Employee savings: participation and profit-sharing

Employee savings brings together all the mechanisms allowing employees to be involved in the success of the company. Two mechanisms in particular allow them to build up capital while benefiting from advantageous taxation: participation and profit-sharing. In addition to these measures, there are those aimed at developing employee shareholding, such as the allocation of free shares. Focus on employee savings in 2024.

Capital Video: What is employee savings?

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What is employee savings?

Employee savings: definition

Employee savings is a collective savings system set up within certain companies. Its principle lies in the payment to each employee of‘a share of the company’s profits or performance. This payment can take the form of immediate liquidity or an investment in savings. The main mechanisms available to employees are: profit-sharing and participation.

Implementation of profit-sharing and participation

All companies, regardless of their legal form or their number of employees, can set up employee savings. It is subject to an agreement between the company and the employees, particularly in the context of profit-sharing. Participation is a compulsory system for all companies which employ more than 50 employees per month over the last five years.

How do employee savings work?

Devices for building up savings

Employee savings are based on two types of system. The first allows employees to build up savings. It includes:

Savings products to invest your money

The second lies in the supports enabling these savings to be built up. We find:

>> Our service – Save money by testing our savings book comparator

What are the advantages of employee savings?

Benefits for the company

Employee savings allow companies to retain their employees. It provides them with additional motivation, since the company’s results have a direct impact on their portfolio.

Benefits for employees

Employee savings represent additional income for employees. They can build up savings available in the medium or long term. In addition, the sums received as part of profit-sharing and participation are exempt from social security contributions. The employee can also, under certain conditions, benefit from an income tax exemption when the sums are placed in a savings plan.

What is profit-sharing?

Interest: definition

The principle of profit-sharing consists of paying each employee a bonus linked to the performance of the company. The results or performance criteria are set by the company in compliance with certain rules. It is a voluntary approach. This incentive cannot replace an element of remuneration. The amounts awarded can be paid directly to the employee or deposited into an employee savings plan according to the beneficiary’s wishes.

Company savings plan (PEE) and collective retirement savings plan (Perco)

Employee savings plans can take two forms:

• The PEE allows employees to build up a portfolio of securities with the help of the company. The sums are blocked for at least five years, except in the case of exceptional releases.
• The PERCO gives the opportunity to build up savings which will supplement the retirement amount.

As part of a PEE or a PERCO, the employer can pay a financial contribution in addition to employees’ voluntary payments. This is the abundance.

Calculation and ceiling of the incentive bonus

Profit-sharing results from a calculation formula linked to the results or performance of the company. The distribution can be:

• uniform,
• proportional to the salary or time of presence of the employee,
• a combination of these criteria.

This profit-sharing bonus is capped for the employee at 75% of the annual Social Security ceiling, i.e. 34,776 euros in 2024. The company can also pay additional profit-sharing to its employees. But the accumulation of the supplement and the bonus must not exceed the annual ceiling of 34,776 euros.

What is participation?

Participation: definition

Participation is a system providing for the redistribution of part of the company’s profits for the benefit of employees. The amount of the bonus depends on the rules set by the participation agreement. The employee can request immediate payment of the sums or place them in an employee savings account: PEE, PERCO, etc. At the time of retirement, the sums are available in the form of an annuity or capital if the company agreement provides for it. Participation is obligatory as long as the company has employed 50 employees over the last five years.

Calculation and 2024 ceiling

The Pacte law provides for a more equal distribution of participation when it is proportional to salaries. Its amount results from the profits made by the company. This calculates the share of profits to be distributed to employees, most frequently according to a formula set by law.

The distribution of the bonus between employees can be uniform, proportional to the salary or time of presence of the employee or combine several of these criteria. The amount of salaries taken into account cannot exceed the ceiling revalued each year based on Social Security compensation. The amount of participation is capped at 34,776 euros in 2024.

Participation supplement

The company can also pay a participation supplement, the amount of which is free. However, it must not exceed the ceiling in force.

Payment of participation

The company must pay the participation bonus at the latest the last day of the 5th month which follows the close of the financial year (i.e. before June 1 of the following year for a financial year which closes on December 31). If the participation agreement provides for it, the company can pay the employee quarterly advances on the annual participation bonus, after obtaining their agreement.

When the employer informs the employee of the amount of their participation bonus, they have the choice between:

• request immediate payment of the premium
• place the bonus on an employee savings plan

What are the reasons for unlocking your employee savings?

Unlock only from five years

Amounts paid into a savings investment can only be withdrawn after five years. At the end of this period, they can be placed in a time savings account (CET).

Conditions for early release

However, under certain conditions, the account can be unblocked early. Particularly in the case of:

• marriage,
• civil partnership,
• birth of a third child,
• domestic violence,
• termination of employment contract…

What taxation applies to employee savings?

In terms of profit-sharing

The sums received are subject to social security contributions and income tax unless they are allocated to a PEE or a PERCO within 15 days following their payment up to a limit of 34,776 euros in 2024.

PEE and PERCO benefit from an advantageous tax and social security regime. The sums placed in these supports are invested in financial products reserved for employee savings: Sicav, FCPE, Sicavas.

For participation

The sums received immediately for participation are subject to social security contributions, but are exempt from income tax if they remain blocked in an employee savings account.

Employee savings and employee shareholding

Employee shareholding can also take a collective form through the allocation of free shares. The company thus encourages all of its employees to become shareholders through their PEE.

The company can also practice managerial shareholding by reserving the opening of capital to its senior executives.

Simplified joint stock companies can offer securities to their managers and employees. As part of a capital increase reserved for PEE members, the Pacte law also provides that the subscription price of the securities may be 30 or 40% lower than the market price.

Are savings plans subject to the social package?

Since January 1, 2019 (article 16 of the Social Security financing law), companies with fewer than 50 employees benefit from exemption from the social package.

And this, for the sums paid for participation and employer contributions invested in an employee savings plan.

The following are concerned:

• company savings plan (PEE)
• group savings plan (PEG),
• inter-company savings plan (PEI),
• collective retirement savings plan (Perco).