

If you have other questions about business practices in France, please contact us.

Labor Law in France

Labor Law in France : what you need to know (general principles)

French Labor Law seeks to protect wages and jobs and hence it is quite restrictive for employers.

A wage earner is any individual employed by a company in which there is a relationship of subordination. This occurs whenever the employee does not hold a majority of the capital and is not remunerated by virtue of a business contract (outsourcing) and is not one of the company’s legal counsels.

Labor Law applies in principle to all wage earners working in France, if they are employed by a non-EU company. If the employer is an EU-company, wage earners can choose either the law of the company’s country, either the French Labor Law. In practice, French wage earners always choose the French Labor Law.

The most frequent forms of contract are permanent (undetermined duration) job contracts (CDI) or temporary (determined duration) job contracts (CDD). In the absence of a temporary contract, what applies is a permanent contract. A contract must obligatorily be drafted in the event of temporary contracts and it is strongly recommended for permanent contracts.

How Labor Code interacts with collective agreements

The Labor Code, which is the basic regulation, can be replaced by a collective wage agreement or by a company wage agreement if said collective wage agreement and/or company wage agreement provide more favorable wages and working conditions than the Labor Code.

Per the Labor Code, every wage earner has to be paid more than the minimum wage (known as the SMIC). The SMIC amounts to  €1,480 a month as from January 1st, 2017. It is generally raised once a year, though not by much more than the inflation rate.

Is it possible to draw up a labor contract in English per the French Labor Law?

A contract must be drawn up in French in order to be legally valid. Ethical codes, which can be drafted in English (as required by the SOX provisions) in principle must not go against wages.

Hence, when a contract is drawn up both in French and English, the latter language is used for information purposes only.

Work time per Labor Law In France

The legal workweek is 35 hours. Wage earners can work overtime under certain conditions. For non-executives, overtime is paid depending on the supplementary hours actually performed calculated. For executives, overtime is included in their wage. However in both cases, overtime is compensated through additional day-offs.

Hiring and Lay-off per the French Labor Law

When they are hired, wage earners go through a trial period during which they can easily be dismissed. This period lasts one month for employees and three months for managers. Termination of wage earners jobs at companies is highly regulated. Dismissals of wage earners must be notified in writing. The layoff of any wage earner is always accompanied by severance pay which is proportional to the wage earner’s seniority at the company. However, to speed up the process of individual lay-offs, companies are given to resorting to mutual termination (rupture conventionnelle in French) in particular when the wage earner is an executive.

Senior executives (CEO, Chairman) are never considered wage earners as far as labor law is concerned. The above-mentioned rules do not apply to them. They may be removed from office at any time without severance, provided that it is not done in an offensive manner.

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Tax in France


When it comes to talking about tax in France, keep the following in mind: more than in any other country, the more important a company is the greater the burden of taxes and duties it must bear in relation to turnover.

Corporation Tax in France

Individual entrepreneurs whose business is not considered a trade activity declare their results based on their cashbox accounts.

All other businesses, particularly corporations, draw up their taxable income in two stages: first of all, they determine their results according to the rules of the [French] General Chart of Accounts. In other words, the book result determined for tax purposes is exactly the same as that mentioned in the financial statements (see accounting regulations). Next, a certain number of charges or products are added or deducted to arrive at the taxable income.  Among the deductions are equity interests which benefit, under certain conditions, from an 88 or 95 % reduction off the amount booked, depending on whether they relate to dividends or assignments of shares.

This taxable income is subject to a rate of 25% (the standard rate). The rate is however decreased to 15% – up to €42,500 – if the company meets the two following conditions: natural persons own over 75% of company or of the the parent company: (ii) its sales are lower than K€ 7,630.

The corporation tax burden is submitted to an additional 3.3% contribution if one of two above conditions (natural shareholding persons >75%, turnover < K€ 7,630) are not met.  The figure as calculated before is subject to a € 763,000 deductible.

The rows as outlined above can be summarized as follows:

Tax In France

Corporation tax in France


Refunds/deductions are not meant to significantly alter the effective tax rate (corporation tax/pre-tax profit) unless the deductions are applied to tax credits. Under certain conditions, any company can have between 30% of its research & expenses refunded through the CIR. They can benefit from the statut JEI- Young Innovative Company Status under certain conditions as well.

Withholding at source

Dividends sent by French affiliates to their shareholders located in USA and the UK have a 5% withholding rate applied, since they hold at least 10%. Amounts paid to corporations located in the United States undergo a 5% withholding at source, and sums paid to British companies have no withholding applied.

Value Added Tax in France (VAT)

All commercial transactions, except in a few rare occasions, are subject to value added tax (VAT), except those benefiting companies that are not-domiciled in France. In principle, the VAT paid on acquisitions is not a charge for the company because it can be deducted from the VAT billed and collected from sales.

There are two VAT rates. The normal rate, 20%, applies to all transactions, goods and services. As an exception, transactions involving consumer staples (foods, pharmaceutical products, culture) undergo a tax rate of 5.50%.

Since the VAT is borne by the customer in the end, the tax debtor according to law is always the company billing and not the customer. The company must file a VAT statement, more often than not on a monthly basis, or quarterly in the case of small enterprises or individual entrepreneurs.

Personal Income withholding tax (Prélèvement à la source)

Although employees’ income tax is withheld from their pay stubs, the tax debtor according to law is the company, not the employees. Companies file a return and pay it on a monthly basis when triggering payment of other social taxes.

Local taxes

From 01/01/2023 onwards, to beep up France’s competitiveness, the main local taxes, the Territorial Economic Contribution (CET) and the Economic Added Value Contribution (CVAE) were suppressed.

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