Manage Your Employee Savings: Strategies for Profit-Sharing and Incentive Plans

Employee savings plans: millions of French employees face a dilemma—should they cash out their bonus or invest it? It’s a strategic decision, because depending on what you choose, the tax impact can vary… by as much as three times.
 

Incentive and Profit-Sharing Bonuses: What Are the Options?
Incentive and profit-sharing bonuses (I&P) can be:
• either cashed out immediately,
• or invested in an employee savings plan: a PEE (Company Savings Plan) or a PERECO (Collective Retirement Savings Plan).
 

Receiving a bonus means adding it to your taxable income. The amount is subject to:
• income tax, based on the employee’s marginal tax rate (TMI),
• social security contributions (CSG/CRDS) at a rate of 9.7%.
 

Investing your bonus, on the other hand, allows for an income tax exemption as soon as the funds are invested. Only social security contributions on the initial amount are due. Earnings from the savings will be taxed upon withdrawal (CSG, CRDS, and solidarity levy, totaling 17.2%).
Result: investing your bonus can yield significant tax savings, especially for employees in the highest tax brackets.
 

Three concrete examples with a €1,000 bonus
1. Top marginal tax rate (TMI) of 11%
• Bonus received: €811 net
• Bonus invested: €903 net (locked up for 5 years)
➡ Increase in purchasing power: +€92
2. Top marginal tax rate (TMI) at 30%
• Bonus received: €651 net
• Bonus invested: €903 net
➡ Increase in purchasing power: +€252
3. Top marginal tax rate (TMI) at 41%
• Bonus received: €559 net
• Bonus invested: €903 net
➡ Increase in purchasing power: +€344
The difference is all the more striking because the company can match the contributions, meaning it can add an additional amount to the sum invested.
A locked-in savings plan, but with possible withdrawals
 

Contributions made to a PEE are locked in for 5 years. However, there are 16 circumstances under which funds may be released early: purchase of a primary residence, marriage, divorce, birth, termination of employment, among others.
In a PERECO, savings are locked in until retirement, except in the event of the purchase of a primary residence or a life-altering event.

 

Risk Warning
As with any long-term investment, employee savings plans involve a risk of capital loss. Past performance is not indicative of future results, and the plan’s asset allocation (money market funds, stocks, bonds) should be carefully reviewed.