Internago often gets questions about the cost of employing staff in France, which is why we thought it was a good time to address this topic. This blog serves as an introduction to the cost of employing someone and what this is comprised of. In practice, it is also very important to take account of any collective agreements in place that can involve additional benefits and related costs.
What is a French net salary?
When calculating the cost of employing someone, there is a need to distinguish between gross and net salary. In France, net salary is before income tax but after employee social deductions. This can sometimes confuse foreign employers.
Since January 2019 withholding tax has been applied to salaries in France, with three main rates: personalised; neutral; and individual.
This is the average income tax rate applied to the individual in question during the previous calendar tax year.
In the absence of an identifiable tax rate, a “neutral rate” may apply. This is based on a ‘single, no children’ household. An employee can also demand a neutral rate for integrity reasons.
Individual (‘‘Taux individualisé”)
If they wish, a couple can opt for individual assessment, based on their respective incomes.
In order to understand the cost of employing someone in France it is important to understand the main salary components:
- Social security and unemployment contributions
- Health insurance (“mutuelle”)
- Life and accident insurance (“prévoyance”)
- Other contributions (e.g. contributions to professional training)
An example of employee cost calculation
In this example, we assume a manager with a gross salary of €3500 (based on a 35-hour working week) per month. On average, employee social charges (‘charges salariales) are around 22% of gross salary - so €770. This equates to a ‘net salary’ of €2,730.
Withholding tax will be deducted from this, depending on whether it is ‘personalised’, neutral’ or ‘individual’. As such, income tax will vary depending on salary and family circumstances. Technically taxable net is calculated by taking the gross salary, deducting employee charges, adding employer’s share of the health insurance , and then deducting possible exemptions for overtime. Yet, for the purpose of this example we can assume a neutral tax rate, income tax will be 14 % and an employer health insurance part of 50 EUR. Hence the “net net” salary for the employee would be € 2,780 x 0,86 = €2,390.80
Account then needs to be taken of employer social charges (‘charges patronales’). On average (but there are many exceptions) these are circa 42% of gross salary. So, in our example, €3500 x 0.42 = €1470
Therefore, in this case, the total cost for the employer will be: €3500 + €1470 = €4970.
- Gross salary: 3500 EUR
- Employee charges: 770 EUR (22 % of gross salary)
- Employer charges: 1470 EUR ( 42 % of gross salary)
- Total cost for the employer: 4970 EUR (142 % of gross salary)
- Taxable net: 2780 EUR (79 % of gross salary)
- Net salary for the employee (neutral withholding tax rate): 2390,80 EUR (68 % of gross salary)
Please note that this calculation is based on the minimum health/accident/life insurance requirement. Collective agreements may stipulate an enhanced offering, with higher associated costs. These can also often be an element for negotiation in the recruitment process.
Treat online estimation tools with caution
The French unemployment agency (Pôle d’Emploi) offers a tool that provides a rough calculation, but is unable to factor in specific benefits and associated costs arising from collective agreements.
There are also some other factors that impact overall employment costs, in addition to to the broader issues of office related expenses, from desks to phones. Employment contracts are another general cost that needs to be factored in.
Some early stage companies involved in R&D can apply for ‘JEI’ (Jeune entreprise innovante) status, which offers substantial reductions to social contributions.
Companies may also opt to compensate for commuting costs. For example, companies based in Paris can provide up to €75 per month towards travel costs.
Do you want more information or need help with employment and payroll in France?
Internago can assist with cost calculations and provide a full payroll service in France and other European markets. Please click here to find more information, or if you prefer contact us directly at firstname.lastname@example.org