Contractor risks in France

Transcription

1 Employed and self employed status Contractor risks in France Contractors can operate under two statuses in France which have different implications in terms of risk, social coverage and cost. A contractor can be either employed either o directly by end client, or a consulting firm (e.g. KPMG etc.) who places them at end client o or by their own company, if minority shareholder of an SARL (similar to your LTD), or president of an SA or SAS (similar to your PLC) o or through an "interim" or temp agency for low qualified jobs, o or through a portage salarial company for high qualified jobs or self employed a.k.a. independent or TNS (= travailleur non salarié) either o in their name directly (responsible on personal assets), o or as a director of a company (with several different forms of companies available SA, SARL, SAS etc.) Legal context for contractors in France Under both statuses, the following laws need to be taken into consideration when contracting in France: Law on temporary work (articles L1251 to L1254 of Code du travail), says that temporary work (where a temporary work company places an employee with an end client for a mission) can only be contracted by companies whose activity is solely to provide contractors to end clients (no other activity on the side possible) and only for the execution of a precise mission which for technical or economic reasons cannot be carried out directly by the end client's own personnel (i.e. temp work is not to be used to carry out "normal business", except to temporarily replace absent employees etc.) Law on illegal contracting work "prêt de main d'oeuvre illicite" (articles L8241 of Code du travail) says that it is illegal for a company to send an employee to another company, and make a profit (i.e. invoice anything more than salary + contributions + expenses) on this contracting agreement unless they are a registered temporary work company or a portage salarial company (and some minor exceptions linked to modeling and woodworking). The consequence is that under an employed solution, you must go through a temporary work company (who provides the consultant & employment solution) or a portage salarial company (who provides the employment solution, but the contractor is autonomous). The employee must remain under the direction and supervision of the temp company or portage salarial company. Making a profit on the temporary loan of an employee outside a temp agency or portage salarial company, or using contractors to carry out "normal work" is called a "prêt de main d'oeuvre illicite" (illicit loan of employee).. Law on equal treatment of contractors and employees "délit de marchandage"(articles L8231 of Code du travail) This is the biggest risk in France and is in the legislation since It is the equivalent of EU directive 2008/104/EC and the recent UK Agency Worker Regulations. In essence, this outlaws use of contractors if the said contractors end up being treated less favorably than the end clients' employees mainly in terms of pay (including bonus systems, and incentives!), work hours, holidays. Treating a contractor employee less favorably than the end client employee is called a "délit de marchandage" Both the "prêt de main d'oeuvre illicite" and the "délit de marchandage" are punishable by law with 2 years of prison and a fine of The court can impose a ban on outsourcing contractors from 2 10 years, can prohibit the outsourcing company from receiving employment aid from government for 5 years, and the court may order the publication of the judgment on the company's doors and in newspapers. The end

2 client, agency and contractor employer are all subject to being pursued, jointly with the above financial/legal risks. The contractor may ask to have his contract transformed into an indefinite term contract directly with the end client & may ask for damages for unequal treatment (e.g. retroactive payment of salary he would have had if he had been employed directly by end client, repairs for unlawful termination etc.). The contract with the original employer (contractor management company) is then deemed cancelled, and all salary and contribution costs return to end client, who will then turn against the agency. However, the following law implies real risks with the management of self employed contractors : The law against dissimulated work and illegal foreign workers (loi n du 31 décembre 1991 et ses textes d'application, loi n du 11 mars 1997 et décret n du 31 mai 1997, loi n du 13 août 2004, et décret n du 27 octobre 2005 to be precise) that obliges end clients to check that their contractors, whatever their status, are registered & up to date with their social contributions. The point is to avoid illegal work or non declaration & payment of contributions, which often developed in sub contracting and outsourcing agreements. The standard document the sub contractor must produce to the end client doesn't even allow for selfemployed status. The contractor's employer is asked to sign a document saying he employs his contractors in compliance with French law and checks if foreign employees are used that they are entitled to work in France. A proof of registration of the company (standard "KBis" document from Registrar of Companies) must be produced, as well as a certificate from URSSAF (the social security for employees) saying the company is up todate in its declarations and payments of social contributions to URSSAF. Both documents must be produced every 6 months, so that end client can produce them to authorities if required. The documents are standard and easy to obtain. The real issue is : what do you do to comply to this law if you are a self employed contractor? Although you can produce an equivalent of the KBis of a company that would be an attestation INSEE for a self employed contractor, this is not what the standard process asks for, so end clients are not reassured and contractor must often explain what this document is (!) and mostly, it's impossible to produce the equivalent of the URSSAF (social security declaration & contributions) certificate, because the social security for the self employed is not the URSSAF but the RSI, and they do not produce that document. The problem is that the average French client will have a procedure to ask contractor (or his employer) for the certificate of legal employment, the URSSAF certificate & the KBis document and if you have to go explain that the contractor is self employed so you can't produce those exact documents, they're often not going to want to take the risk working with you, as they won't have the "normal" documents, which only an employer can produce. The risk here for the end client is that if the contractor is not registered & declaring & paying his contributions, the authorities will consider that the contractor is a victim of illegal employment, and thus, not only could the consultant claim direct employment with end client (with retroactive payment of salary, payment of all contributions, taxes, and late penalties and interest, with no possibility of abatement etc.) but the end client will be taken to court, both the director personally, and the company. The director personally risks 3 years of prison, a fine of (doubled in case of second offence) + prohibition from being a director in that type of company (= losing his job and ability to direct!). The company risks a fine of as well as the closing of the company. Other sanctions may be decided such as prohibition from signing public contracts for 5 years (i.e. with governmental and civil service companies), the publication of the judgment on the company's doors and in newspapers etc. Apart from inspections carried out by various authorities, there is also a risk in the case of a work accident. If he is employed, work accident coverage is part of his normal coverage. If however, he is self employed and no compliance documents have been produced, the authorities will deem that he is an illegal worker so the above sanctions will apply but also the company will be liable for all medical costs and damages linked to the work accident. In practical terms, these laws are really applied : simply on this last law, in 2005 there were 4803 decisions of dissimulated work, including 1819 prison sanctions served, plus 1618 prison sanctions that are not actually served unless there is a second offense, and 2671 fines applied.

3 Law Employed status Self employed status Prêt illicite de main d'œuvre No risk if use a temp agency or N/A (illegal to make profit on portage salarial company and cost contractor cost except of these "middlemen" is taken on temp/portage) by end client on top of fair contractor fees Délit de marchandage (equal treatment of contractors and workers) Dissimulated employment No risk if care is taken to ensure contractor is paid & treated fairly, with the same & compliant benefits, rules, worktime etc. than if he had been the end client's employees No risk if temp/portage company provides documents as per law every 6 mos. N/A but contractor could potentially sue for dissimulated employment : need contract of service & proof self employed registration & invoices High risk : can obtain proof contractor registered as selfemployed, impossible to obtain proof declarations & payment of contributions are up to date, if in fact not up to date, will be considered dissimulated employee of end client In practice : how to reduce litigation risks when dealing with contractors There are only three cases when an end client can resort to using contractors and avoid direct employment (which is the general rule) : 1. The end client is outsourcing a service (not a contractor) which they don't have the internal competence for (IT project, cleaning, payroll etc.) In this case, they should be invoiced a flat service fee, not a per diem (which could be construed as pret de main d'oeuvre illicite). Consequently, the service fee will be much higher than the actual cost of the contractor, because the company is providing expertise and time and must also employ the person between contracts etc. 2. Temp jobs to temporarily replace someone or whilst waiting for recruitment process to be done (but can only be done by registered temp firms in France) 3. Portage salarial : reserved for autonomous consultants that could otherwise be independent/selfemployed contractors i.e. usually high level intellectual jobs. The consultant negotiates his own terms for his missions, usually has several clients and carries out missions and/or training for them independently, and derives a salary from the added up turnover. Initially, portage salarial is not designed for a full time & permanent assignment at one client, except for temporary employment whilst setting up a permanent establishment (under 3 years). If your contractor is not in one of the above situations, the situation should be direct employment with the end client. If the contractor is under employed status : the contractor must be employed either by a temp agency (who recruits him) or by a portage salarial company (the contractor finds his own missions) AND the end client and/or agency involved must avoid at all times giving direct orders, directly dealing with onboarding or termination or payroll or timesheets in order to avoid being requalified as the direct employer and risking "délit de marchandage", AND the contractor must treated on equal terms with end client's own employees (i.e. doesn't lose on pay, or work conditions, or termination conditions because there are "middlemen" involved) If the contractor is under self employed status :

4 Although it is the end client who is at risk in case the self employed contractor is not in compliance in France, any "middleman" such as a staffing agency, could be sued by the end client for providing an illegal worker, if the contractor was found not to be compliant with registration/declaration/payment obligations in France. In the end, the problem isn't so much the risk, as the fact the end client doesn't want the self employed contractor. When possible, avoid using self employed contractors in France. If not an option (usually only when the contractor is already registered under this status for other activities), the best that can be done is to sign a clear contract of provision of services, and ensure the contractor provides proof of registration and invoices with his registration number, although this is not sufficient for 100% compliance. Why the self employed status is a risky and unpopular status in France 1. Impossible to prove they are up to date in declarations & payments, as required by law, so very risky for end client Since it is impossible with a self employed contractor, as seen above, for an end client to check that he is up todate in declaring & paying his contributions, the end client takes the risk of having the service provision contract requalified as a dissimulated work contract. Most end clients will consequently not even consider taking on self employed contractors, especially for long term missions. 2. Long term difference in cost to net ratio not worth a much lower level of coverage In France, the self employed status is unpopular amongst contractors because although it is more cost effective on a cost to net ratio, the difference is quite low in the long term (only approx 5 10%), for a very much lower level of coverage (no unemployment, no life disability insurance, no pension apart from the ultra basic governmental one...). 3. Complicated management of status From a cashflow & admin perspective, it's very hard to manage because contributions are based on turnover of year Y 2, and thus on fixed amounts for the first two years, which differ according to your type of activity and for each type of coverage. The status in itself is really complicated to manage, because unlike an employed solution, the funds responsible for social security, pension and in some cases life disability, differ according to the activity you run, and are very much less "modern" than the employee status funds, so no procedures are electronic, the information on how the status is meant to work is opaque and not readily available. It's virtually impossible simulate correctly a consultant's social cost. 4. Viewed as precarious Also, from a cultural standpoint, people don't go for the self employed status because the employee status in France is so protective and advantageous that the self employed status is not valued. In France, we have a long history of "social protection" of the employee. As a self employed person, you really need to fight for yourself. For example, banks won't lend to buy real estate, unless you have at least 3 years of figures as a self employed, and very profitable figures at that. It will be virtually impossible to rent an apartment as well, as owners ask for the 3 last payslips and will systematically choose an employee over a self employed person as their renter. The few people that do "go self employed" are either : People who are true independent consultants, with several clients and a long term independent activity. They are very good managers of French admin and accrue over large amounts for contributions, just in case, because the system is unpredictable, and choose additional coverage with personal insurers to compensate the lack of coverage of the self employed status. They are also able to convince their end client to take them on although they are not employed, usually because they are only working for short missions of a few days, spaced out, and with several clients, so the end client is taking no risk with "délit de marchandage", since the consultant is clearly not under his supervision. or contractors (too often badly advised foreigners) who choose this status misled by the fact you pay relatively low contributions for the first 2 years and then get "caught up" from year 3 onwards (if the

5 consultant closes his status before 2 years which is quite a complicated process in itself everything is reevaluated on real turnover, so the adjustment problem remains). Often in this case, the contractor is placed by the agency with the end client who believes he is an employee of the agency. Then the end client refuses to pay until the usual documents for dissimulated work are produced, which the self employed contractor can't readily comply with. This produces huge cashflow or loss problems for the agency until the end client agrees to make do with what the contractor can produce, or asks for the contractor to change statuses, which is a major headache, if not impossible, to implement retroactively. In a nutshell, the self employed status is a nightmare to manage admin & cashflow wise for the contractor, the coverage is really very basic (if more detail needed, please consult us) and most importantly, the status is viewed as too risky by the French end client, who largely prefers (or in fact won't even consider any other option) having a portage salarial company invoicing them (and providing adequate compliance documents). So really, the issue is not so much whether the contractor chooses to be under employed or self employed status, like in other countries. Rather it is that the end client is too exposed to legal risk and not used to dealing with self employed contractors. Consequently, the agency potentially risks being sued if the end client is deemed guilty of dissimulated work, but in reality what often occurs is that the agency won't be able to place a self employed consultant OR won't be paid by end client until the agency produces proof of compliance (and the only way to do that in reality is to put them under employed status). As a consequence, in France, there are no compliant contractor management companies that offer a self employed solution, so if the contractor chooses this status, he will need to find an accountant to assist him, but the entire contractor risk, costs, admin, responsibility etc. will be his own, with no contractor management company to cover for him. In fact, neteem was initially created in 2002 by a payroll outsourcing firm's associates, before the term "portage salarial" was even made part of labor law (only since 2008!) precisely because, from our long experience in French payroll, a solution was required by independent consultants to access the manageable and attractive French employee status, making it easier for them to sell their services as it ensures a risk free and readily compliant solution for the end client. Although the self employed status exists and is of course not illegal, in practice, the way it is organized in France makes it impossible to manage for contractors that are not truly independent and long term French consultants. They will not be able to prove compliance and thus provide a risk free solution for the end client. Disclaimer This document contains general information about French employment law and practices. The information is not advice, and should not be treated as such. The legal information on this document is provided free of charge, without any representations or warranties, express or implied. Without prejudice to the generality of the foregoing paragraph, we do not warrant that the legal information in this document is complete, true, accurate, up to date, or non misleading. neteem cannot be held liable (whether under commercial law or employment law or otherwise) in relation to the contents of, or use of, or otherwise in connection with, this document, to the extent that the information is provided free of charge : for any direct loss; for any indirect, special or consequential loss; or

6 for any business losses, loss of revenue, income, profits or anticipated savings, loss of contracts or business relationships, loss of reputation or goodwill, or loss or corruption of information or data. These limitations of liability apply even if neteem has been expressly advised of the potential loss.