How to calculate the severance indemnity after a sick leave? How to calculate the tax exemption?
The French Supreme Court recently outlined the applicable rules.
In our opinion, these rules also apply to cases of maternity leave and parental leave.
1. Computation rules for the severance indemnity under the Labor code or CBA
The salary of the last 12 or 3 months is determined by looking at the salary earned before the employee took his/her sick leave (French Supreme Court, 23 May 2017, n° 15-22223).
Therefore, it is necessary to take into account the salary of the last 12 or 3 months preceding the sick leave to compute the average remuneration.
This method is more objective than reconstructing the fictional remuneration that the employee would have earned if he/she were still working.
2. Computation rules for the tax exemption
The severance indemnity is exempted from income tax up to a certain amount. In most cases, the exempted amount is that which does not exceed twice the amount of the annual gross salary earned by the employee during the year preceding the termination of the employment contract.
To determine this exempted amount, it is necessary to take into account the annual gross remuneration of the employee as inscribed in the DSN (social declaration) for the civil year preceding the end of the employment contract, and multiply that amount by two (French Supreme Court, 21 September 2017, n°16-20580).
The two computation rules being different and not always consistent with existing practices, an audit and verification of the settings of the payroll software are necessary.