Cadres, Employés and Expats – Tips and a Practical Calculation for Income Tax !
France is currently planning on making labour rules more flexible while at the same time cutting costs for employers. Since the 90s France has been facing a steady growth in unemployment, which seems to be stuck above 10 per cent now.
A recent announcement by French Prime Minister Manuel Valls bespoke that upcoming measures are meant to reduce these constraints and make work contracts more flexible for small and foreign firms in France, this way encouraging them to hire. Measures amongst others include allowing small companies (up to 50 employees) to renew short-term contracts twice instead of just once, which helps to avoid giving employees permanent positions and therefore make it more difficult to back out of this engagement. Currently still, both small firms and large companies – especially from foreign countries – hesitate to hire staff because the required commitment to employees is still too high, since labor law barely allows still flexible working contracts.
There are other ways for foreign, high-educated workers
Until these changes will be put into practice, there are however other ways to achieve more flexible and attractive work contracts, especially for the duo foreign (small) company and high level educated employée. In the course of this topic we will therefore elaborate on the general labor framework and discuss the employées and executive cadres as a foreign worker. Further we will show an expat tax calculation example.
The Labor Contract is always written in French
Irrespective of the nationality, an employee residing and working in France must have a written service agreement or contract of employment in compliance with the French Laws.. Naturally the agreement must be drafted in French, as this is the prevailing language in French labour law. But of course there is no restriction on a translation thereof being made available.
‘Durée Indeterminée’ is a good start.
Currently employment-agreements are deemed to be for an open term (Contrats à Durée Indéterminée) since the probationary period may be renewed once.Which is good to start with. In some other circumstances, specific limited term contracts (Contrats à Durée Déterminée) are fitting better, subject to stringent conditions and may not be renewed more than once or twice. This is why it is important for foreign companies to find the right employment status, as long-term commitments otherwise might bring costly consequences.
For Employés or Cadres as Expatriates there are more possibilities
In the French work contract, a distinction is made between “Cadres” (executive employees) and “Employés” (other lower grades of employees). No matter which work relation is chosen, working hours, social security, and required insurances are specified legally.
It is however also possible that employé or a cadre is registered as an expatriate, i.e. works in France under a foreign work contract. In that case, the employers applicable law is in force to the extent that the labour agreement is not completely carried out in France or from France.
Build your foreign business with a Cadre
Cadre status usually corresponds directly to educational level, i.e. length of studies and the attainment of specific qualifications (diplômes). Unlike in Anglophone countries, it is education, more than experience or achievements within a company, that grants Cadre status.
Hence, to climb up the career ladder, an academic degree is required.
And that is where the properties of a Cadre unveil. The standard number of hours worked per month is 151.67 hours for regular employés, based on a standard working week of 35 hours, which of course may be altered. Working overtime can then become very expensive for employers, as employés are then eligible for up to 25 extra days leave a year. In contrast, Cadres supérieurs or cadres dirigeants (executive managers) have no fixed hours and are not being monitored for their time spent on work. As a consequence, there is no overtime compensation and Cadres thus are (only) entitled to the standard number of annual holidays (25 days).
With respect to period of notice, there is also a huge difference apparent. Firing a Cadre requires a three-months notice period, while a salaried employee (employés) has a one month notice period. This notice is no longer valid in case of gross misconduct.
Working as an Expat
It is allowed for an employee to work directly in France as a paid employé of an entity based outside France (=expat). This way, foreign employers’ contract terms can be based on their respective labor law without having to make difficult and expensive long-term commitments to their employees in France. However health insurance, retirement and other such contributions are usually be payable in France to the competent authorities (Caisse du Haut Rhin). If the employee is resident in France and plans on staying in France, he is required to make his income statement to the French Tax Authorities. Yet there are exceptions regarding income taxation that depend on the work contract and other circumstances.
Calculation for Income Tax Expats versus Cadres in France
We are available to do real time comparison for you if you provide the main wages and agreement specs.
A further advantage for expats is that for the first 5 years in France, any special payment (e.g. travel expenses, bonuses) which is directly related to the move is tax-free – if the expat pays taxes to the French authorities. Further, the expat can opt for 30% of the pay for activity in France to be tax-free. The other 70 % may be not subject to extra taxation if a non taxation bilateral tax treaty is applicable. There is also special treatment for certain revenue from investments, however this requires a thorough understanding of the taxation environment to be set up conformable to law.
From an economical perspective, the best solution is to employ expats, as they can be hired at more flexible conditions while receiving several benefits. There are several improvements to the French labor law in the pipeline. At the moment it promising for foreign companies to find the right employment type, while at the same time keeping certain flexibility. Yet, note that specific jurisdictional and taxation expertise is required to successfully implement expat contracts that yield the best comfort for foreign employees in France.