A number of legal obligations relating to social dialogue, profit-sharing and accounting apply to firms once they exceed the threshold of 50 employees. This report shows that a significant proportion of firms deliberately under-report their workforce numbers as being below this threshold, and that this enables them to avoid the obligations incumbent upon them. Compliance with the law regarding social dialogue or profit-sharing thus appears to be linked to the number of staff firms declare, rather than their actual workforce. These findings illustrate how the Labour Code can be circumvented within a complex regulatory framework and in the absence of sufficient means of enforcement. They call for consideration to be given to introducing more direct and effective methods of monitoring compliance with the law. They also call for caution when interpreting the findings of several recent studies which quantify the cost of legal obligations at the 50-employee threshold, on the assumption that these obligations are, in practice, fully complied with.
Do firms under-report their workforce as having 49 employees in order to circumvent the law?
This paper aims to provide a comprehensive explanation of the discrepancies in the calculation of social thresholds. To this end, the study analyses the various methods used to measure the size of firms and the way in which legal obligations are applied and monitored in practice.
Reference IPP Policy Brief No. 82
Presentation
Key Results
- Far more French firms report a workforce of 49 employees than 50 in their tax returns.
- This peak at 49 employees is regularly attributed to the additional obligations that come into effect once the threshold of 50 employees is reached: firms are said to be reluctant to cross this threshold – known as the ‘social threshold’ – in order to avoid, for example, having to set up a works council (now the CSE with expanded remit). This slower growth in firms would ultimately limit productivity and employment.
- However, when the workforce size of firms is calculated directly from administrative data covering all employees, the peak at 49 employees disappears entirely. It is therefore the workforce size declared by the employer, rather than the actual workforce size, that peaks at 49 employees.
- We suggest that this phenomenon can be explained by the fact that the legal headcount is difficult to calculate and is not publicly available, meaning that compliance with certain legal obligations depends in practice on the declared headcount.
- Furthermore, the cost of misreporting headcount appears to be low, meaning that firms concerned about legal obligations have everything to gain by reporting an incorrect headcount that allows them to avoid these obligations.
- These findings partly call into question the results linking workforce size thresholds to a detrimental effect on growth.
