On 29 November 2023, the French government passed the Profit-Sharing Act requiring companies with 11 to 49 employees to implement a profit-sharing scheme effective from 1 January 2025. This program is set to run as a five-year trial and will then be reassessed by the government to determine if the profit-sharing obligation for these smaller employers will become permanent and in what format.

Key details

Compulsory profit-sharing has been required of companies with 50 or more employees since 2020. The new five-year trial mandate applies to companies that meet all three of the characteristics below:

  • Are established as a legal entity.
  • Have 11 to 49 employees.
  • Have an after-tax net profit of at least 1% of turnover for the three previous consecutive years (the lookback period commences in December 2024).

To meet the requirements of the new law, a profit-sharing scheme may be implemented through any of the following means:

  • A profit-sharing plan (“intéressement” or “participation”). A calculation formula for the profit sharing and criteria for its distribution among employees must be negotiated in a sectoral or company bargaining agreement before 30 June 2024.
  • A contribution by the employer to a company or intercompany savings plan (“Plan d’Epargne d’entreprise” PEE) or retirement savings plan (PERCO or PERE-CO).
  • A value-sharing bonus (“Prime de Partage de la Valeur” PPV). A PPV is a tax favored bonus plan, limited to EUR 3,000 (or to EUR 6,000 under certain conditions), that can be distributed to all employees up to two times per year.

For companies with at least 50 employees, which are already subject to mandatory profit sharing, the Act requires that employers engage in a negotiation with employees by 30 June 2024 to amend their CBA to include a provision ensuring that employees receive an increased share of the company’s profits whenever exceptional results are achieved. The negotiation will determine the definition of “exceptional profits” and how they will be shared. Employers with a profit-sharing plan that is more favorable than the legal calculation formula for profit sharing are not required to update their CBA to reflect exceptional results.

Next steps

The changes will affect many employers who have not previously had any profit-sharing obligations. Companies with 11 to 49 employees must review their net profits over the previous three years to determine whether they are affected by the changes. Companies already subject to mandatory profit sharing and who do not use a calculation more favorable than the statutory formula will need to amend their agreements to provide a higher profit share for “exceptional profits.” To ensure compliance within the timeline, affected employers should work with their legal counsel to review and amend their CBAs in accordance with the changes.