Contribution matching, the “Swiss army knife” of employee savings

Employee savings, as well as retirement savings, have been a major inspiration for legislators in recent years. Even before the Pacte Act [1], which completely restructured scheme opportunities, the Macron Act [2] had introduced several new features. Subsequent Finance Acts, particularly the 2021 version, have added a few more touches. Depending on one’s point of view, this can be seen as a tax and employee benefit niche for granting collective bonuses to employees, a way of developing individual savings, a purchasing power reserve temporarily inaccessible, or a solution for better sharing the wealth produced by the company. All these dimensions are there, notably thanks to contribution matching, a comprehensive employee savings tool which has undergone some changes over time.

Matching contributions, a boost for employee savings

When staff pay into their company savings plan (PEE[3]), employers can encourage the process by adding their own contribution, i.e. contribution matching. This can be up to 300% of the amount paid in by the staff member, whether this comes from employee profit-sharing, participation or voluntary payments. The employer’s bonus is limited to 8% of the annual social security ceiling  (PASS[4]) applied to PEEs, i.e. €3,291 in 2021. It can also be combined with the matching contribution paid into a Collective Retirement Savings Plan (PERCO[5]) and which is capped at 16%, i.e. €6,582. For 2021, this means that a maximum of €9,873 can be transferred to the staff member’s savings account provided that he or she pays in €3,291. This is enough, in a few years, to build up a nice deposit for purchasing one’s main residence, one of the reasons why both schemes allow savings to be unlocked… Contribution matching can therefore have a real impact on the company’s wage policy.

Gratuities at lower cost, especially for small companies

The employer contribution is a deductible expense, exempt from social security contributions. In companies with over 50 employees, it is subject to a social security flat charge of between 16% and 20%. For companies with fewer than 50 employees this levy was abolished as of 1 January 2019. Thus, even if the law specifies that such payments should not be a substitute for salary, i.e. bonuses, it is, in fact, an advantageous way of paying bonuses to employees. In an SME with fewer than 50 employees, for every €1,000 of contributions by the employer, the employee receives over €900 in his or her savings account (after deduction of other social charges i.e. CSG and CRDS )[6]. Arriving at the same net amount, taken as a bonus, would cost at least €1,600.

In companies with fewer than 50 employees, less than one employee in eight takes part in employee savings. Managers still see profit-sharing as too complex and time-consuming, even though since June 2020 companies with fewer than 11 employees can set up a profit-sharing scheme by unilateral decision, using standard agreement templates. Contribution matching is, however, much simpler and can undoubtedly be a good way to take the first step in employee savings using this highly flexible tool.

A variable geometry scheme

Contribution matching is a group scheme. The same rule must apply to everyone, the only discriminating factor being seniority. However, it is a system that leaves the employer a lot of flexibility. Firstly, they can change the rules of the game each year, depending on objectives or company performance. Even if it is preferable, for reasons of clarity, not to have erratic or arbitrary management of the contribution, such freedom is a real asset in that it allows for quick decisions, without any long-term expense risk. Secondly, the calculation formula brings scope for a certain amount of creativity to meet various objectives. You need to keep staff? The 300% cap can be adjusted for seniority. For example, with under three years’ service the 300% contribution is capped at €500. For up to five years, the 300% ceiling increases to €800, etc. You need to strengthen links between production and back office? The contribution matching can be degressive: 300% up to €500, then 100% beyond that. The aim is not to favour those with the greatest savings capacity but for all staff to benefit from an equivalent contribution.

In a PERCO, the employer can even allocate, at their own initiative, a uniform contribution for all employees without any action on their part. This unilateral periodic payment, operational since 2016, is limited to 2% of the PASS, i.e. €823 for 2021.

Matching contributions in support of employee share ownership

The Pacte Act also provides for unilateral PEE contribution matching, provided the payment is dedicated to the company’s Employee Stock Ownership Fund. In addition, when the staf member’s payments into a PEE are devoted to acquiring company shares, the employer’s contribution benefits from a number of incentives: ceiling increased to 14.4% of the PASS instead of 8%, i.e. €5,923, and the flat-rate social charge reduced to 10%. Exceptionally, the flat rate social charge has even been abolished by the Finance Act for transactions in 2021 and 2022.

These measures aim to encourage employees to become shareholders in their companies. To this aim, the Finance Act has extended the 20% tax exemption to the allocation of free shares to employees in ETIs that have never paid dividends. This is clearly the current trend! Employee savings and, in particular, matching contributions can also be powerful tools for developing employee share ownership, even to the point of enabling transfer of the company to the employees https://business.lesechos.fr/entrepreneurs/ressources-humaines/0610741293524-fenetres-les-zelles-comble-sa-dette-grace-a-un-lbo-salarial-343136.php.

Matching is not a gadget. It is a wide-ranging tool. Its defects are its qualities: its versatility offers so many opportunities that it is sometimes difficult to take advantage of them. With each incentive measure, the rates, ceilings and exceptions accumulate, at the risk of somewhat blurring one of the main qualities of contribution matching: its simplicity.

1. PACTE, Action plan for business growth and transformation.
2. (Loi Macron) A 2015 law on economic growth, activity and equal opportunities.
3. Plan d’épargne entreprise (PEE)
4. The earnings ceiling for the calculation of social security contributions in France.
5. Plan Épargne Retraite Entreprise Collectif (PERCO)
6. Contribution Sociale Généralisée (CSG); Contribution au Remboursement de la Dette Sociale (CRDS)