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The 2017 Social Security Financing Act: what will the impact be on businesses?
Article Employment and Social Security Law | 10/01/17 | 7 min. | Isabelle Hadoux-Vallier
The Social Security Financing Law (LFSS) for 2017 was officially published on December 24, 2016, following a decision by the French Constitutional Court (Conseil constitutionnel) validating most of its provisions following a referral made to it by MPs.
Below we will outline the main measures of the LFSS for 2017 that will impact businesses and that will apply, unless otherwise specified, as of January 1, 2017.
- An umpteenth change in the treatment of severance payments
Scrapped in the LFSS for2016, the threshold of 10 times the annual Social Security ceiling (“PASS”) beyond which severance payments upon termination of an employment contract of an employee not covered by §80 ter of the General Tax Code are subject in full to Social Security contributions, was restored.
The threshold of 5 times the PASS applicable to corporate officers, directors and employees covered by §80 ter of the General Tax Code, beyond which the severance payments made are subject to Social Security, CSG and CRDS contributions as from the first euro, remain unchanged.
However, the law now provides that this threshold of 5 times the PASS applies in case a person concurrently holds a position as an employee and as a director or corporate officer, to all severance payments made based on termination of the employment contract and removal from the position as a corporate officer or director.
These changes apply to severance payments made on the basis of terminations of employment contracts notified as of January 1, 2017 or to payments made on the basis of termination by mutual agreement for which the request for approval is submitted as of January 1, 2017.
These changes may be followed by a more comprehensive overhaul of the Social Security and tax rules applicable to severance payments, if the latest recommendations made by the Court of Auditors are anything to go by (summary proceedings in case 82016-2876, Court of Auditors’ decision dated October 11, 2016 and response from the Employment Minister dated December 12, 2016).
- Changes to the legal framework of Social Security contributions
Accrual event – As of January 1, 2018, the accrual event for the payment of Social Security contributions and of the CSG/CRDS tax on earned income will be determined by reference to “the period on the basis of which the income is attributed” and no longer the date when it is paid. In case of a time lag, for instance in case of payment of wages a month in arrears or late payment of compensation, the rates and ceilings to be applied for these amounts will be those in effect during the period of employment to which they relate and not on the date of payment.
Calculation base – The government is authorized to simplify and harmonize, pursuant to an order entered within the next 18 months, the definition of the base of social Security contributions.
This harmonization should be monitored as, although it is supposed to take place on the basis of “existing laws”, some surprises may lay in store, as has happened in the past.
- Changes directly concerning the Urssaf inspection procedure
Obstruction- The notion of obstruction of an inspection is more precisely defined in the Social Security Code, which now encompasses any practical acts or omissions such as refusing access to business or professional premises, or abusive delay in responding to a request to produce a supporting document.
Also, the associated criminal penalty (imprisonment) has been scrapped in favor of a financial penalty levied by the director of the Urssaf of, for a company, €7,500 per employee (scalable depending on the payroll), within a limit of €750,000 per employer. These amounts can be doubled in case of repeat offense within a period of 5 years from the date when the penalty in respect of the previous offense became final.
Harmonization and clarification of the limitation period – Hitherto, different Urssaf limitation periods applied, depending on the nature of the sums (principal amounts owed as contributions or late payment penalties) as well as the relevant action (civil recovery action or attachment proceedings).
The LFSS establishes a single limitation period of three years, which is increased to five years in case of unlawful employment. The sections of the Social Security Code concerned were also modified in view of making them clearer, specifically as regards the date when these periods begin to run.
These new provisions apply to Urssaf inspections initiated as of January 1, 2017, as well as to claims in respect of which the formal payment demand was received prior to that date (but without the total period exceeding the period previously provided by law).
Period in which to contest and limitation period – The period in which to contest the written observations made by Urssaf and sent by post now suspends the applicable limitation periods. Previously, this could only be achieved by sending a formal notice.
This measure aims at promoting discussions between taxpayers and Urssaf centers following an inspection, before any formal notice is sent. Previously, to avoid claims that a year was time-barred being asserted, Urssaf centers typically sent the formal notice before December 31st of the year in which the inspection was carried out. This formal notice sent by post existed previously, but is now written into the law.
As with the previous measure, this new provision will apply to Urssaf inspections initiated as of January 1, 2017.
- Intensifying the fight against unlawful employment
Extension of cases of cancellation of exemptions of Social Security contributions – Measure previously restricted to cases of concealed employment only, exemptions or reductions in Social Security contributions may be cancelled following an inspection, if a finding is made of illegal subcontracting or illicit supply of workers or employment of a foreigner without a valid work permit authorizing work in France. This sanction applies to inspections initiated as of January 1, 2017.
Garnishment– The director of Urssaf is now authorized to garnish the assets of the employer following the issuance of a report on concealed employment, without having to seek prior authorization from the courts. This measure will apply to Urssaf inspections initiated as of January 1, 2017.
Workers posted to France – Salaried employees carrying out an activity in France while covered by the Social Security legislation of a country other than France or, otherwise, their employer or the employer’s representative will be required, as of April 1, 2017, to hold available to the Work Inspectorate, at the place where the work is performed and at the premises of the principal or of the prime contractor, the form concerning the Social Security law applicable (form issued on the basis of EU regulations on social security or of a bilateral agreement between France and another country). Failure to produce this document carries a financial penalty.
- Changes affecting supplementary social protection in companies
Health payment –Measure intended to be phased out on December 31, 2016, the LFSS perpetuates the possibility for the employer, by way of a unilateral decision applicable to employees on fixed-term contracts of less three months or working on a very-part-time basis (defined as a maximum of 15 hours a week), to have such employees finance their own supplementary health care coverage instead of having them join the company’s group “health care coverage” scheme.
However, concerned employees who are already covered by the mandatory collective coverage applicable within their company will no longer be able to be forced instead to benefit from the health payment made mandatory pursuant to a subsequent unilateral decision.
Responsible policies – To benefit from preferential tax and Social Security treatment, health insurance policies must comply with the requirements to qualify as a responsible policy. Minor changes have been made to these requirements. Healthcare cost refunds to insured persons must be differentiated based on whether the health care professional consulted has adhered or not to the Health Care Access Agreement (Contrat d’Accès aux Soins or CAS). The reference to this agreement is replaced by a reference to “mechanisms for controlled pricing practices” to reflect the latest negotiated medical agreement (which created, as of January 1, 2017, the Controlled Pricing Practices Option (Option Pratique Tarifaire Maîtrisée or OPTAM) for general practitioners in sector 2 and the OPTAM-CO for surgeons and obstetricians).
- Sick leave – early return to work and obligations of the employer
Employers subrogated to the rights of their employees on sick leave are now required to inform, by any means, the local health insurance body paying out the daily sick leave benefit of the early return to work. This requirement applies to employees on sick leave who return to work early as of January 1, 2017.
Failure to comply with this requirement exposes the employer to financial penalties in case of unjustified payment of daily benefits.
- Phased retirement and working while receiving a pension To develop an end-of-career scheme (not sufficiently used by companies and employees) that allows receiving a provisional pension while continuing to work on a part-time basis and continuing to earn additional pension entitlements, the LFSS has opened this possibility to employees working on a part-time basis for several employers.