French Severance Pay Explained: Legal Rules, Calculations and Best Practices

Terminating an employment contract in France isn’t just a matter of paperwork — it comes with legal and financial obligations. One of the most critical is severance pay, which is often mandatory under French labor law. Whether you're managing a global workforce, overseeing a French subsidiary, or planning a restructuring, understanding how to calculate severance correctly is essential to avoid costly legal disputes and ensure compliance.

In this guide, we break down the legal framework, calculation methods, real-world examples, and key tax considerations to help you navigate dismissals in France with confidence.

In France, severance pay (indemnité de licenciement) is a legal entitlement for employees on permanent contracts (CDI – Contrat à Durée Indéterminée) who are dismissed for personal or economic reasons, provided the termination is not for gross misconduct (faute grave) or willful wrongdoing (faute lourde).

Since a major labor reform in 2017, employees are eligible for severance pay after just 8 months of continuous service — a significant change from the previous threshold of 12 months. The legal basis for this obligation is found in Article L1234-9 and Article R1234-2 of the French Labour Code.

A concrete example: an employee with 6 years of seniority and a gross monthly salary of €2,800 would be entitled to a minimum statutory severance of:

6 years × 1/4 × €2,800 = €4,200

In 2022, France recorded over 373,000 dismissals, including more than 92,000 economic layoffs, according to data from Dares. These figures highlight how common dismissals are—and why it’s crucial for companies to handle them by the book.

In addition, statistics from the French Ministry of Justice show that 65% of employees win all or part of their claims before the French labor court (Conseil de prud’hommes), often due to improper severance or termination procedures.

International companies such as Renault or Air France have faced millions of euros in severance-related payouts during workforce reductions, particularly when negotiating social plans (PSE – Plan de Sauvegarde de l’Emploi) for large-scale dismissals.

For foreign employers, understanding severance pay is not just a compliance issue—it’s a financial and reputational safeguard.

Severance pay in France is governed by the Labour Code, specifically Article L1234-9 and Article R1234-2, which outline the legal obligation for employers to compensate eligible employees upon termination. This applies to permanent contracts (CDI) and is non-negotiable, unless the dismissal is based on gross or willful misconduct.

To be eligible for statutory severance pay, an employee must meet the following three conditions:

1. Hold a CDI (permanent contract). Fixed-term contracts (CDD) are not covered by this severance rule unless specific clauses apply.

2. Have at least 8 months of uninterrupted service with the employer (since the reform of Ordinance n°2017-1387).

3. Be dismissed by the employer for a personal or economic reason, excluding serious or gross misconduct.

If these criteria are met, the employer is legally required to pay severance, regardless of company size or the reason for dismissal (personal or economic). This includes both individual dismissals and collective redundancies, although the latter may also require the implementation of a PSE (Plan de Sauvegarde de l’Emploi), a mandatory social plan for companies with at least 50 employees dismissing 10 or more workers within 30 days.

Example: A German company operating in France with 55 employees decides to downsize and lay off 12 staff. According to Service-Public.fr, it must not only calculate severance correctly but also negotiate a PSE with employee representatives. Failure to do so can lead to the cancellation of dismissals by labor courts, requiring the company to reinstate employees or pay significant damages.

In addition, collective bargaining agreements (conventions collectives) often enhance the minimum legal severance. For instance, in the metallurgy sector (UIMM), it is common to offer 1/3 or even 1/2 month of salary per year of service, instead of the legal 1/4.

As a best practice, international employers should always review applicable collective agreements before finalizing any dismissal procedure. These agreements are legally binding and take precedence over the Labour Code when more favorable to the employee.

Calculating severance pay in France involves a precise and regulated formula, outlined in Article R1234-2 of the Labour Code.

The statutory severance formula is as follows:

• ¼ of one month’s gross salary for each full year of service for the first 10 years.
  
• ⅓ of one month’s gross salary for each additional year beyond the 10th.

To apply this formula, the reference salary used is the more favorable of the following:
- The average gross salary over the last 12 months, or

- The average gross salary over the last 3 months, including bonuses and commissions.

Example 1: 8 years of service

• Gross monthly salary: €2,500
  
• Severance: 8 × ¼ × €2,500 = €5,000

Example 2: 12 years of service

• Gross monthly salary: €3,200
  
• First 10 years: 10 × ¼ × €3,200 = €8,000
  
• Next 2 years: 2 × ⅓ × €3,200 = €2,133.33
  
• Total severance: €10,133.33

It is important to note that this calculation provides the minimum legal requirement. If a collective agreement applies, it may increase the severance rate significantly. For instance, in the banking or aviation sectors, it’s not uncommon for severance to reach ½ month or even 1 full month per year of service, particularly for senior or long-tenured employees.

In cases of a mutually agreed termination (rupture conventionnelle), the same minimum calculation applies, but companies often negotiate higher compensation packages, especially for managerial staff. These packages may include non-statutory elements such as non-compete compensation, outplacement services, or extended benefits.

HR recommendation: Use an official simulator such as the one available on Service-Public.fr to validate your calculations. Always document the calculation method used and communicate it clearly to the employee, especially if disputes may arise.

While the legal formula for severance pay in France is fixed, the actual amount paid can vary significantly depending on the employee’s role, industry, salary structure, and the existence of collective bargaining agreements (CBAs). Below are realistic scenarios to help HR teams anticipate the cost of terminations.

Case 1: Retail Sales Assistant – 6 Years of Service

• Average gross monthly salary: €2,200
  
• Sector: Retail – no enhanced CBA
  
• Calculation: 6 × ¼ × €2,200 = €3,300
  

This represents the bare minimum legal severance since no sectoral agreement applies.

Case 2: Industrial Technician – 11 Years of Service

• Gross salary: €2,900/month
  
• Sector: Metallurgy (UIMM collective agreement in effect)
  
• Legal calculation:
  • 10 years × ¼ × €2,900 = €7,250
    
  • 1 year × ⅓ × €2,900 = €966.67
    
  • Total legal minimum: €8,216.67
    
• But under the UIMM CBA, many employers apply ⅓ per year across all years, increasing the severance to €10,633.33.

Case 3: Senior Manager – 20 Years of Service

• Average salary: €6,000/month
  
• Sector: Telecom – high-level individual agreement
  
• Legal severance:
  • 10 years × ¼ × €6,000 = €15,000
    
  • 10 years × ⅓ × €6,000 = €20,000
    
  • Total: €35,000

In practice, companies often negotiate voluntary packages exceeding €50,000–€60,000, especially during mutual terminations or redundancy plans, including:

• Extended notice periods
• Bonuses
• Non-compete clauses
• Paid legal assistance

What the Data Says

According to DARES, the average severance payout under a rupture conventionnelle in France is about 0.4 months per year of service, with considerable variation:

• Executives (cadres): up to 0.8–1.2 months/year
• Manual workers (ouvriers): close to 0.25–0.3 months/year

For international companies, this means that real-world severance often exceeds statutory levels, and these extra costs should be budgeted in advance, particularly when restructuring or exiting a market.

One of the most overlooked aspects of severance pay in France is its tax treatment. While severance is often perceived as tax-free, the reality is more nuanced. According to the French tax administration, statutory severance pay is generally exempt from income tax, but only up to certain limits.

Here’s how taxation works in practice:

Fully Tax-Exempt Portion

The statutory severance amount (as defined by law or a collective agreement) is entirely tax-free, provided:

• It’s granted upon termination (not resignation).
• The termination is involuntary (dismissal or mutual agreement).

Taxation of Extra Severance

Any additional severance (e.g., bonuses or negotiated amounts above legal thresholds) may be partially or fully taxable, unless one of the following applies:

• The total severance does not exceed twice the employee’s gross annual salary in the previous calendar year.
• The total does not exceed 50% of the severance amount defined by labor court judgments (barème Macron), or
• The amount stays within 5 times the annual French social security ceiling (i.e., around €219,960 in 2024), according to URSSAF.

Example

An employee receives a severance package of €45,000, while the legal minimum is €30,000:

• €30,000 is fully exempt.
• The remaining €15,000 may be subject to income tax, depending on the employee’s previous salary and applicable thresholds.

Social Contributions

Even tax-exempt severance may still be subject to social charges, including:

• CSG (9.2%) and CRDS (0.5%), applied to the taxable portion,
• Possible inclusion in pension calculation caps or social security ceilings.

You can find more details on taxation rules via impots.gouv.fr.

HR Best Practice

Before finalizing any severance package:

• Work with a payroll or tax consultant to assess net impact.
• Clearly communicate to the employee what portion is taxable and what deductions apply.
• Document calculations and justifications, especially for amounts exceeding legal thresholds.

For international companies, overlooking tax compliance can lead to unexpected payroll liabilities, audit risks, and employee dissatisfaction.

Très bien. Voici le sixième et dernier paragraphe de l’article en anglais, consacré aux practical tips for HR managers, rédigé dans un style professionnel, sans emojis, et avec des recommandations concrètes adaptées aux entreprises internationales opérant en France.

Managing severance pay in France is not only a legal obligation—it’s a strategic HR issue that can significantly impact your company’s reputation, compliance, and financial risk. For international employers unfamiliar with French labor law, the severance process can be complex, especially when local collective agreements, tax regulations, and cultural expectations come into play.

To ensure a smooth and compliant process, here are some key recommendations:

• Use official calculators and simulators, such as the tool provided by Service-Public.fr, to estimate severance amounts based on seniority and salary.

• Review applicable collective bargaining agreements (CBAs), as many sectors (e.g. metallurgy, banking, aviation) require severance that goes beyond legal minimums. These agreements are legally binding and override statutory provisions when more favorable to the employee.

• Document every step of the dismissal process: from the reason for termination to the employee hearing (entretien préalable), formal notice, calculation breakdown, and payment schedule. French labor courts pay close attention to procedure and justification.

• Anticipate negotiation: In France, even statutory dismissals often become negotiated exits, especially for managerial or senior profiles. Plan for discretionary payments (e.g. non-compete clauses, notice waivers) and manage employee relations carefully.

• Consult a labor law expert or local counsel, particularly in complex situations involving:

  • Employees with long seniority
  • Collective dismissals (requiring a PSE)
  • International transfers or dual contracts
  • Dismissals for economic reasons, which trigger additional obligations

• Communicate transparently with the employee about tax treatment, social charges, and gross vs. net amounts, to avoid misunderstandings at the point of exit.

Example: A US-based tech company operating a branch in Paris terminated a sales director after 9 years. The severance offered matched the legal minimum, but ignored the sectoral CBA, which required 1/3 month per year. The employee sued for underpayment and won over €12,000 in damages—plus legal costs and reputational damage for the company.

In short, severance pay in France should be handled with rigor, transparency, and legal precision. When done correctly, it protects your company from legal exposure and helps maintain a positive offboarding experience for departing employees.

For more great tips :

• Managing Difficult Employees in France: Strategies for Success
• HR Trends in France: Discover the Eurojob Consulting Employment Barometer
• Attract and Recruiting Talent in France Through Housing