How to calculate the specific contractual breakage allowance?
Verified 01 January 2024 - Legal and Administrative Information Directorate (Prime Minister)
The employer and the employee may jointly agree on the breach of contract between the DTA: titleContent. On this occasion, the employee receives a specific contractual termination allowance. Is there a seniority requirement to qualify? How do I calculate the amount of this allowance? Is the allowance taxable? Is it subject to social security contributions? We're doing an update on the regulations.
No, no, no. There is no seniority requirement for the conventional severance pay.
The amount of the specific contractual termination indemnity is negotiated between the employer and the employee. It is set out in the Breaking Convention.
This amount may not be less than statutory severance pay.
The amount of compensation can be estimated using the simulator for the calculation of the conventional specific severance pay :
Calculate the amount of the conventional severance pay
FYI
of treaty provisions, contracts or use may provide for a calculation formula other than that of the statutory indemnity.
In this case, the employee shall receive the most favorable allowance.
The rules differ according to whether the employee can benefit from a retirement pension from a legally binding scheme or not.
This condition shall be assessed on the day on which the contract of employment is terminated.
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The employee may receive a retirement pension
The specific indemnity for breach of agreement is taxable starting on 1er Euro.
The employee cannot receive a retirement pension
The specific indemnity for breach of contract is partly exempt income tax.
The amount corresponding to the compensation fixed by law, collective agreement, professional or interprofessional agreement is fully exempt.
If the amount is higher, the exemption shall be limited to one of the following amounts:
- 2 times the amount of gross annual remuneration received by the employee in the year preceding the termination of the employment contract
- Half of the amount of the allowance
Example :
An employee receives a specific severance allowance of 120,000, of which 70,000 correspond to the allowance provided for in his collective agreement. His gross remuneration for the calendar year preceding the termination of the contract is 40,000.
The specific indemnity for breach of agreement shall be exempted up to the amount provided for in the collective agreement, i.e. €70,000.
This amount is greater than 50% of the compensation received (€120,000/2 = €60,000) but less than twice the annual gross remuneration, equal to €80,000 (€40,000 (x 2).
The compensation is therefore exempt up to the sum of €80,000.
The surplus of 40 000 (€120 000 - €80,000) is taxable.
Warning
The exemption shall be limited to a maximum of €278,208 .
The contractual termination indemnity may be exempt from social contributions, CSG: titleContent and CRDS: titleContent under certain conditions.
Social contributions
The specific indemnity for breach of contract is partly exempt of social contributions.
The amount corresponding to the compensation fixed by law, collective agreement, professional or interprofessional agreement is fully exempt.
If the amount is higher, the exemption shall be limited to one of the following amounts, up to €92,736
- 2 times the amount of gross annual remuneration received by the employee in the year preceding the termination of the employment contract
- Half of the amount of the allowance
Example :
if an employee receives a specific contractual termination indemnity of €40,000 exempt from tax, the allowance is also exempt from social contributions.
On the other hand, if he receives an allowance of €100,000 exempt from tax, the allowance shall then be exempt from social contributions up to €92,736.
The portion of the allowance that exceeds that amount, or €2,736 (€100,000 - €92,736), is subject to social security contributions.
Warning
if the specific indemnity for breach of contract paid is greater than €463,680, it shall be subject to contributions in full. No exemption is applicable.
CSG and CRDS
The contractual termination indemnity shall be exempt from CSG: titleContent and CRDS: titleContent the smallest of the following 2 boundaries:
- Amount of contractual termination indemnity provided for by law, collective agreement, professional or interprofessional agreement
- Amount of the allowance exempt from social contributions, i.e. at most €92,736
Warning
if the severance pay paid is more than €463,680, it shall be subject to CSG and CRDS in its entirety. No exemption is applicable.
The contractual severance pay shall be subject to a specific employer contribution of 30% on the part of the allowance exempt from social contributions.
This contribution is paid by the employer, for the benefit of the National Old Age Insurance Fund.
Who can help me?
Find who can answer your questions in your region
Telephone administrative information - Allo Public Service
The informants who answer you belong to the ministry responsible for labor.
Cost: free service
Attention: the service does not respond questions relating to unemployment compensation and representations to Pôle emploi, civil servants or public service contractors, the amount or payment of social, wage or employer contributions.
The service is available at the following times:
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Calculation of the allowance
Definition of taxable income
Exemptions from social contributions
Generalized Social Contribution (CSG)