How to calculate mutual termination compensation in 2026?
12 March 2026 · 4 min reading time
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See job offersA mutual termination agreement is now one of the most commonly used ways of ending an employment contract in France. It allows an employee and their employer to terminate an open-ended employment contract by mutual consent, within a specific legal framework set out by the French Labour Code.
This arrangement is based on a regulated procedure designed to guarantee the consent of both parties and to set the terms under which the contract will end. One of the key elements of this procedure is the compensation paid to the employee at the time of termination.
What is mutual termination compensation?
Mutual termination compensation is the amount paid to the employee when their open-ended employment contract comes to an end through a mutual termination agreement. It is paid by the employer at the end of the procedure and accompanies the termination of the employment relationship between the two parties.
This compensation is an integral part of the mutual termination process. It must be stated in the termination agreement signed by the employee and the employer, which formalizes their decision to end the employment contract.
Since a mutual termination is based on an agreement between both parties, the compensation is one of the central elements of the negotiation. Once the agreement has been signed and approved by the administration, the contract may be terminated on the scheduled date.
In practice, mutual termination compensation is paid at the time of the final settlement, together with the other amounts owed to the employee when the contract ends, such as the final salary or any payment in lieu of accrued paid leave.
What is the minimum amount of mutual termination compensation?
When a mutual termination agreement is concluded, the employer is required to pay compensation to the employee. The law sets a minimum amount, which cannot be lower than the statutory severance pay provided for by the French Labour Code.
This minimum is calculated according to the employee’s length of service within the company and the reference salary used for the calculation. As a general rule, the longer the employee’s service, the higher the amount of compensation.
The formula provided by law is as follows:
- 1/4 of a month’s salary per year of service for the first 10 years
- 1/3 of a month’s salary per year of service from the 11th year onward
For example, for an employee whose gross monthly salary is €2,000:
| Employee’s length of service | Gross monthly salary | Estimated minimum compensation |
|---|---|---|
| 3 years | €2,000 | €1,500 |
| 5 years | €2,000 | €2,500 |
| 10 years | €2,000 | €5,000 |
| 15 years | €2,000 | approximately €8,333 |
These amounts correspond to the statutory minimum provided for by the French Labour Code. The compensation may be higher if the employee and employer agree on a larger amount during the negotiation of the mutual termination agreement, or if the applicable collective agreement provides for more favorable terms.
Example of how mutual termination compensation is calculated
To better understand how mutual termination compensation is calculated, it is useful to look at a practical example. Let us take the case of an employee who earns a gross monthly salary of €2,500 and has 6 years of service with the company.
In this situation, the formula provided by law applies only to the first bracket of service, since the employee has fewer than 10 years of service. The minimum compensation therefore corresponds to one quarter of a month’s salary per year of service.
The calculation is as follows:
6 years of service × 1/4 of a month’s salary
= 1.5 months’ salary
With a gross monthly salary of €2,500, the minimum compensation will therefore be:
1.5 × €2,500 = €3,750
This amount corresponds to the legal minimum that the employer must pay in the context of a mutual termination agreement. The compensation may be higher if a larger amount is negotiated between the employee and the employer when signing the termination agreement.
Can a higher mutual termination compensation amount be negotiated?
The amount of mutual termination compensation may be higher than the minimum provided by law. Since a mutual termination agreement is based on an agreement between the employee and the employer, both parties may negotiate the conditions of the termination, including the amount of compensation paid.
In practice, when both parties wish to reach a quick agreement to end the employment contract, it is not uncommon for the compensation to be higher than the statutory minimum.
Several factors may influence this negotiation. The employee’s length of service, level of responsibility, salary, and the context in which the termination takes place may all play a role in determining the final amount of compensation.
It should also be noted that some collective agreements may provide for more favorable compensation than the amounts set by law. In that case, those provisions automatically apply if they are more favorable to the employee.
The negotiation of mutual termination compensation generally takes place during discussions between the employee and the employer before the termination agreement is signed. Once an agreement is reached, the amount of compensation is recorded in the agreement, which is then sent to the administration for approval.
Is mutual termination compensation taxable?
Mutual termination compensation may benefit from an income tax exemption, subject to certain conditions set out by tax regulations.
When the employee is not yet entitled to claim retirement benefits, the compensation is exempt from income tax up to the highest of the following three thresholds:
- the amount of the statutory or contractual severance pay
- twice the employee’s gross annual remuneration received during the year preceding the termination
- or 50% of the total compensation received
However, the tax-exempt portion cannot exceed six times the annual Social Security ceiling.
Any portion of the compensation that exceeds these limits is then subject to income tax and must be declared by the employee.
Example of the taxation of mutual termination compensation
Let us take the example of an employee who receives mutual termination compensation of €40,000.
Their gross annual salary in the year preceding the termination was €30,000, and the statutory severance pay to which they would have been entitled was €12,000.
To determine the tax-exempt portion, the three thresholds provided by law are compared:
- statutory or contractual severance pay: €12,000
- twice the gross annual remuneration: €60,000
- 50% of the compensation received: €20,000
The highest amount is €60,000. However, the exemption cannot exceed the amount actually received.
In this example, the €40,000 compensation is therefore fully exempt from income tax, since it remains below the applicable exemption ceiling.
Is mutual termination compensation subject to social security contributions?
Compensation paid as part of a mutual termination agreement does not follow exactly the same rules as salary. Its treatment mainly depends on the amount paid to the employee.
First, the portion of the compensation corresponding to the statutory or contractual minimum severance pay is exempt from social security contributions. In other words, this portion is not subject to standard Social Security contributions.
When the negotiated compensation exceeds this minimum, the exemption may continue to apply, but only within certain limits set by regulations. In particular, the exemption is capped at a maximum amount of approximately €96,120, which is twice the annual Social Security ceiling. Above this threshold, the excess portion becomes subject to social security contributions.
The situation is slightly different for CSG and CRDS contributions. These levies may apply to part of the compensation, especially to the portion exceeding the amount of statutory or contractual severance pay.
Lastly, when the total amount of compensation is very high, beyond approximately €471,000, it becomes fully subject to social security contributions from the first euro, with no exemption possible.
In practice, this means that the gross amount negotiated in a mutual termination agreement does not always exactly match the net amount received by the employee. Part of the compensation may be subject to various social contributions depending on the amount paid.
Mutual termination and sick leave: is it possible?
Being on sick leave does not, in principle, prevent a mutual termination agreement from being concluded. An employee on sick leave may therefore absolutely begin discussions with their employer in order to end their employment contract by mutual agreement.
However, certain conditions must be met. The mutual termination agreement must be based on the free and informed consent of both parties. In other words, it must not be imposed on the employee or concluded in a context of pressure or particular vulnerability related to their health condition.
The procedure remains the same as in other situations. One or more meetings may be held between the employee and the employer to discuss the terms of the termination. A termination agreement is then signed and sent to the administration for approval.
It should also be noted that sick leave does not prevent the employee from receiving mutual termination compensation, which will be paid when the termination of the employment contract becomes effective. The employee may then, if they meet the required conditions, become entitled to unemployment benefits after the end of the contract.
What are the timeframes for a mutual termination agreement?
A mutual termination agreement follows a regulated procedure that includes several steps before the termination of the employment contract becomes effective. Between the moment the employee and employer reach an agreement and the actual end of the contract, several time limits must be respected.
The first step is to organize one or more meetings between the employee and the employer. These discussions make it possible to talk about the terms of the termination, particularly the departure date and the amount of mutual termination compensation.
Once both parties have agreed, they sign the termination agreement. From the date of signature, a withdrawal period of 15 calendar days applies. During this period, both the employee and the employer may change their mind without having to justify their decision.
At the end of this period, the agreement is sent to the administration for approval. The administration then has 15 working days to verify that the procedure has been properly followed and that the consent of both parties is free and informed.
If the administration does not respond within this period, the approval is deemed to have been granted. The employment contract may then end on the date set out in the agreement. Mutual termination compensation is generally paid at the time of the final settlement.
Mutual termination and unemployment benefits: what are the employee’s rights?
A mutual termination agreement generally entitles the employee to unemployment benefits in most cases. Unlike a resignation, this way of ending an employment contract is considered an involuntary loss of employment, which allows the employee to benefit from unemployment insurance provided they meet the eligibility conditions.
To receive the return-to-work allowance, the employee must in particular have worked a certain number of months over recent years and must register with France Travail after the end of their contract.
However, unemployment benefits do not begin immediately after the contract ends. Several waiting periods may apply. First, there is a 7-day waiting period, which applies to most job seekers.
In addition, there may be a deferred compensation period, especially where the employee has received mutual termination compensation higher than the statutory or contractual minimum. In that case, part of the compensation may result in an additional delay before unemployment benefits begin.
Once these periods have passed and the conditions have been met, the employee may receive unemployment benefits to support them while looking for a new job.
Can a mutual termination agreement be refused?
A mutual termination agreement is based on an agreement between the employee and the employer. It can therefore only be implemented if both parties give their consent. As a result, each party remains free to refuse the proposal.
An employer may offer a mutual termination agreement to an employee, but the employee is under no obligation to accept if they wish to continue their employment contract. Conversely, an employee may also request one from their employer, who remains free to accept or refuse.
If either party refuses, the employment contract continues under the usual conditions. If the employer nevertheless wishes to terminate the contract, they will have to rely on another procedure provided for by employment law, such as dismissal, which is governed by different rules.
It should also be remembered that a mutual termination agreement must always be based on free and informed consent. Any pressure or constraint exerted on either the employee or the employer could call into question the validity of the procedure.
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