LeXcom Law firm

The social security treatment of indemnities paid in certain cases of termination of the employment contract was recently amended by two laws dated respectively June 25, 2008 and December 17, 2008. The purpose of the circular dated July 10, 2009 is to give guidelines related to the implementation of such new provisions, related on the one hand, to the social security treatment of indemnties paid in case of conventional termination and, on the other hand, to the social security treatment of indemnities paid in case of forced termination of the employment contract or of the corporate office.

1. Conventional termination of the employment contract (article 5 of the law dated June 25, 2008)

The tax treatment of the legal dismissal indemnity paid in case of conventional termination of the employment contract varies depending on whether the employee may benefit from a retirement pension from a legally compulsory scheme (this is the case of all employees aged 60 years or more) or not. At the date of termination of the employment contract, the employee who would be in a position to receive his retirement pension, either at a full rate or not, would not be entitled to benefit from the favorable social security regime provided for by section 80 duodecies of the French tax code. In such a case, the conventional termination indemnity would be subject to social security contributions, to CSG and CRDS as from the first euro. It would be the case of all employees aged 60 years and more. Regarding employees aged between 55 and 59 years-old who enter into a conventional termination agreement, the employer will have to be able to provide the social security auditor with a document relating to the situation of the employee with regards to his rights to the basic retirement scheme.

Regarding employees who are not in a position to receive their retirement pension, and who had less than one year seniority, the indemnity shall be excluded from the basis of computation of the social security contributions as provided by section 80 duodecies of the rench tax code (twice the amount of the compensation paid during the year preceding the one of termination of the employment contract or half the amount of the termination indemnity paid). The indemnity is excluded from the basis of computation of CSG and CRDS up to the indemnity due prorated according to the number of month of presence in the company.

2. Implementation of section 14 of the law dated December 17, 2008

As from January 1st, 2009, indemnities paid for an amount above thirty times the amount of the annual social security cap (EUR 1,029,240 for 2009) are subject to social security contributions, CSG and CRDS as from the first euro, including when the amount of the indemnities corresponds to legal or conventional indemnities.

The other amounts paid, if any, upon termination of the employment contract, and which are subject to social security contributions in normal conditions, are not taken into account for the computation of the threshold.