One of the most important things for global companies to understand about doing business in France or engaging their local talent is the country’s strict labor laws.
Rigid employment laws in France often sway global companies to refrain from expanding there. Meanwhile, others attempt to skirt the country’s labor legislation by engaging independent contractors in France instead of full-time employees.
Still, utilizing contractors in France creates significant risk. HR teams must be careful to understand and abide by the country’s classification laws, as misclassifying talent may lead to legal liabilities and penalties.
In this guide, learn the difference between contractors and employees in France, key steps to avoid misclassification, and how to compliantly classify and engage talent in France.
The central distinction between contractors and employees in France is work autonomy: whether the individual is in business for themselves or under another company's control.
French courts look at several factors to determine whether talent is an employee or contractor, including the following:
- If the individual exclusively provides services to the company or not
- The degree of control the company has over the individual’s work
- If the individual is required to supply their own work equipment and tools
- If the individual hires helpers to complete necessary duties
- The degree of business risk taken by the individual
- The degree of integration between the individual’s activities and the company’s business
Other differences relate to taxes and benefits. Contractors must pay their own income tax and social security contributions, while employees rely on their employers to handle all tax allocations. Contractors also do not receive benefits or the same level of termination protection.
Find out more about employment law in France.
Companies that engage independent contractors in France must be cautious not to misclassify their talent to avoid steep fines and reputational damage.
While classification is complicated and often comes down to the circumstances of each working arrangement, the following five steps can help companies mitigate misclassification:
1. Check That the Contractor Is Legally Registered
First, HR teams must ensure a self-employed contractor does the following:
- Properly registers and provides documentation that proves them to be a legal independent contractor in France
- Pays their own social security contributions
Contractors are at fault if they do not register properly or fail to make the necessary social contributions.
2. Draft a Clear Services Contract
HR teams should create a detailed written services contract that includes the following:
- Dates of the fixed term of engagement or contract
- Details of the contractor’s assigned tasks or projects
Companies should not insert an exclusivity clause in the services contract—except for the duration of a particular assignment and with specific justification.
3. Maintain a High Degree of Separation From the Contractor
Companies should always maintain a high degree of separation from their contractors in France. Failure to do so could result in hefty fines and reputational damage.
To ensure separation from contractors, companies should:
- Allow the contractor to organize their time and work schedule freely
- Allow the contractor to work for other companies
- Ensure the contractor is not economically dependent on the company
- Arrange for the contractor to work with their own equipment
- Allow the contractor to complete assignments autonomously
To avoid misclassification of contractors, companies should not:
- Make the contractor subordinate to any company employee
- Include the contractor in any internal organization charts or documents
- Provide the contractor with a company-equivalent email address or business cards
- Compel the contractor to comply with time limits (except in the case of meetings)
- Ask the contractor to justify absences
- Give instructions to the contractor for the performance of their work in such a way that diminishes the contractor’s autonomy or field experience
- Offer benefits reserved for employees
- Sanction the contractor
4. Establish a Single Person of Contact
Companies should establish a single point of contact within the organization to communicate with the contractor. However, the point of contact should not engage with the contractor in the same way they would give instructions to a full-time employee.
5. Pay a Flat Fee for the Work Completed
Companies should pay their contractor a flat fee upon task accomplishment rather than pay the contractor according to the time worked.
Misclassifying contractors in France is rightfully risky for global companies. If French authorities deem a contractor as an employee according to labor law, companies face repercussions.
Below are several penalties for misclassifying contractors in France:
- Criminal liability. Companies that misclassify contractors may face fines between EUR 225,000 (242,103 USD) and EUR 3,000,000 (3,228,045 USD) and up to seven years imprisonment.
- Tax penalties. The penalty for income tax non-withholding is between 10% and 40% plus 0.4% interest. Penalties can increase to up to 80% in the case of fraud or abuse of law.
- Social security and pension penalties. Companies are liable for 100% of the amount due plus a 5% late penalty and 0.2% monthly interest for social security and pension.
- Backpay and benefits. The company must pay the reclassified employee a retroactive salary and provide benefits to their employees in France, including any overtime and missed bonuses.
- Banned from using contractors. French authorities can ban companies from using contractors in France for two to 10 years.
A common path companies take to avoid the financial and legal risks of misclassification in France is converting their contractors into employees and adding them to their payroll.
Converting contractors to employees helps companies ensure compliance with classification laws, protect their intellectual property, have more oversight of their talent’s work, offer competitive benefits, and ultimately improve talent retention.
To convert contractors to employees, companies must either establish a permanent presence in France or partner with an employer of record. Let’s look at both options in more detail.
Establish a Legal Entity
To make an offer of employment, a company must first establish an entity in the country. Entity establishment is an effective strategy for companies looking to do long-term business in another country, and it allows them to legally engage and onboard local talent as full-time employees.
However, entity establishment isn’t for everyone. Not only is it a months-long process, but it’s also expensive—with steep costs for setup, maintenance, and teardown.
What if your business goals don’t include entity establishment? Maybe you want to test the market first, or perhaps you need to quickly hire talent in France or relocate employees to the country while undergoing entity establishment. That’s where an employer of record steps in.
Partner With an Employer of Record
Rather than establish an entity in France, companies can partner with an employer of record (EOR) that can convert and manage employees in France on their behalf.
An EOR acts as the talent’s legal employer and takes on employer duties like onboarding, payroll, benefits administration, and compliance with local labor laws. Meanwhile, your company maintains all day-to-day management tasks and responsibilities.
Partnering with an EOR allows companies to easily and compliantly hire, onboard, and pay new and converted employees in France without worrying about setting up a legal presence in the country or navigating complex tax and employment laws.
Learn more: What Is an Employer of Record?
Whether you need to convert contractors into employees or legally engage full-time employees in France, partnering with an EOR like Velocity Global makes it easy.
As your EOR partner, we offer a legal, flexible, and cost-effective solution for hiring, paying, and supporting employees in France and over 185 countries without the need for entity establishment. We also handle contractor conversion on your behalf by drafting compliant employment contracts, adding them to payroll, and providing them with comprehensive benefits.
Contact Velocity Global to learn how we can help ensure compliance when building your team in France and beyond.