Initial impact of new self-contractor’s scheme

Two assessments of the implementation of the self-contractor scheme have now been published, providing an overview of this important addition to French employment policy introduced in July 2008. The new status applies to those individuals who do not wish to establish a company in order to undertake economic activities, but prefer to be able to set up and dissolve their business relatively easily. The option is available to employees, jobseekers or those who have retired.

The first assessment report (in French, 3.24Mb PDF) of the self-contractor’s scheme, drafted under the chairmanship of Senator Philippe Marini, was published on 22 July 2010 and the second report (in French, 2.37Mb PDF), published by the Ministry of the Economy, Industry and Employment, was released in October.

How the new law defines a self-contractor

Chapter 1 of the law on modernisation of the economy (in French), adopted by parliament on 23 July 2008, created a legal status for independent contractors, called ‘self-contractors’ (autoentrepreneurs), which came into effect on 1 January 2009 and refers to a specific category of self-employed workers.

To meet the requirements of the law, the self-contractor’s turnover should not exceed €80,000 (plus value-added tax (VAT)) for sales activities, or €32,000 (plus VAT) for services, including services to individuals and families. In all of these cases, the self-contractor must be the sole proprietor.

According to the first assessment report, this new legal process has simplified the procedure for establishing a company and also means there is no longer an obligation to include the new company in the Register of Trades and Companies. The law also provides for a simplified system of social security contributions, which are based on income (12% of income related to sales activity or 21.3% of revenues for income related to services) over a given period.

The company can even gain exemption from business tax for three years if the contractor opts for payment in ‘discharge of tax revenue’, effectively allowing the owner of the business to pay as they earn. Finally, the accounting requirements for this type of business are reduced to such an extent that the contractor is obliged only to keep a regularly updated journal detailing the revenue of their business.

First assessments

A year after the introduction of any new employment legislation, the Central Agency of Social Security Bodies (ACOSS) undertakes an evaluation study on its impact. The ACOSS study for the law on self-contractors recorded 338,000 new businesses, with a combined turnover of €1 billion in 2009. However, only 44% of these businesses reported any turnover and the reported average annual revenue was €6,300.

Two years after its introduction, the new regime has resulted in a record number of new businesses – 580,200 were created in 2009, up 75% from the previous year.

The Secretary of State for Small and Medium-sized Enterprises, Hervé Novelli, wrote a letter accompanying the first assessment report on the new law, stating that ‘this success shows that the initiative has responded to a desire of French citizens’, especially the desires of employees who have been affected by the economic crisis.

However, the regime of ‘self-contractor’ is regarded in the report as controversial due to the existence of a number of legal categories for contractors and the fact that the new regime offers very favourable conditions for individual self-contractors and thereby distorts competition between businesses. The problems created by the self-contractor system are threefold:

• the new status removes the requirement for labour inspections that would have otherwise offered a scrutiny of the business;

• there is concern that there is also a lack of scrutiny of the individual’s professional capacity and their payments of social security, the latter of which is a concern for Urssaf (the organisation dealing with recovery of social contributions), which now must ‘adapt’ its procedures to the new system;

• the new system effectively acts as a substitute to the classic regime of self-employment due to the less onerous obligations placed upon individual businesses, and this may affect competition between businesses.

First amendments to the law

Some amendments, as noted by Mr Novelli, have already been introduced – for example, the scheme has been extended to other potential groups, such as unemployed people who are able to receive both financial support to start their business and income as a self-employed person.

Mr Novelli has announced that all ‘self-contractors’ since 1 April 2010 are now expected to hold a professional qualification, which means having three years’ experience as an employee or holding a Certificate of Qualification (Certificat d’Aptitude Professionnel) in their business area. Also, since 1 April 2010, if a self-contractor’s business is their principal activity and they are engaged in a skilled occupation, they are now required to register as a business in the Trade and Companies Register and the regulations regarding social rights have also been amended.

In the law setting out the financing of social security for 2010, the Senate adopted an amendment that prevents self-contractors from receiving compensation paid by the state if their revenue, in a calendar year, is below a certain threshold set by decree. The original provisions, allowing for the automatic validation of a quarter of contributions for retirement for self-contractors, with no turnover, was abolished by the same finance legislation in 2010 (in French). Finally, in relation to the removal of some obligations under labour law, the Secretary of State made it clear that the scheme was not designed to tackle the problems caused by abuse of outsourced workers or by the recruitment of bogus self-employed workers. Rather, the minister believes that by providing a legal framework for the creation of business activities, which do not fall within the existing law for businesses, the measure will contribute to the fight against undeclared work.

Reactions of the unions

Trade unions did not react directly to the report but the General Confederation of Labour (CGT) explained in April 2009 that the new status could cause difficulties for employment relations and also in the general economy. CGT also stated that the self-contractor’s ability to perform work or undertake services on an ad hoc basis may lead to less work for those businesses operating under a different legal status. Furthermore, the union suggests that as the new status comes without the stringent checks placed upon other businesses it may be harmful to other independent professionals or artisans, and consequently to their employees.

Some companies have replaced their employees with self-contractors. In construction, for example, some businesses are encouraging their employees to declare themselves as self-contractors as this status does not require employers to make social security contributions and is therefore cheaper. The Craftwork Employers’ Association (UPA) criticised the law in a press release (in French, 69Kb PDF), saying that it imposes an unjust status on artisans (see also press statement (in French, 161Kb PDF) of January 2011).

Hélène Tissandier, HERA