A fixed-term contract costs more than a permanent contract for the same salary. And the difference is not limited to severance pay!

The fixed-term contract often appeals due to its apparent flexibility. For some companies, it's even a way to:

➡️ Test an employee before hiring them on a permanent contract

➡️ Remain agile in the face of economic uncertainties

But behind this solution, sometimes used without strictly complying with legal requirements (replacement, temporary increase in activity, etc.), lie often underestimated risks and costs.

Here are 3 key differences in terms of cost and risk:

1️⃣ The fixed-term contract has a much shorter probationary period. And if, at the end of this period, the employee is not suitable, separating from them will be much more complicated than if they were on a permanent contract: you cannot dismiss a fixed-term contract employee for professional incompetence or for "simple misconduct" (in fact, you cannot dismiss a fixed-term contract at all: early termination of the contract is more appropriate 😉)

2️⃣ Higher litigation risks with fixed-term contracts: even in case of termination, the financial consequences of a permanent contract are often lower than those of a reclassified or poorly justified fixed-term contract (for equivalent seniority)

3️⃣ A higher total cost: a fixed-term contract often costs more than a permanent contract for the same gross salary, due to sometimes unknown factors.

Indeed, we are familiar with the "classic" additional costs:

➡️ Severance pay (10% of gross, this rate can be lowered to 6% by collective agreement)

➡️ Specific CPF contribution (1% of gross salary)

➡️ Unemployment surcharge for short-term fixed-term contracts

But we must also add an often forgotten element: the decrease in social security contribution exemptions.

Why?

👉 Bonuses and indemnities paid at the end of a fixed-term contract artificially increase the monthly gross remuneration. However, exemptions are maximal at the SMIC level and decrease as the salary increases.

📊 The impact is real: for the same gross salary, a fixed-term contract costs proportionally much more than a permanent contract, as I illustrated in the attached infographic.

🚨 Note: the infographic presents a "payroll" view, which does not take into account the "accounting" view in which the paid leave provision for the permanent contract must also be integrated. This does not change the overall finding, even if the cost difference is reduced with this element (since we add approximately 10% additional cost).

Note, however, that a provision does not impact the calculation of employer exemptions. On the other hand, the payment on the payroll, it does!

So, when you plan to hire on a fixed-term contract, consider carefully evaluating your cost and limiting your risk.

📩 PS: And if you want to master HR mechanisms and their impact on company costs and employee gains, subscribe for free to my newsletter Un Coût d'Avance (link under my profile).

Have a good day everyone 👋