Since mid-November 2018, France has been shaken by the “yellow vests” mass demonstrations. Originated on social media and grounded in its opposition to the TICPE (fuel tax) increase, the leaderless movement expresses more broadly, according to many analysts, a reaction to the dwindling purchase power of the middle class and a strong stance against the French establishment.

The political impact of the movement was quickly felt, as President Macron announced, in a televised address aired on 10 December 2018, a series reform aiming at meeting the yellow vests demands, including notably an increased minimum wage, tax and social exemptions for overtime hours as well as a tax and social contributions-free end of the year bonus.

This announcement led to the adoption of a law on “economic and social emergency measures”, dated 26 December 2018. Under this new statute, employers are now allowed to grant their employees an “Exceptional purchase power bonus” benefiting from advantageous tax and social regimes.

What is the incentive?

Under certain conditions, the Exceptional purchase power bonus is exempt from various taxes (including income tax) and Social Security contributions within the limit of EUR 1,000 per employee. Portion of the bonus which exceeds the EUR 1,000 threshold are subject to taxes and Social Security contributions.

Which employers may award the bonus?

The scope of the bonus is broad as it may be awarded by all private sector companies as well as certain public sectors employers.

Which employees may benefit from it?

Within a given company, the Exceptional purchase power bonus may be awarded to either all the employees of the company or only to employees whose remuneration is below a ceiling determined by an agreement or unilateral undertaking.

Under which condition is the Exceptional purchase power bonus exempt from tax and social contributions?

The tax and social contributions exemption will apply only to exceptional purchase power bonus granted to employees whose remuneration in 2018 was under three times the value of the annual minimum wage (i.e. a yearly of salary of EUR 53,944.8 for a working time of 35 hours per week).

Said exemption applies provided that the Exceptional purchase bonus power:

• is awarded to employees who are bound by an employment contract on 31 December 2018 on the latest or on the payment date if it is prior to 31 December 2018;
• can vary in its amount between employees based on criteria such as their level of remuneration, their level of classification, their effective presence duration in 2018 or their working time duration;
• is paid between 11 December 2018 and 31 March 2019; and
• does not replace wage raises nor bonuses provided by a collective bargaining agreement, the employment contract, practices in force within the company, or any form of remuneration (as defined under Article L. 242-1 of the French Social Security Code) owed by the employer under the law, a contract or practices.

How is the Exceptional purchase power bonus implemented?

The Exceptional purchase power bonus may be implemented through:

• a collective bargaining agreement;
• an agreement between the employer and the delegates unions that are representative within the company;
• an agreement concluded within the social and economic committee;
• a referendum on the draft-agreement (a 2/3 majority vote of the employees is required), provided that in case there are one or several representative trade union within the company or a social and economic committee, the draft-agreement is ratified together with one or several of these trade unions or with the social and economic committee; or
• a unilateral undertaking, provided that the decision on the payment of the bonus and its conditions is formally taken prior 31 January 2019 and that the social and economic committee is informed of this decision by 31 March 2019 at the latest.

The means elected to implement the Exceptional purchase power bonus determines:

• The amount of the bonus;
• As the case may be, the wage threshold above which employees do not benefit from the bonus; and
• As the case may be, the modulation of its amount between the employees.

 How is this new possibility being received by employers?

It is difficult to predict to which extent employers will take advantage of this new opportunity. That being said, a few household-name companies such as Orange, Publicis, LVMH, Kering and Total already publicly committed to grant their employees the Exceptional purchase power bonus.