Optimizing your executive compensation in France: expert advice

If you run a business, you've probably wondered how to optimize your compensation.

This question might have come up when you were setting up your business.

Micro-enterprise, LLC, S-Corp, C-Corp: how does the legal status influence the taxation of executives and their companies?

What’s possible to implement in your organization to increase your net income?

We asked Julien Jacquemin (CEO of Gedeon), who employs around 30 people in Lyon, and Valentin Decker (solopreneur who helps content creators develop their business) for individualized tips they personally use to optimize their compensation.

The choice of the company’s legal status determines the applied taxation and the function of the company’s leader, which can drastically impact your compensation opportunities. Each status has its own pros and cons, which means it’s crucial to evaluate all your options while creating your company.

However, you’re always free to change your legal status in the months (or years) after going to market. It's just important to always ask the right questions at the right time to confidently make decisions, keeping your individual circumstances in mind.

Here’s a real-life example to help illustrate…

Valentin Decker works freelance. He helps content creators publish their ideas online. When he founded Sauce Writing four years ago, Valentin opted for the French micro-business status (auto-entrepreneur at the time).

However, two years ago, the young entrepreneur decided to transform his micro-business into an LLC to optimize his compensation:

Just getting started as a freelancer? Check out our articles on navigating the various freelance legal statuses and how to choose between micro-enterprise and individual enterprise statuses in France.

French law dictates that corporate leaders can renumerate themselves in several ways: a fixed share (generally proportional to the contributions in the company) and a variable share (sometimes determined by the revenue or the performances of the company). If you’re considered the company’s leader and also an associate, you’re eligible to receive dividends.

In France, it’s important to distinguish between majority managers in LLCs/EURLs, who're considered self-employed workers and therefore affiliated with the Social Security for the self-employed, and presidents of S-Corps/C-Corps/Single-member LLCs who're considered “assimilated employees.”

Already lost? We’ll break it down in more detail below.

A manager of an LLC or EURL has the status of a self-employed worker. Self-employed workers are subject to different contribution and social protection regimes. For example, they don’t benefit from paid leave or unemployment insurance, but their social contributions are lower.

Self-employed workers should favor salary over dividends to reduce social contributions (between 25% and 44% of your pay package). Self-employed workers compensated in dividends are obliged to pay a certain amount to URSSAF, while still paying about 45% (on average) of their dividends in taxes.

Executives of a C-Corp, S-Corp, or single-member LLC fall under the social regime of “employee equivalents” and depend on the general Social Security system. They benefit from more advantageous social protections than managers of LLCs. However, an executive of a S-Corp who pays themselves pays more social contributions. The executive of an S-Corp who pays themselves is subject to about 82% social contributions (54% employer and 28% employee) on the net salary they receive.

This is the option Julien Jacquemin, the CEO of Gedeon, chose. Gedeon helps executives and HR managers implement Retirement Savings Plans within their companies. Gedeon employs over 30 people in Lyon.

An S-Corp executive is more interested in paying themselves in dividends. Dividends are simply subject to a flat tax of 30%, whereas salaries invoke contributions to France’s general regime. Dividends come from the profits generated by the company. Payments of dividends are annual. When the fiscal year ends and the board of directors decides to pay dividends, the agreed-upon sum must be distributed within nine months.

As we’ve seen above, employee-equivalent executives have a choice: they can choose to pay themselves a salary or dividends. But beware, if you don't pay yourself a monthly salary, you don't contribute and aren’t protected by France’s “general regime”. In France, when choosing a pay package of 100% dividends, the president of an S-Corp isn’t eligible for any public retirement rights.

That's why it's crucial to find the right balance. This balance rests on two main points:

1. Pay yourself a sufficient monthly salary to reach minimum contribution thresholds and benefit from protections of the general regime.
2. Pay yourself dividends at the end of the year and benefit from an advantageous social contribution rate.

Here’s what corporate leaders have to say… From the SME perspective:

And from the entrepreneur’s point of view:

Holding companies are an attractive way of doing business in France since they offer tons of tax advantages. The holding company approach is particularly interesting when it comes to optimizing compensation.

By setting up a holding company, executives can then opt for a “LLC manager” status, and benefit from the whole package, compensation and social protections.

Through the holding company, executives can take advantage of several optimization levers, such as an employee savings plan tied to the parent company and its subsidiaries.

Julien Jacquemin, CEO of Gedeon, chose this setup: “I created a personal holding company above my company’s main structure to manage the structure's expenses, compensation, and dividends as I see fit.”

Since January 1st, 2018, a flat tax has been implemented in France. The flat tax is set at a rate of 30% (12.80% tax and 17.20% social contributions).

Instead of the flat tax, executives can opt for the progressive income tax rate on dividends. Depending on the executive's income, this option can sometimes be ideal. In this system, executives benefit from a 40% “personal allowance” on their dividends.

"Employee savings" accounts don't just benefit a company's employees. Since 2005, business leaders and individual entrepreneurs can leverage these funds to optimize their compensation. A business leader can receive profit-sharing and participation bonuses, or contributions paid by their company. The amounts received as part of profit-sharing and allocated to an employee savings plan (PEE, PEI, PERCO) are exempt from income tax - aside from CSG and CRDS - up to 75% of the social security ceiling.

The company savings plan (PEE) is a collective savings system that allows SME leaders (and employees) to buy securities: stocks, bonds, negotiable debt securities, units of UCITS (Sicav and FCP), subscription warrants, and investment certificates with the company's help. A PEE is meant to help leaders finance medium- to long-term projects with favorable levels of taxation.

Setting up a PER can be a strategic tax optimization tool for business leaders. The PACTE law of 2020 (FKA the Madelin law) lets business leaders set up retirement savings derived from the company's taxable income.

Open to both employees and SME leaders, the collective retirement savings plan (PERCO) is a French scheme that lets you open a savings account that can be accessed as an annuity or capital upon retirement. It can be extremely helpful in optimizing business leaders' pay packages, as it opens the door to creating a securities portfolio.

Contributions from France Travail can often supplement entrepreneurs’ pay packages.

Among entrepreneurs, ACRE is the most well-known government aid program. It offers a partial exemption for executives' social contributions for 12 months, limited to 1.2 times the minimum wage. The ACRE exemption applies to health, maternity, old-age, widowhood, disability and death insurance contributions, and family allowances owed to various social regimes.

This aid, delivered by URSSAF, also lets you choose between maintaining your monthly benefits as a job seeker or accessing part of your unemployment benefits (45% of the remaining rights) in a lump-sum payment.

Since January 1st, 2019, the CICE has been replaced by a reduction in employer contributions, targeted at the lowest salary brackets. This reduction benefits all employers under identical conditions.

Finally, entrepreneurs can optimize their compensation by having various expenses covered by the company or benefiting from various tax advantages:

• Reimbursing corporate expenses,
• Reimbursing business travel (trains, meals, tolls, hotels),
• In France, you can domicile your company at home. This lets entrepreneurs reimburse rent and cover some of their housing expenses.
• For tax purposes, it can be worthwhile to opt for gift vouchers instead of cash bonuses. While these possibilities are highly regulated, they can pay off over time and under certain conditions.

To fully take advantage of income optimization, business leaders should:

• Seek advice, often from their accountant,
• Define a compensation strategy,
• Rely on reliable financial forecasts.

Are you running a company and want to optimize your professional budget? Interested in obtaining stable financial forecasts? Qonto offers advanced features to streamline your team's expense management.