The current regime: a reminder of the rules applicable in 2026
The termination payment regime rests on three distinct levels of exemption, supplemented by a specific employer contribution for mutual termination agreements. Where a settlement agreement is concluded with an employee following their dismissal, the mandatory severance indemnity and the settlement indemnity are aggregated for the purpose of assessing the applicable exemption thresholds.
- Social security contributions: The indemnity is excluded from the contribution base up to the highest of three amounts: the mandatory severance indemnity, twice the employee's gross annual remuneration for the preceding calendar year, or 50% of the total payment received, and this exemption is subject in all cases to an overall cap of 2 times the annual social security ceiling (PASS), i.e., 96,120 euros in 2026. Where the total payment exceeds 10 PASS (480,600 euros in 2026), it is subject to contributions in full, as from the first euro.
- CSG and CRDS contributions: The exemption applies to the lower of the following two amounts: the mandatory severance payment, and the amount exempt from social security contributions. The supra-statutory portion of the payment therefore always bears CSG and CRDS contributions.
- Income tax: For dismissals and mutual termination agreements, the exemption is capped at (i) the amount of the mandatory severance payment, or (ii) twice the employee's gross annual remuneration or 50% of the payment, up to a maximum of 6 PASS (288,360 euros in 2026). For employer-initiated retirements, the cap is 5 PASS (240,300 euros in 2026). Payments made under a collective redundancy plan (with a social plan) or a collective agreed termination are fully exempt from income tax with no cap, as are conciliation payments (up to the applicable conciliation scale).
- Employer contribution on mutual termination agreements: A contribution at a rate of 40% is payable by the employer on the portion of the agreed termination or employer-initiated retirement payment that is excluded from the social security contribution base.
What the two draft texts propose today
The PLFSS 2027 and the PLF 2027 share the same stated objective: to simplify and harmonise the current regime by aligning the social security and income tax exemption thresholds at a single level, which would be 1 PASS (48,060 euros in 2026), regardless of the type of termination.
In practical terms, any termination payment exceeding 1 PASS would be subject to both social security contributions and income tax. There would therefore be a single threshold, identical for both regimes. This represents a significant tightening of the rules for high-value termination indemnities.
Who is concerned?
The reform targets high-value termination payments, so primarily those paid to senior executives and directors, and more generally any employee whose termination payment would exceed 48,060 euros.
The additional revenue expected from this measure is estimated by the Government at 440 million euros in 2027, concentrated on 5% of employees receiving a termination payment, approximately 40,000 individuals per year, who account for nearly 54% of the total amounts paid.
Example:
Employee whose gross annual pay in the previous year (Y-1) was €100,000, receiving a severance indemnity of €15,000 and a settlement indemnity of €150,000, i.e. €165,000 in total.
Current regime
- Portion subject to income tax: €0
- Portion subject to social security contributions: €68,880
- Portion subject to CSG/CRDS: €150,000
- Total cost for the employer: €195,996
- Net amount before income tax: €141,978 (not subject to income tax)
Regime based on the PLFSS and PLF 2027
- Portion subject to income tax: €116,940
- Portion subject to social security contributions: €116,940
- Portion subject to CSG/CRDS: €150,000
- Total cost for the employer: €217,623
- Net amount before income tax: €136,066 (subject to income tax)
Assumptions: 2026 annual social security ceiling (PASS) of €48,060; employer contributions at 45%; employee contributions at 22% (including CSG/CRDS); CSG/CRDS at 9.7%.
Our recommendation
If adopted, these new provisions would apply to terminations taking effect on or after 1 January 2027.
These remain draft proposals at this stage and may evolve during the parliamentary debate. However, we recommend identifying as soon as possible any ongoing or contemplated negotiations that may be affected by this reform, and assessing their financial impact under the proposed new rules.
Our Employment team is available to help you assess your situation and advise you accordingly.
