Handling Switzerland payroll includes registering your business with several government entities, understanding complex tax deductions, and paying attention to unique employment laws. It is not for the faint of heart or those without the necessary financial resources, as Switzerland consistently ranks as one of the most expensive countries in which to live and conduct business.
Need to simplify hiring, payroll, and compliance for remote teams worldwide? With Oyster you can: |
|
A note about currency: Switzerland’s currency is the Swiss Franc (CHF). For comparison purposes, we’ll note the equivalent US Dollar ($) figure, where applicable, using the conversion rate relevant at the time of writing this article: 1 CHF = $1.09. Make sure you check current conversion rates to ensure accurate calculations.
Step 1: Set Up Your Business as an Employer
There’s a number of tasks to complete to fully register your business as an employer in Switzerland. You will be required to set up a local bank account, as companies must pay employees from a Swiss bank and in local currency. Other tasks include deciding on a business structure and registering with multiple government entities.
Foreign companies can expand into Switzerland by establishing either a branch or a subsidiary. Note this is not a distinction made under Swiss law but rather by your company’s operations.
A branch is a financially independent arm, legally dependent on its parent company based outside Switzerland. This means that, although it has its own accounts, it trades under the same name—and thus, the parent firm is held accountable for any debts. A branch is the only option if production or commercial operations are expected.
A subsidiary operates as an entirely independent legal entity (either a Sàrl or SA/AG). The foreign parent company owns at least part of the capital and still holds some influence over decision-making through board membership. Its liability is limited to the amount invested in the subsidiary.
Both branches and subsidiaries must register with Swiss authorities, with one representative from the parent company required to be a Swiss resident (this may be achieved by appointing a local representative). They must abide by all guidelines applicable to businesses operating in Switzerland, including keeping detailed financial records and paying applicable taxes.
Subsidiaries need their own articles of association and adhere to minimum share capital requirements, just like local companies. Branches, however, may submit certified copies of their parent company’s articles instead.
You’ll need to register your company with the Commercial register, administered by the Swiss cantons (member states). Each director, owner, or representative must sign the application for registration. Once you receive your formal registration, you can begin business operations.
However, you’ll still need to register with additional government agencies and programs:
- Old age and survivor’s insurance (OASI): Similar to a US Social Security number, individuals register for it, and then employers pay into this insurance. Upon retirement, workers can receive pension payments. Called 1st pillar pension, this is intended to cover a person’s basic needs in retirement. The current maximum monthly benefit is CHF 2,450.
- Occupational pension: This 2nd pillar pension is compulsory for any worker over 16, is covered by 1st pillar pension, and earns at least CHF 21,510 per year. Both employer and employee pay the contributions, and the benefits are intended to provide a comfortable retirement, based on how much an employee paid into the system during their working years.
- Unemployment insurance: Locate the canton where your employees work or live and register for the local unemployment insurance. They will determine the rates you pay.
- Invalidity insurance: Similar to US disability insurance, this covers workers who are unable to work because of a health issue. Locate the canton where your employees work or live, register there, and receive your rate.
- Accident insurance: Every employer is required to carry this for every employee, even if an employee works from home. This can be done through private insurers.
- Health insurance: Compulsory in Switzerland, every person must have health insurance coverage. It’s often provided by private insurers. Any exemptions are approved through the local canton office.
- Withholding tax: Locate the canton where your employees live or work and register with the local authorities. They will also provide you with the applicable rates.
Beyond these requirements, it’s also a good idea to take out additional insurances, like liability and property. These can help protect your business and assets.
Step 2: Establish Your Payroll Process & Policies
You’ll want to create a structured process to follow so that you don’t miss any vital payroll steps. Consider the following:
- Pay schedule: How frequently will you pay employees? Monthly is most common in Switzerland, but you can also pay weekly, every other week, or twice monthly.
- Type of employees: Full time vs part time?
- Tracking time: How will you track employee hours, and how will it be reported to you?
- Benefits: What benefits will you offer beyond the required benefits? Who pays for them? How will you manage the payroll deductions?
- Taxes: How often will you need to pay taxes? What tax rates will you pay? How often do you need to remit taxes and to what agencies?
- Payroll processing and calculations: Will you calculate payroll by hand, Excel, or use a payroll service or software?
- Paychecks: Will you write manual checks, use pay cards, pay via direct deposit, or pay in cash?
The typical Swiss workweek is Monday through Friday, 8 a.m.–5 p.m. Maximum working hours vary by industry but generally fall between 45 and 50 hours per week. The number of hours each employee works is also stipulated in their employment agreement.
Any hours worked beyond what’s agreed to in the employment agreement are considered overtime. This must be compensated at 25% more than the normal hourly rate of the worker—unless the employment agreement specifies a higher rate. However, with written consent from the employee, a company may forgo paying an overtime rate provided they give the employee an equivalent amount of extra hours as paid leave.
Be aware there’s also statutory overtime. Employees must receive at least 25% more than their regular rate of pay for hours worked over 50 per week in every industry, except the following, which require overtime pay after 45 hours worked in a week:
- Industrial
- Office
- Technical
- Retail sales
To ensure your company processes payroll in Switzerland effectively, you should also have policies on:
- Leaves: What leaves are required to be paid vs unpaid, and at what rates?
- Overtime: At what rate do you need to pay employees’ overtime, and for how many hours?
- Absences: How do you track absences and know whether they’re paid or unpaid, excused or unexcused?
- Holidays: What holidays are paid and at what rate?
Step 3: Determine Salaries & Ensure Compliance
The cost of living in Switzerland is higher than in the US, currently nearly 20% more expensive. The average annual salary in Switzerland is about CHF 79,980 ($87,178). Swiss salaries are among the highest in the world, reflecting the high tax rates and cost of living. You need to consider this when determining what you’re going to pay your Swiss workers. Consider their experience and skills, in addition to the cost of living.
Payroll & Employment Law Compliance
Switzerland has similar employment and payroll compliance laws to the US and follows many of the employment laws set forth by the EU. It’s vital that you understand the differences and nuances of Swiss employment law so that you remain compliant.
Every employee in Switzerland must have an employment contract or be covered by a collective bargaining agreement. Here’s what must be included in this document:
- Company full name and address
- Employee full name and address
- Date employment commenced
- Working hours
- Rate of pay calculation and frequency of pay
- If a contract is for a fixed term, the end date must be clearly stated
Employee classification is extremely important in Switzerland. If a company requires a person to work certain hours, offers a regular salary, or supervises their work, they’ll most likely be considered an employee. Less than 10% of the Swiss workforce is self-employed, which would include freelancers and independent contractors.
Penalties for misclassification in Switzerland are steep. Companies could face fines, back pay, and be barred from conducting business in Switzerland.
To be clear, you can partner with a Swiss independent contractor, but just make sure they’re actually a contractor and not an employee.
There is no minimum wage in Switzerland. Most industries are covered by collective bargaining agreements which set the minimum wage for workers in those industries. Several cantons also have established a minimum wage, but Swiss voters have consistently rejected a national minimum wage.
Switzerland bases the workweek on 45 to 50 hours over five days. Any work completed over the base hours in a week will be paid at a rate described in the collective bargaining agreement or the employment agreement. If it is statutory overtime, as described above, it must be paid at a rate of at least 25% more than the employee’s regular rate of pay.
Swiss employees are entitled to at least four weeks of holiday per year. Employers may provide more time off if they choose but are under no obligation to pay out accrued and unused vacation time when an employee leaves.
While not a requirement, salaries in Switzerland are often calculated based on the 13-month system. When a Swiss employer operates on this system, employees will receive two salary payments in December.
Switzerland has only one national holiday: August 1, Swiss National Day. Each canton has its own holidays, wherein employees are allowed to take off work that will not count toward their vacation time. If a public holiday falls on a non-working day, employees cannot redeem the holiday time during the week.
Maternity leave is a requirement in Switzerland. Mothers are entitled to paid leave of 14 weeks. It is paid at 80% of the worker’s regular wage, up to a maximum of CHF 196 per day—cantons, collective bargaining agreements, and employment contracts may specify higher rates.
The leave begins on the day the child is born and must be taken at once. Mothers who return to work before the 14 weeks of leave are up lose the rest of the time. Mothers also have the ability to extend their leave by up to two weeks, but this extension is not paid. With the approval of the employer, mothers may be able to extend their leave even further.
Fathers are entitled to two weeks of paid leave at 80% of their regular wage, up to a maximum of CHF 196 per day. This leave is flexible and can be taken at once or in individual days, so long as it is all used within six months of the birth of the child.
There is no national system for adoption leave or for a general parental leave that can be split between the parents. Some cantons have enacted one or both of these.
Switzerland provides sick leaves when a worker is ill. Workers will receive their regular salary for up to 730 days (over the course of 900 days), depending on the type of insurance the employer carries. If an employee is absent for more than three days, an employer can request a doctor’s note.
Companies cannot terminate employees on sick leave. Even for long stretches, employees are protected from termination for:
- 30 days in the first year of employment
- 90 days from the second to the fifth year of employment
- 180 days from the sixth year of employment and on
If a family member is sick, workers may take up to three days of paid leave to care for them.
While not technically an at-will employment system, both Swiss workers and companies can terminate the employment relationship. Because most employment relationships in Switzerland are governed by employment contracts or collective bargaining agreements, you’ll need to end the employment relationship in writing. This also means that you’ll need to follow the contract for how much notice you must provide. If there is no contract or no mention of a notice period, the following notice periods apply:
- Seven calendar days during a probationary period
- One month from the last day of the month in which notice is given during the first year of employment
- Two months from the last day of the month in which notice is given during the second through the ninth year of employment
- Three months from the last day of the month in which notice is given from the 10th year of employment on
Companies are not required to state the reason an employee was terminated. However, if the employee asks for a reason, companies must provide a written explanation.
Switzerland has no severance requirement, except for employees over the age of 50 with at least 20 years of employment with the same company. In that case, an employer must provide at least two months’ pay as severance. Note that you must follow any severance protocol stated in an employment contract or collective bargaining agreement.
Step 4: Collect Employee Data & Forms
As with US-based employees, you’ll need to collect certain data from your Swiss employees. This often includes:
- Employee’s full name
- Employee’s permanent address in Switzerland
- Identification proving the employee’s identity
- Copy of the employee contract or collective bargaining agreement
- Bank account information
Step 5: Collect Time Sheets & Calculate Payroll
When a business first launches, they often use paper time sheets. We don’t recommend this as it’s ripe for errors and misuse. The best and most effective way to keep track of employee hours is to use time tracking software. Your employees clock in and out electronically, and your managers can review and approve time sheets before they get to your payroll team for processing.
Once payroll gets the time sheets, they should still review them for accuracy. A second set of eyes to spot any glaring errors is crucial to ensuring your company runs payroll correctly each time. It’s easier to fix these errors before running payroll, and it creates a smoother process for everyone involved.
When calculating your Swiss payroll, you’ll need to account for payroll taxes. Missing these will leave you out of compliance and could cause costly fines and penalties from Swiss government agencies.
Tax | Employer Share | Employee Share |
|---|---|---|
OASI | 5.3% | 5.3% |
Unemployment | 1.1% | 1.1% |
Family Compensation | 1 to 3% | 0% |
Occupational Accident | 0.17 to 13.5% | 0% |
Non-Occupational Accident | 0% | 1 to 4% |
Besides these payroll taxes, you’ll also need to withhold appropriate income tax from your employee’s paychecks. Swiss taxes are high by US standards and complex:
Note that Zurich and Geneva also have additional income taxes that must be withheld. Geneva, in particular, is quite complex, as it does not use a typical tax bracket system, but rather increases the tax rates in small increments with each small increase in income.
Step 6: Pay Employees
Now that you’ve reached the point of calculating your payroll, it’s time to pay your international employees. Make sure you’re following the pay schedule you’ve previously outlined.
If you have just a single or a handful of employees in Switzerland, you may want to outsource your payroll to a local provider. They will be licensed and familiar with Swiss payroll laws and processes. While you’ll pay them a fee, it’ll likely be worth your time for just a few workers.
However, if you have more employees or plan on dramatically expanding your Swiss workforce, you may want to do payroll in-house. Make sure you or your payroll team are familiar with Swiss payroll laws and deductions to ensure you’re making the right deductions from an employee’s paycheck and sending tax payments to the right Swiss government authorities.
Step 7: Document & Store Your Payroll Records
Payroll records in Switzerland must be kept for at least 10 years. Your payroll records should include, at a minimum:
- The dates of employment and rate of pay
- The frequency of pay
- Deductions
- Employee’s name and address
- Total regular and overtime pay
- Net employee pay
- Copy of employment contract or collective bargaining agreement
- Leaves taken
Bottom Line
Doing payroll in Switzerland for the first time is complex. There are many tax brackets, local canton taxes, and lots of social programs. Make sure you take your time and set everything up correctly from the start, especially classifying your workers appropriately, as Switzerland’s workforce is primarily composed of employees.
