Understanding Payroll in Switzerland: What Global Companies Need to Know About Switzerland's Payroll
Nov 28, 2017
Known for its watches, cheese, chocolate, and incredible slopes, Switzerland attracts a worldly mix of professionals and tourists all year round. Not only is this country one of the most beautiful in the world, but its people are also notoriously friendly—and peaceful. Switzerland has 8.3 million residents and a GDP of $659.8 billion. The nation’s largest exports are chemicals, electronics, and instruments, and while their trade relations extend across Europe, they are strongest in Germany and Italy.
Although Switzerland may be informally known as a tax shelter for corporations, its rules can be extremely complicated. Unlike most countries, the laws and customs vary widely based on region. Payroll regulations are heavily dependent on where you do business and who you employ. Enlisting the expertise of an experienced payroll solution provider could be a wise move for multinational organizations looking to expand into Switzerland.
To conduct business in Switzerland, companies must first register with the Commercial Register, where they need to submit notarized company bylaws and founding documents (e.g., deed of incorporation, articles of incorporation, etc.) in addition to the standard application. Stock companies do not need an in-country bank account, though they will need to prove to a Swiss bank that they hold at least $100,000 in capital.
Salaries can be paid by third-party business entities, such as an international payroll and payments provider; however, at least one representative of the company must live in Switzerland to set up business there. Registration usually takes about nine days to be approved and costs about $600 plus 0.02% of the company's total capital. Once approved, the business can register for social security and obtain a VAT number through the Federal Tax Administration.
Employment Law & Employee Rights
Employment law in Switzerland is usually on the side of employers, though Swiss law tends to make examples of employers who abuse the laws. Written contracts are not strictly required but are strongly encouraged. Contracts should include all financial, schedule, and confidentiality terms, and should be signed by both employee and employer. Probation periods are allowed but cannot last longer than three months. All Swiss workers have an unstated probationary period of one month, during which an employer may terminate the contract for any reason with at least one week's notice.
The average Swiss work week includes 40 hours, although depending on the industry, it may be the norm for workers to put in between 45 and 50 hours per week. Swiss workers can choose to have this overtime compensated at a premium of 125% the regular wage or to take additional time off in lieu of a premium rate. Collective bargaining is allowed in Switzerland, and unions are on the rise in the country. Negotiations between employees and employers take place at the industry level, with union leaders and government only stepping in to resolve extreme conflicts.
Compensation & Severance
The currency in Switzerland is the Swiss franc, which is similar in value to the US dollar. There is no set minimum wage for most workers in Switzerland (only for domestic employees), and employers are under no obligation to pay severance in the case of termination. However, Swiss employees are some of the most highly compensated in the world, so employers should be ready to spend to acquire and retain premium talent. Swiss voters recently rejected a mandate for a minimum wage of around $25 an hour—primarily because 90% of workers earn more. The standard procedure is to work out wages, severance, and termination policies during contract negotiations.
Tax Requirements & Withholding
Rather than a flat corporate tax rate, Switzerland applies two separate taxes to business profits and capital. Profit tax takes a flat 8.5% of all net profits, including disguised dividends. Capital tax varies based on the equity of the company. Federal withholding tax is 35% for standard dividends, interest on loans, and private pension funds.
Individual income tax rates vary based on location, income, number of dependents, and other factors, and generally range from 12 to 32%. Depending on the region and employee, income tax deductions may be made at the source or via an annual tax declaration, with funds submitted either monthly, quarterly or annually. Social security rates also vary based on location, age, and income. Employer base contributions typically include 4.2% for retirees and 0.7% for the disabled.
Time Off & Paid Leave
By law, Swiss workers are entitled to a minimum of 20 days (4 weeks) of paid time off if they are aged 20 or older and 25 days off if they are under 20. This allowance generally covers temporary illness as well as standard vacation time. New mothers are not allowed to work for at least eight weeks after their child is born, and they are entitled to 14 weeks of leave at 80% of their salary, paid for by social security. Additional provisions for maternity leave may be agreed during contract negotiations. Employees needing to take time off due to chronic illness may take up to 730 days, paid at 80% of their salary. Additionally, there are five national holidays in Switzerland and 23 regional holidays.
|Date||Switzerland Public Holiday Schedule|
|January 1st||New Year's Day|
|Friday before Easter Sunday||Good Friday|
|40 Days after Easter||Ascension Day|
|August 1st||National Day|
|December 25th||Christmas Day|
Finding a Global Payroll Strategy
While there are many opportunities to benefit from Switzerland’s tax code and labor force, it can be easy to make a mistake if you're unfamiliar with the system. There are a number of provisions and exemptions available for different companies, depending on their region, industry, and earnings. Partnering with an experienced global payroll provider can help ensure compliance with all local and national regulations, and enable you to focus on the future of your business.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.