Switzerland

Payroll Guide for Switzerland

In Switzerland, the payroll tax system mirrors the country’s federal structure, which consists of 26 sovereign cantons with 2.222 independent municipalities.
According to the constitution, all cantons have full rights to taxation except for those taxes that are exclusively reserved for the federal government. As a consequence, Switzerland has two levels of taxation: the federal and the cantonal/communal level. 

   
Capital Bern
Currency CHF
Minimum salary 23 CHF per hour or 3500 CHF per month*
Payroll frequency Monthly
Payroll difficulty level Medium
 *In general, Switzerland does not have a standard minimum wage. The above value is only for the canton of Geneva approved in 2020. In Jura and Neuchatel the rate is 20 CHF.  
 
Social Security in Switzerland

Switzerland is well known for its high salaries and quality of life. 80% of Swiss people are employed, and the country’s culture places a big spot on families. That being said, life quality is well ensured by the strong social security system that is designed to support people at all levels and ages. 

The social security system in Switzerland consists of three pillars. 

  • 1st pillar intended to support the most vulnerable part of the population by covering the basic living costs

  • 2nd pillar together with the 1st pillar aims to ensure that employed people maintain their standard of life by having the possibility to benefit from an occupational pension, private sickness, and/or accident insurance coverage. 

  • 3rd pillar consists of benefiting from private pension and individual supplements. 

The Swiss tax at source system is quite complex due to the federalist structure of the country

Social Security 3 pillar system Employer rate Employee rate
Old Age and Survivors (OASI) 4,35% 4,35%
Disability Insurance (DI) 0,7% 0,7%
Income Compensation (IC) 0,225% 0,225%
Unemployment Insurance I (UI1) 1,1% 1,1%
Unemployment Insurance II (UI2) 0,5% 0,5%
Family Allowance Contribution (AFam) 2,45% -
Maternity Insurance Contribution (AMA) 0,046% 0,046%
Early Childhood Contribution (PE)* 0,07% -
Occupational Pension (2nd pillar) Variable %
(not less than 50% of
the total calculated amount)		 Variable %
(not more than 50% of
the total calculated amount)
Professional Accident Insurance Variable %
(depending on the industry,
personal status of the employee)		 -
Non-Professional Accident Insurance Variable %
(depending on the industry,
personal status of the employee)		 Variable %
(depending on the industry,
personal status of the employee)
Sickness Insurance Variable %
(not less than 50% of the
total calculated premiums)		 Variable %
(not more than 50% of the
total calculated premiums)
TOTAL 9,441% 6,921%
*Geneva only
 
Tax at source in Switzerland 

In general, the tax at source value depends on many factors, such as nationality, the canton, the civil status, and the religious situation.  

Whether you are a Swiss national or a non-Swiss employee you will pay income tax in Switzerland. The main difference between the two is when you should pay your tax:

  • Swiss nationals, permit C holders, and people married to a Swiss national or a permit C holder pay the tax at the end of the year.

  • Non-Swiss people pay the tax at source monthly, thus the employer withholds each month from their salary the tax contribution. Further, the tax has to be paid directly to according Swiss tax authority. The tax amount varies by canton and may change each year. 

People who do not have Swiss citizenship and do not hold a C permit should pay the tax at source to the authority of the canton where they live (the place of the residence) or in the absence of one, to the authority of the canton where the employer is registered. 

The tax at source rate depends on the tax tariff code communicated by the tax authority. The tax tariff code is composed of three characters and for instance, may have the following format “A0N” for a single employee, who has no children and does not belong to any religious denomination.

As well as paying their withholding tax, employees with a gross annual salary of over 120,000 CHF also need to fill out a standard tax return for each year.

Payroll Cycle

Almost in all cases, employees working in Switzerland are paid every month by the last working day. However, the most liked pay date by both employers and employees is usually the 25th of the month.

Working Hours 

In general cases, depending on the working conditions the hours of work are decided liberally by the employer and the employee. However, the working hours must not exceed the maximum (50 hours) and minimum (40 hours a week) of working time required by the law, thus an average of 42-45 hours/week goes perfectly. 

In cases of overtime working hours, according to the law employees have to be remunerated at least 125% over their regular pay rate, or in case financial compensation is not possible giving the employee additional time off must apply. 

Compensations and Benefits 

Switzerland is well known in the labor market as a country with high salaries. Besides the monthly salary, to attract people into their organization employers offers contractually 13th salaries, bonuses, commissions, different kinds of allowances, and the possibility to be covered under additional health or accident insurances. 

All of the mentioned above are an integral part of the employee’s gross salary that in the process of payroll calculations will be subject to social security and withholding tax deductions.

Holidays and Leave

When employing people in Switzerland and processing the payroll you may encounter the following general types of the employees leave, some of them paid fully, partially or not at all:

  • Vacation paid leave (yearly entitlement for one employee consists of 28 days) 

  • Vacation unpaid leave (minimum 2 weeks to maximum one year)

  • Public holidays (five national holidays including New Year and Christmas and about 20 per municipality)

  • Sick leave

  • Maternity/paternity leave 

  • Military leave

According to the law, the employees have the right to benefit of paid leave for the bellow reasons:

  • Marriage (1-2 days)

  • Birth of your child (1-3 days)

  • Death of a close relative (1-2 days)

  • Moving home

The remuneration for all the named above are not properly specified by the law, instead, these have to be regulated by the employment agreement or the collective agreement of your company. 

Employment Termination

Termination of the employment may occur any time at the request of any party through a written or verbal notice letter unless the resulted employment relationship is not under the regulation of the fixed-term contract. Though, a certain period of notice has to be given.

Even if practically speaking the verbal method to terminate an employment relationship is the easiest one, the safest one is a written notice letter which may guarantee the fact that it has been well received by the employer and approved on time. 

As general rules, a written notice must include:

  • The identificational information about the employee and the employer

  • The exact information regarding which contract is going to be terminated  

  • The exact termination date

  • The signature of the solicitant and the date.

The reason you intend to end the contract is not required to be included. 

The notice period begins right after the notice letter has been received by the employer. If the employment agreement or the collective agreement does not specify the exact duration of the notice period, the last fall under the regulations of the Code of Obligations (CO). 

According to the CO, the duration of the notice period is:

  • 7 calendar days during the trial period

  • 1 month during the first year of service 

  • 2 months from the 2 to 9 years of service 

  • 3 months from 10 years of service 

The fixed-term employment agreement ends on a pre-established date. It is not possible to terminate a fixed-term employment contract before the specified date unless the contract includes special clauses for early termination or good cause exists. 

 

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FAQ 

You may employ people in Switzerland having or not a company. If you are a foreign company you can hire locals as freelancers, through an umbrella company (EOR/ PEO), or if your company is based in an EU/ EFTA area, you can hire directly by registering as an employer in Switzerland.

Yes. You only must register as an employer within the social security and tax authorities in the canton your employee resides, and pay needed taxes.

It depends on your business country of residence, if the employee's main activity will be performed on the Swiss territory and the social security taxes will be paid on time, it is allowed.

There are three options to doing this: contracting freelancers, through EOR services (you find a local company that is going to be your employee's legal employer) or registering as an employer within the local social security bodies. Comparing the taxes for hiring freelancers or employees, in Switzerland, it is more advantageous to have employees.

The process depends on how efficient is the communication with the authorities, and Swiss local bodies are very open and proactive, so you can do this during the first month of employment, but we recommend starting the registration process before the employee begins to work.

If the activities your employee performs are mainly for the foreign company benefits, there are no operations on the Swiss territory, and your company's main activity is based abroad, then you do not have to pay VAT and corporate taxes in Switzerland. What are the employment contracts used in Switzerland?

The most commonly used employment contracts are fixed-term and permanent employment contracts. There are no important restrictions regarding fixed-term contracts, so if the employee is doing a good job, there is no meaning to renew many times the contract, so it is considered permanent.

The payroll taxes should be always paid in the country where the employee performs his work. You should pay your social security taxes in Switzerland, and if you have been on the Swiss territory for more than 30 days (with gains, or 90 days without), you also should pay tax at source in Switzerland.

The employment contract is generally governed by two aspects of the general regulations: labor law and social security legislation. The law that governs the contract may be chosen by the employer and the employee and mentioned in the contract. The social security legislation applicable in the country where the employee resides enters into action by default, so it can not be changed.

The members of EU/EFTA do not need a work permit to work in Switzerland especially if they have their residence on the Swiss territory.

Switzerland does not have a minimum official salary per country. However, some collective agreements do require that skilled employees have to be paid 2800 to 5300 CHF per month, while unskilled workers should be granted a monthly average pay of 2200-4200 CHF.

A person working in Switzerland typically earns on average around 124.000 CHF gross salary per year. Although, this depends on the industry and the level of education of the employee.

There is no official language in Switzerland. Among the most spoken languages on the Swiss territory are German, French, Italian, and Romansh. English is also well known and frequently used in speaking practice.

Employers cover around 9,5%-10% of the due social security and complementary health insurances, while Swiss employees pay from 7,5%-8% of payroll taxes. Swiss residents which do not hold a C work permit, are not married to C work permit holders, or Swiss nationals, and do not have a property in Switzerland, pay additionally on a monthly basis tax at source, which is deducted directly from their salary.

The withholding tax is calculated and paid differently for Swiss nationals or C cardholders, and for Swiss residents. Only the last pay the amount of withholding tax due on a monthly basis depending on the tax code (tax tariff) attributed to them by the tax office. The tax tariff depends on the personal status of the employee (age, civil status, number of children) and his religious appurtenance. As an example, the tax tariff format looks like this A0Y, for a single employee, with no children and paying church taxes.

If you have resided more than 90 days on the Swiss territory (without gains) or 30 days (with gains) then you should be taxed at source in Switzerland and pay your tax.

There is no official work time frame instead there are some working time limits outlined in the collective agreements, so the employees' working time may not exceed 50 hours per week. A usual working week consists of 40 hours.

4 weeks paid leave for the employees over the age of 20 years, and 5 weeks of paid leave for people up to 20 years.

Depending on the employee position within the company and his seniority period. In general, an employment contract may easily be terminated once its end is a mutual agreement.

Under the Swiss Code of Obligations, severance payment must only be paid only if the employee concerned is over the age of 50 and has been employed for more than 20 years for the same employer. In this case, the statutory minimum severance payment is equal to two months of contracted salary.

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