At a glance
- France’s draft budget impacts mutual termination agreements.
- The proposed reform would increase the employer contribution on mutual termination payments to 40% of the indemnity amount.
- The change makes mutual termination less financially attractive for employers and aligns the cost more closely with standard dismissals.
The French government’s draft 2026 budget, presented on 14 October 2025, includes significant measures aimed at tightening the financial treatment of mutual termination agreements (rupture conventionnelle). These changes are part of the Social Security financing bill and reflect growing concerns about the widespread use of this mechanism and its impact on unemployment insurance costs.
Under the current regime, employers pay a specific contribution of 30% on indemnities granted under mutual termination agreements. The proposed reform seeks to increase this contribution by 10%, bringing the rate to 40% of the indemnity amount. This increase is intended to make mutual termination less attractive and to curb what the government considers are practices that allow employees to access unemployment benefits without genuine job loss situations.
The government has not announced any changes to the income tax exemption thresholds for employees receiving these payments, but the debate remains open, and further amendments could emerge during parliamentary discussions. The primary focus for now is on employer costs rather than employee taxation.
These measures are expected to take effect from 1 January 2026, provided the budget is adopted before the end of the year. The parliamentary timetable allocates 70 days for debate, with final approval anticipated in December 2025.
The rationale behind this reform the government’s aim to discourage excessive reliance on mutual termination agreements and to reduce associated social security expenses. Employers should anticipate higher costs for negotiated exits and review workforce planning strategies accordingly.
A further budget measure relevant to the employment is that lunch vouchers are to become subject to an 8% tax, ending their previous tax-exempt status.