Ending untaxed overtime: in an attempt to reduce the public deficit, France's newly-elected parliament has reintroduced tax on overtime by passing law n° 2012-958 of 16 August 2012

- Impact date: 1 August 2012

This measure is not a surprise as it is consistent with comments made by François Hollande during the recent election that untaxed overtime hours had encouraged companies to offer overtime instead of taking on more staff, whilst unemployment had risen to 10 per cent of the workforce

The untaxed overtime hours had been introduced in 2007 by former president Nicolas Sarkozy in ac-accordance with his slogan "work more to earn more" to overturn the effects of France's statutory 35-hour working week. Employees were exempted to pay income tax on overtime hours and the amount of social security contributions to be paid on this overtime hours were reduced. As a result, French employees worked an average of 1,475 hours: ahead of Germany on 1,411 hours.

The reinstatement of taxes and social contributions by the law of 2012 took effect in two steps:

  • as from 1 August 2012, the payment of overtime hours is fully subject to income tax;
  • as from 1 September 2012, the payment of overtime hours is fully subject to social contri-butions.

However, companies with less than 20 employees will be able to keep the tax break on extra working hours.

Employers must organize a pre-employment medical examination for all employees

- Impact date: 22 July 2012 (date of French Supreme Court decision)

The French Supreme Court has held that, when hiring employees, employers are required to organize a pre-employment medical examination, even for employees on fixed-term contracts.

In this case, an employee had signed a series of fixed-term contracts with the same employer. At the end of the employment relationship, the employee (who suffered from depression), claimed damages before the labour court based on the employer's failure to carry out a pre-employment medical examination.

The Court of Appeal had previously ruled against the employee on the basis that he could not prove that his illness had been caused by the absence of a pre-employment medical. However, the Court of Appeal's ruling was quashed by the Supreme Court, who found that employers who fail to comply with their obligations to organize pre-employment medicals necessarily create damage to the employee. As a result, employees will now be entitled to damages for this breach of the law.

Employers may be tempted to underestimate the role of medical examinations in relation to labour law in France. That is a major mistake as employers are not only required to organize pre-employment medical examinations, but also to ensure that employees on their payrolls have a medical examination every two years or after a long period of absence from work in particular for illness or maternity leave. In addition, medical examinations can also be organized when requested by the employer or the employee.

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