In response to rising inflation, the French and UK governments have instituted various measures that affect employers.

France

During the presidential campaign, Macron’s Government promised to increase purchasing power. On August 18, 2022, a new law with several measures intended to mitigate the consequences of inflation entered into force. Outlined below are the main parts of the employment law measures of this “emergency law for the protection of the purchasing power.”

Renewal and increase of the purchasing power bonus as of July 1, 2022

Whereas the purchasing power bonus (also called the “Macron bonus”) was first introduced as an exceptional bonus, which could be paid during limited periods only, the law introduces the possibility of granting this bonus each year in one or several instalments. This bonus is now referred to as the “value-sharing bonus.”

To be exempted from certain social security contributions, the bonus must not exceed € 3,000 per employee and per year. This cap has been increased to €6,000 for:

• companies that implemented a voluntary profit-sharing scheme (accord d’intéressement); and
• companies with less than 50 employees that implemented a mandatory profit-sharing scheme (accord de participation).

The law has also reduced the exemptions from tax contributions and some employee-borne social security contributions (CSG/CRDS) applicable to this bonus. Said exemptions will apply only until December 31, 2023, and to employees who earn less than three times the statutory minimum wage (SMIC).

A specific company-borne social contribution (forfait social) will be applicable starting January 1, 2024, to the value-sharing bonuses granted by companies with at least 250 employees. The contribution is already applicable to these companies in case the bonus is granted before January 1, 2024, to employees who earn at least three times the statutory minimum wage.

Measures to facilitate the implementation of voluntary profit-sharing schemes in small companies

The implementation of voluntary profit-sharing schemes has been simplified for companies with less than 50 employees, as these schemes may now be implemented with less-stringent conditions through a unilateral decision from the company instead of a collective agreement.

Furthermore, the duration of voluntary profit-sharing schemes has been increased to a maximum of five years, as opposed to three years currently.

From January 1, 2023, applying for such scheme will be more straight forward, with a shorter time frame for the Labour administration feedback.

Until this date, employees may ask for an exceptional and anticipated release from the profit-sharing scheme. Employers are required to inform their employees of this possibility within two months of the law's promulgation.

Increase in the minimum wages set by the professional bodies

The law reduces the timeframe for employers’ professional bodies to initiate negotiations if the collective bargaining agreement provides for less than the statutory minimum wage: the current three-month period is now reduced to 45 days.

Insufficient negotiations may lead the Ministry of Labour to merge collective bargaining agreements.

Social security exemption for overtime hours as of October 1, 2022 in small and medium-sized companies

The law introduces an exemption from company-borne social security contributions on the pay increase for overtime hours, for companies with 20 to 249 employees.

The exemption also applies to the compensatory rest days granted to employees under a forfait jours working time scheme when employees renounce these rest days.

4% increase in retirement and other benefits as of July 1, 2022

The law provides for a 4% increase of various benefits, including base retirement benefits, as of July 1, 2022.

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The expected budget cost for the measures provided by the draft law is about 20 billion euros.

These measures are supplemented by other measures included in the finance law for 2022 (loi des finances rectificatives pour 2022), which also entered into force on August 18, 2022.

United Kingdom

On Friday, September 23, 2022, the new UK government announced measures to counter the economic crisis, many of which relate to the employment sector. Over the past few months, employers in some key sectors have been raising wages in an effort to keep up with the increased cost of living, in particular in industries with difficulties attracting and retaining talent due to Brexit or where strike action has put pressure on employers.

Employers’ response to inflation

Since the cost-of-living crisis began earlier this year, salaries have generally increased, but not at a sufficient rate to match inflation, and, similarly to France, individual purchasing power is suffering from this disparity. One study by Britain’s Trade Unions Congress has warned that pay rises could be as far as 8% behind inflation by the end of 2022.

Employees have been demanding higher salaries to bridge the gap. Notably, England has experienced a number of workers’ strikes calling for pay rises, including rail workers, postal workers’ and nurses’ strikes. Strikes of this kind are an unusual occurrence in the UK; unlike in France, few employers have unions, collective bargaining agreements, or other formal mechanisms in place facilitating group industrial action.

At most companies in the UK, salary negotiations are carried out at an individual level between the employee and their employer, often at recruitment stage, or later on under threat of resignation by the employee. The UK hospitality and truck driver sectors in particular have been forced to raise wages in response to the exodus of their workforces after Brexit and during the pandemic. In such an uncompetitive market, job applicants have a stronger bargaining position and are not willing to work for a salary which can no longer provide them with reasonable living conditions.

Government response to inflation in the employment sector

The mini-budget announced by the Government on September 23 responded to the unusual increase in strike actions by stating that “at such a critical time for our economy, it is simply unacceptable that strike action is disrupting so many lives. Other European countries have minimum service levels to stop militant trade unions closing down transport networks during strikes.” The Government will therefore implement legislation to require unions to put pay offers to a member vote, which the Government says will ensure strikes can only be called once negotiations between employers and unions have genuinely broken down. Opponents of the measure have argued that the administrative burden of organising comprehensive balloting in every round of pay negotiations will simply slow down the unions and negatively affect their ability to negotiate.

The Government has also announced that it will remove the cap on bankers’ bonuses, which was derived from EU law. This cap meant that bonus awards could not exceed twice the employee’s basic salary. The Government hopes that this change will allow UK banks to reallocate employment costs of their banking staff to performance-linked awards rather than committing to high fixed-salary payments.

Finally, the highest rate of income tax (45% for earnings over £150,000 per year) will be abolished.

The mini-budget also contained other inflation-related measures which are less directly related to employment, including a reduction in national insurance contributions, a freezing of corporate tax at the current level, and announcements of future measures including cuts to unemployment benefits and a 1% reduction to the basic income tax rate (for earnings between £12,571 and £50,270).

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The changes announced in the mini-budget are still very new, and we expect to see shifts to employment trends and practices as the market adapts.

*Sophie Lippmann is Counsel with Fromont Briens ǀ Littler in Paris.