The unclear social scheme for employer funding of “salary continuation”

January 15th 2016

The issue of the social measures applicable to employer funding assigned to a complementary social protection mechanism has been debated at length, before being settled by a series of rulings by the Cour de cassation issued in November 2006 and confirmed in 2007.

In two decisions dated March 12, 2015 (Cass. soc., 12-03-2015, no. 14-13108 and 14-13109), the Cour de cassation provides an interesting contribution to the issue of social measures and therefore, to the social scheme of employer contributions paid to an insurance organisation, to whom the risk shall be externalised, for the financing of the salary continuation in the event of illness beyond a certain duration, which the employer is obliged to fund by virtue of a collective agreement, even if its scope is still uncertain.

The Court considers that these contributions, insofar as they are of a contributory nature intended to finance the supplementary providence scheme provisions, shall fall within the base for the CSG, CRDS and the tax on contributions for the financing of complementary pension and providence services (this tax has been withdrawn since 2012, but the facts of the case were prior to this withdrawal).

The Cour de cassation appears to reconsider the very nature of these contributions, given the decisions issued in 2006 (Cass. 2nd Civ., 23-11-2006, no. 05-11364 and 04-30208) and 2007. It considers that the premium paid by the employer in the context of an insurance policy subscribed to guarantee the risk of having to finance the salary continuation for the benefit of an ill employee, to whom this employer is obliged by the law on monthly salaries or a collective agreement, shall not be intended to confer upon the employee a supplementary benefit and therefore, does not constitute a contribution to the financing of a providence scheme instituting supplementary guarantees for the benefit of the employees. The Court has concluded that this premium shall not be included in the base for the CSG and CRDS.

Are they one-off judgments or decisions of principle involving a real revision of case law?

Several arguments campaign both in favour of one-off judgments (1.) and of a position of principle (2.).

1.

Firstly, contrary to the decisions of 2006, they are not intended to be published.

Secondly, the judgment of the social security affairs tribunal (SSAT) submitted to the Cour de cassation did not call to question the principle of the exemption from CSG, CRDS and contingency tax from the employer’s contributions for the salary continuation. The SSAT had integrated the employer financing into the base of these contributions because, in its opinion, the employer shall no longer be in a situation of continuing salary, with regard to the specific stipulations of the collective bargaining agreement for automobile services (continuation of salary financed by the employer, followed by a period of payment of supplementary daily indemnities by an insurance organisation, financed initially solely by the employee, then thereafter solely by the employer).

Thirdly, the Cour de cassation makes reference to the salary continuation provided by the collective bargaining agreements and not by the law for the payment of monthly salaries, integrated into the Labour Code since the law no. 2008-596 of June 25, 2008 for the modernisation of the employment market.

It would seem that the resulting solution corresponds more to a specification provided by the judges in view of the specificities of the sector in question.

The decisions issued on March 12, 2015 should be confirmed by the judgments published.

2.

Firstly, the judgments of 2015 do not consider the position according to which the employer contributions for the continuation of salary in application of a collective bargaining agreement or the law would not be contributions for the financing of a providence scheme, which justified the exemption from the CSG and CRDS.

Secondly, the solution retained is presented as the application of a very general principle, drawn from the text of Article L.136-2 of the French Social Security Code: the contributions by employers intended for financing supplementary pension and providence services are included in the CSG base (by referral, the CRDS), at the sole exception of the contributions to supplementary obligatory pension schemes and supplementary defined benefits pension schemes (“top hat pension schemes”).

Thirdly, whereas the judgments of 2006 made reference to Article L.136-2 of the French Social Security Code in its drafting prior to the law of August 22, 2003, the judgments of March 12, 2015 quote Article L.136-2, “in its drafting applicable in 2007 and 2008”, date of the disputed Urssaf control. The modification of the texts by the Fillon law of 2003, which submitted the exemption for contribution levies for pension and providence schemes to more stringent conditions than before, could justify its “new” position, in the opinion of the Cour de cassation.

The solution retained in the judgments of March 12, 2015 could therefore reveal a position of principle that the Cour de cassation, if it was referred to on another matter, could continue to follow.

The response shall have an impact on the other social levies and contributions.

If it was confirmed that the judgments of 2015 constitute decisions of principle, the consequences would exceed, in our opinion, the issue of the CSG and CRDS.

The employer contributions financing the salary continuation in the event of illness in application of the collective bargaining agreement, considered again as intended for financing the supplementary providence scheme, should be subject to the social security contributions for their proportion exceeding the exemption limits specific to these contributions and taken into consideration to appreciate these limits (tax limits defined by Article 83 of the French General Tax Code; social limits defined by Articles L.242-1 and D.242-1 of the French Social Security Code).

With regard to their liberated proportion of contributions, it must be recalled that the remuneration subject to CSG and excluded from the base of social security contributions defined in Article L.242-1, paragraph 1 of the French Social Security Code (French Social Security Code, Article L.137-15, paragraph 1) are, in principle, subject to the social tariff. For their liberated proportion of contributions, the contributions in question should assume the social tariff at a rate of 8 %. Only the contributions paid by employers with less than 10 employees shall be exempt from this, in application of the last paragraph of Article L.137-15.

What shall be the “doctrine” of the administration?

The administration (DSS and ACOSS) has not issued an opinion since the decisions rendered in March 2015. But it shall not be excluded that they shall take stance on the judgments of March 12, 2015 to reconsider its position concerning the non-submission to CSG and CRDS for the employer contributions for the financing of salary continuation in application of a collective bargaining agreement, or the French Labour Code, whereas the Cour de cassation makes specific reference to the salary continuations provided by the collective bargaining agreements, and not by the law for month salary payments, resulting from the national inter-professional agreement of December 10, 1977 incorporated into the French Labor Code since 2008.

The circulars regularly published to date (Circ. DSS/5B/2007/77 of February 23, 2007; Letters-circ. Acoss 2007-030 of February 8, 2007 and 2011-036 of March 24, 2011) make a distinction depending on whether the employer financing of the “salary continuation” risk:

  • is a supplementary providence benefit in the rank of which the incapacity guarantee, eligible for the benefit of social contribution exemptions (subject to respecting the requirements of a collective and obligatory nature), but subject to CSG/CRDS, as well as the former providence tax (now a social tariff at a rate of 8%); the contributions paid in the event of a cessation of work shall thereby be submitted to social contributions and the CSG/CRDS (prorate to the employer financing, in the event of the participation of the employee to the financing of the guarantee);
  • is not a supplementary providence benefit: the employer financing of the sole continuation of salary, by law or under the collective bargaining agreement (whether it concerns an activity sector collective bargaining agreement, inter-professional agreement, company or establishment agreement: Circ. DSS/5B/2009/36 of January 30, 2009 and DSS/SD513/2013/344 of September 25, 2013), shall not constitute a contribution allocated to a providence scheme as such, which justifies the absence of any social deduction on the employer financing (neither CSG/CRDS, nor social security contributions, nor providence tax or social tariff); the contributions paid in the event of illness being, on the other hand, integrally subject to social contributions and CSG/CRDS.

Shall the administration reconsider its doctrine to take these new precisions into account? Shall it take stance according to the benefit source (legal, conventional or unilateral), which would involve, implicitly, making a distinction in terms of social measures depending on the duration of coverage of the risk (the durations vary depending upon whether the employer financing results from the law, a collective agreement or a unilateral commitment on the part of the employer)?

What can the employer do in the event of an Urssaf reassessment?

In our estimation, if it is confirmed that the judgments of 2015 are judgments of principle, the employers shall not be without munition in the event of an Urssaf control and reassessment. In application of Article L.243-6-2 of the French Social Security Code, the subscriber having applied the legislation relating to levies and social contributions according to the interpretation admitted by a DSS circular duly published, shall be guaranteed against any reassessment based on a different interpretation.

Therefore, the companies may assert the circulars DSS and ACOSS, insofar as they are not modified. These texts must be asserted to the Urssaf during an audit, then, if necessary, before the lower court judges.

In any event, as the CSG and CRDS are employer contributions, the employers who are subject to a reassessment in this regard shall be entitled to “recuperate” them, under certain conditions, with the employees.

The social scheme for the employer financing of salary continuation, relating to the absence of precision around the notion of providence, is all the more uncertain…

Nicolas Audibert