Tax-exemption on overtime hours raised from €5000 to €7500 per year.
French payroll is complex. This becomes particularly evident when it comes to overtime hours.
Overtime & tax-exemptions
The French legal working time is 35 hours per week. Yet, in many industries employees often work more. In France, these hours are considered overtime. They have to be remunerated with a markup: generally 25% for the first 8 hours. As for the social contributions and taxes, various provisions apply.
Social contributions on extra hours
Since 2019, employees who work extra hours may benefit from an exemption from certain employee contributions up to 11.31 % on the remuneration paid for these hours.
This provision not only applies to overtime. It also applies to complementary hours of part-time employees.
Tax-exemption on overtime
Since 2019, up to 220 overtime hours are tax-free up to € 5000 net per year (corresponding to € 5358 gross).
During the health crisis this limit was raised to € 7500 net for overtime hours worked during the state of emergency between 16th of March 2020 to 10th of July 2020.
The new bill will now temporarily raise the annual limit to € 7500 for 2022. It remains to be seen whether the French government will renew or even maintain the provision permanently.
The measure will give greater flexibility to companies, crucial in industries experiencing labor shortage.
This limit will also apply to the monetarization of French RTT days.
Impact of the tax-exemption on the net salary
Depending on the employee’s tax rate, this measure can have a noteworthy impact on the net salary of the employee.
An employee works 40 hours per week with an annual gross salary of € 55000. The amount corresponding to the overtime including markup of 25% is € 8333.18 gross.
This corresponds to € 7774.86 net which exceeds the new limit. In this example € 7500 are deducted from the taxable net of the employee.
Assuming that the employee’s tax rate is 7 %, the employee’s taxes are cut by 525 €. Together with the exemption from certain social contributions, the tax-exemption on overtime increases the purchasing power of the employee.