As part of President Emmanuel Macron’s push to modernize France’s economy, the country is reforming its unemployment insurance (UI) system. The changes are meant to incentivize employers to hire employees for longer fixed-term contracts (Contrats à Durée Déterminée (CDDs)) and to more permanent positions (Contrats à Durée Indéterminée (CDIs)). The first changes – which relate to former employees – went into effect on 1 November 2019 and relate to the qualifications for receiving UI payments.
The new UI system, similar to the UI experience rating system in the United States, will be based on the insurance principle that premiums (contribution rates) should be based on the risk involved (unemployment benefits charged to the employer). It has been referred to as a reward-penalty (i.e., bonus-malus) system.
Affected Employers and Business Sectors
Effective 1 January 2021 – but based partly on current performance – the changes will affect employers with at least 11 employees, in seven business sectors normally associated with high numbers of short-term contracts and temporary workers. Employers in other business sectors will continue to pay the current contribution rate, which is 4.05% for most employers. After a period of evaluation, the government plans to apply the new system to all employers.
The seven business sectors are:
Employer Contribution Rates
- Food, beverage, and tobacco product manufacturing
- Rubber, plastic, and other non-metallic product manufacturing
- Accommodation and catering
- Production and distribution of water and sanitation, waste management, and depollution
- Transport and storage
- Woodworking, printing, and the paper industry
- Other specialized, scientific, and technical activities
Beginning 1 January 2021, employer contribution rates will vary from 3% to 5.05% of payroll based on the employer’s performance during a reference period (i.e., lookback period). Employer contribution rates will continue to be 4.05% for employers that are not within the affected business sectors.
For employers within the affected sectors, an employer’s separation rate will be the ratio between the annual number of contract terminations and subsequent UI benefit claims compared with the employer’s total number of employees. The employer’s separation rate will be compared with the median separation rate in the employer’s business sector according to the following formula:
Employer’s contribution rate = "Employer's separation rate" /"Median sector separation rate" x 1.46% + 2.59%
This means that if the separation rate of an employer is equal to the median rate of its business sector, then its contribution rate will be equal to 1 × 1.46% + 2.59% = 4.05%. The rate cannot be less than 3% nor greater than 5.05%.
For contributions due in 2021, there will be a two-year lookback period: from 1 January 2019 through 31 December 2020. For contributions due in 2022, there will be a three-year lookback period: from 1 January 2019 through 31 December 2021. For contributions due in subsequent years, there will be a three-year lookback period.
Flat-Rate Tax for CDDs
Beginning 1 January 2020, as an additional discouragement of the excessive use of short-term contracts, a flat-rate tax of 10 euros will be charged for each CDD (excluding intermittent worker contracts in the entertainment industry).
Check the Unédic website
for additional resources and future updates.
Mavanee Anderson, Esq., is Editor of Payroll Information Resources for the American Payroll Association.