The Law for the promotion of labor, employment and purchasing power (Loi en faveur du travail, de l'emploi et du pouvoir d'achat) of August 21, 2007, known as the "TEPA law", which entered into force on October 1, 2007, institutes a tax exemption regime for employees as well as an exemption regime regarding the employer and employee shares of social security contributions on overtime.

The 35-hour work week remains the legal working time. Under conditions set forth by the French Labor Code and the applicable bargaining agreement, if any, the employee may be required to perform overtime over and above that legal duration, thus giving rise to additional pay.

Before the passing of the TEPA law, the payment of such overtime hours was entirely subject to employer and employee social security contributions, as well as to income tax.

Now that the TEPA law has been adopted, the employee benefits from (i) a reduction of the employee's share of social security contributions on overtime pay, within the limit of 21.5% of the total amount of social security contributions (excluding pension, unemployment and CSG/CRDS contributions), and from (ii) an income tax exemption regarding the entire overtime pay, subject to compliance with the legal or collective bargaining agreement rates on overtime pay.

As for employers, with regard to the payment of every hour of overtime, they are entitled to a lump-sum deduction on the employer's share of social security contributions, whose amount varies according to the company's headcount (1.50 euros per hour of overtime for companies with fewer than 20 employees, and 0.50 euros for other companies).

For companies with fewer than 20 employees, the TEPA law does however increase the overtime pay rate for the first four hours of overtime, which goes from 10% to 25%, unless otherwise provided for by a collective agreement.


A new law relating to the buying power or "pouvoir d'achat" dated February 8, 2008, provides for an early release of the profit-sharing reserve (1.2.1), the commutation into cash of rest days and rights acquired relating to a time saving account (1.2.2), and the payment of an exceptional bonus (1.2.3).

A. Early Release Of The Profit-Sharing Reserve

The early release of the profit-sharing reserve is an exception to one of the conditions required to benefit from the favorable tax and social security regime. Pursuant to Article 5 of said law, any employee eligible for the profit-sharing scheme (i.e., with at least a three-month length of service within the company) can ask for an early release of either part or all of his profit-sharing reserve up to a maximum of EUR10,000, provided said release is requested before June 30, 2008 by the concerned employee. Furthermore, the employee can only benefit from said early release exception once.

This possibility cannot apply to a profit-sharing reserve that was allotted to a company retirement savings plan (plan d'épargne pour la retraite collective - "PERCO"). According to said law, the employer must inform its employees of said early release possibility before April 9, 2008.

B. Commutation To Cash Of Rest Days And Rights Acquired Relating To A Time Saving Account

  1. Commutation To Cash Of RTT Days

    The employee can waive all or part of his/her entire or half RTT day (replacement compensatory rest pursuant to the 35-hour work week), thus giving rise to the increase of the employee's remuneration. Said increase must be equivalent to at least the increase rate applicable to the first hour of overtime performed within the company.

  2. Commutation To Cash Of RTT Days For Employees Whose Working Time Is Calculated In Days Per Year

    Such provision will apply only in companies where no agreement was concluded regarding the possibility for the employer to "purchase" its employees' RTT days. In order to benefit from this commutation to cash, the employee has to make an individual written request to his/her employer with whom he/she will have to negotiate the increase of remuneration, which cannot be less than 10%.

  3. Commutation To Cash Possibility Depends On When Such RTT Days Were Acquired
    1. RTT Days Acquired Before December 31, 2007:

      The purchase of the days acquired before December 31, 2007 and paid at the latest on September 30, 2008, will be exempt from social contributions, save CGS and CRDS contributions, if the employee makes such request at the latest on July 31, 2008.

    2. RTT Days Acquired Between January 1, 2008, And December 31, 2009:

      The purchase of the days acquired between January 1, 2008 and December 31, 2009 will be exempt from tax and will give rise to a reduction of the employees' social contributions relating to overtime pursuant to the conditions set out by the TEPA law (see 1.1 above).

    3. Commutation To Cash Of Compensatory Rest

      From January 1, 2008 until December 31, 2009, with the employer's approval, the employee may commute into money all or part of his/her acquired replacement compensatory rest into an equivalent increase of remuneration. Such increase of remuneration will benefit from the favorable tax and social security regime set out by the TEPA law (see 1.1 above).

    4. Commutation To Cash Of Rest Days Allotted To A Time Savings Account

      Such provision will apply only in companies where such possibility was not provided for by the agreement relating to the time savings account. The employee can ask his/her employer to buy his/her rights accrued in his time savings account. The employee may make such request for his/her rest days that will be allotted to a time savings account on December 31, 2009. The employee will not be allowed to ask for the commutation to cash of days acquired for his/her annual paid vacation. Regarding the social and tax regime see (c).

  4. Payment Of An Exceptional Bonus

    According to this law, companies that employ fewer than 50 employees and are under no obligation to provide for a profit-sharing scheme will have to pay their employees an exceptional bonus before June 30, 2008. This exceptional bonus can amount to a maximum of EUR1,000. The bonus is exempt from social security contributions, except for CGS and CRDS contributions. The agreement relating to the payment of this bonus must be entered into as a collective agreement, or ratified by 2/3rd of employees' majority. Said agreement can set out different bonus amounts, depending on the employees. Moreover, it will have to define the following criteria provided for by the law: remuneration, position, level of classification, working time, length of service.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.