Profit-sharing
Profit-sharing is a legal mechanism for redistributing a portion of a company’s profits to the employees who contributed to them through their work.
The profit-sharing bonus allocated to each employee is therefore a means of involving them all in the company’s profits.
How does it work? What are the advantages of paying this bonus into an employee and retirement savings plan?
Explanations.
Key information
Get a boost from your company
In addition to granting you a bonus, your company will pay your account administration fees1 if you save it and may, depending on the agreements signed by your company, also combine your bonus with an employer contribution.
Take advantage of a favourable tax regime by saving it
Any profit-sharing bonus saved is exempt from income tax and subject only to CSG (social security contributions) and CRDS (social debt repayment contributions)2.
Benefit from a flexible bonus
You can opt to receive payment of your bonus and/or save it, in which case it will be inaccessible for a period of time depending on the type of scheme involved. And the amounts saved may be released early under specific circumstances permitted by law.
How does it work?
Profit-sharing is a mechanism set up through an agreement between the company and its employees or employee representatives. It is mandatory in companies that have employed at least 50 employees each consecutive month over the past 5 years; otherwise, it may be set up voluntarily.
The amount concerned, corresponding to the Réserve Spéciale de Participation (RSP, or Special Participation Reserve) and distributable to employees, is calculated based on a legally established formula.
This special participation reserve is distributed among employees in the form of a profit-sharing bonus. It may be distributed either evenly among all employees, in proportion to the salary you receive over the year, in proportion to your length of service in the company that year, or based on a combination of all three criteria.
The bonus must not exceed 75% of the Plafond Annuel de la Sécurité sociale (PASS, or annual social security ceiling) per year and per employee, i.e. €32,994 in 2023.
You have three options:
- Save your profit-sharing bonus, in other words place it in an employee or retirement savings scheme offered by your company (PEE, PERCO, PERECO, PERU or PEROB)3. Your bonus will then be inaccessible for a duration that will depend on the type of scheme involved (except in legally permitted circumstances allowing for early release).
- Receive payment of your profit-sharing bonus immediately, in which case it will be subject to income tax.
- Combine saving and payment of the bonus.
If you opt to save your profit-sharing bonus, you will, depending on the scheme(s) set up by your company, be able to invest it in:
- a PEE for your medium-term projects (the bonus will be inaccessible for 5 years);
- and/or a PERCO/PERECO/PERU/PEROB in order to build up additional income for your retirement (the bonus will be inaccessible until then);
- and/or a Compte Courant Bloqué (CCB, or blocked current account), if your company offers one. In this case, your savings will be inaccessible for at least 5 years.
When the profit-sharing bonus is about to be paid out, you will be asked beforehand what you wish to do with it and you will have at least 15 days during which to decide.
If you have not expressed your wishes within the given timeframe, your profit-sharing bonus will be invested directly and become inaccessible for a certain period of time in your employee savings plan(s) (PEE, PERCO/PERECO) or CCB:
- If you have a PERCO or PERECO4:
- 50% in the PERCO or PERECO (manager-guided). In accordance with your chosen investor profile, this manager-guided approach will distribute your investments across different funds and switch them between funds automatically in order to secure your capital as you approach retirement.
- 50% in the PEE and/or CCB (depending on the provisions set out in the profit-sharing agreement).
- If you do not have a PERCO or PERECO
- 100% in the PEE and/or CCB (depending on the provisions set out in the profit-sharing agreement).
Worth noting: you may release the amounts saved from your profit-sharing bonus early under specific circumstances permitted by law.
How are your savings invested?
Your company offers various investment vehicles covering different investment objectives and risk levels.
These investment vehicles (and the associated documentation) can be found in the documents available for each scheme.
In principle, you may modify the way in which your savings are distributed at any time in order to optimise your savings, without prolonging the period of unavailability; this is referred to as fund switching or a change in financial management, depending on your scheme. However, certain restrictions may apply to your scheme. You are therefore advised to read the documents available on each scheme beforehand (i.e. its rules and corresponding information brochure).
What is the tax regime applicable?
The amounts saved from your profit-sharing bonus enjoy the following tax benefits:
- A profit-sharing bonus invested in an employee or retirement savings plan is exempt from income tax and subject only to CSG (social security contributions) and CRDS (social debt repayment contributions)2.
- You may receive an employer contribution from your company5 (optional) which is exempt from income tax and subject to CSG and CRDS1 on income from gainful employment.
- If savings are released from your PEE/PERCO/PERECO/PERU/PEROB as a lump sum, any capital gains on the amount of savings from your profit-sharing bonus will be exempt from income tax and subject only to social contributions6.
1 The company pays the account administration fees of its Current and Retired employees (as per the PEE agreement) over the year. The employee begins to pay these administration fees from the moment they leave the company.
2 At a rate of 9.7%, of which 6.8% tax-deductible CSG, at 01/01/2023; contributions deducted by your employer.
3 Plan d'Epargne Entreprise (PEE, or company savings plan) / Interentreprises (PEI, or intercompany savings plan); Plan d'Epargne pour la Retraite COllectif (PERCO, or collective retirement savings plan) / Interentreprises (PERCOI, or intercompany collective retirement savings plan); Plan d'Epargne Retraite d'Entreprise COllectif (PERECO, or collective company retirement savings plan) / Interentreprises (PERECOI, or intercompany collective retirement savings plan); Plan d'Epargne Retraite Unique (PERU, or single retirement savings plan); Plan d’Epargne Retraite d’Entreprise Unique (PERU, or single company retirement savings plan); Plan d’Epargne Retraite Obligatoire (PEROB, or mandatory retirement savings plan; the profit-sharing bonus may be invested in this plan under certain conditions)
4 If 50% of your profit-sharing bonus has been invested in the PERECO by default, you will have one month from receiving notification of this allocation to request its redemption. In this case, the redeemed entitlements valued on the date of the redemption request will be subject to income tax and any employer contribution granted pertaining to the profit-sharing bonus invested by default will be returned to the company. You will be charged for the retraction.
5 Your company may opt to add an employer contribution to your profit-sharing bonus under the following schemes: Plan d'Epargne Entreprise (PEE, or company savings plan) / Interentreprises (PEI, or intercompany savings plan); Plan d'Epargne pour la Retraite COllectif (PERCO, or collective retirement savings plan) / Interentreprises (PERCOI, or intercompany collective retirement savings plan); Plan d'Epargne Retraite d'Entreprise COllectif (PERECO, or collective company retirement savings plan) / Interentreprises (PERECOI, or intercompany collective retirement savings plan).
6 At a rate of 17.2% at 01/01/2023. (7) Assuming a marginal rate of 11%. Calculated from the amount net of tax-deductible CSG and including the flat-rate allowance of 10% for business expenses. (8) Amount net of withheld income tax (the company or the employee must declare the bonus amount net of deductible CSG to the tax authorities)