France: Compliance: Headcount thresholds: What’s new in the proposed ‘Pacte’ law?

Article provided by Gerep, Asinta’s French Partner.

Headcount thresholds for many years have been accused of putting the brake on recruitment and company growth. Indeed, once the company’s workforce exceeds 10, 20, or 50 employees, new obligations or constraints appear, while some benefits disappear. Therefore, it is better to think twice before slipping into the next bracket! The proposed law, known as Pacte, sets out to mitigate this reluctance to expand by re-examining headcount thresholds, but also, by simplifying corporate life.

The headcount threshold jungle

Crossing a threshold means having to face new regulations and new costs. For example, crossing the 50-employee threshold puts the employer in a whole new dimension in terms of employee relations. They have to put in place an employee representation body known as the Economic and Social Committee (ESC), engage in mandatory annual negotiations, offer employees the opportunity to have union representation, and calculate and distribute profit-sharing. When exceeding 10 employees, the employer sees the contribution rate for professional training rise from 0.55% to 1% on the entire wage bill. The same thing happens on crossing the 20-employee threshold where the contributions to the National Housing Aid Fund (FNAL, fond national d’aide au logement) rise from 0.10% to 0.50%, while participation in the construction investment fund now becomes payable and the rate is 0.45% of the wage bill.

Even though the main thresholds are well known, a multitude of subtleties complicate the issue. Thus, after reaching 25 employees, it becomes necessary to provide a canteen if the workforce requests this. Other new constraints of the same ilk appear on reaching the 150, 200, 201, or 300 thresholds.

So what is the threshold effect, exactly?

Some companies hesitate or even stop recruiting rather than face these new constraints. This is known as the threshold effect. A study by the statistical body INSEE, published in 2011, ventured to quantify the impact of headcount thresholds on the size of businesses. Headcount data highlighted the fact that many companies manage to stay just below the thresholds. For example, the study found more than 14,000 companies with 18 or 19 staff but only 7,500 with 20 or 21 employees. Although the study concluded that abolishing thresholds would have the effect of smoothing out the distribution of company sizes and remove the brake on recruitment, it also noted that these corrections would be only marginal and not very extensive.

What will the Pacte law change?

The main ambition of the new law as regards headcount thresholds is therefore to simplify the whole mass of regulations and to calm the anxiety effect of crossing thresholds. First of all, the law sets out to harmonize headcount calculations by using one single rule set out in the Social Security Code, which should enable automated counting based on DSN (social insurance) declarations. Then, any new obligations arising from crossing a threshold would be effective only after 5 consecutive years during which this threshold has been exceeded. This new rule will allow businesses where headcount fluctuates, not to limit their hiring in the good times and giving businesses that are growing the time to adapt to new constraints. Finally, the Pacte law aims at keeping only 3 thresholds i.e. 10, 50 and 250 employees. The obligations relating to thresholds deleted will be allocated to the three remaining brackets. The main victim of this change is the 20-employee threshold which disappears. The increased FNAL contribution and the construction investment contribution will be triggered as of 50 staff and no longer after reaching 20 employees. Not many companies will complain about that! All in all, even though the effects of the Act on jobs are still hypothetical, the measures concerning headcount thresholds are part of a welcome trend towards simplification of formalities and the constraints bearing on companies.