What global businesses need to know about payroll in Switzerland

Nestled in the Alps is Switzerland, a country known for its neutrality, its wealth, and its exports like watches, cheese, and chocolate. It’s also known for its strong position as a business and finance hub for Europe and indeed the world. It isn’t a member of the European Union, but its membership of the European Free Trade Association underscores its value on the global business stage.

Switzerland regularly features at the top of global rankings for innovation, competitiveness and GDP. It has a large service economy and a high standard of living, but that comes with high wages, and a tax burden that can be bigger than you might think.

Foreign investors are welcome in Switzerland and profit from an investor-friendly environment and a stable currency. However, from a payroll and employment perspective, Switzerland is one of the most complicated countries in the world to understand. Each of the 26 cantons has its own rules and requirements, which can make running payroll fiendishly complex without the help of a global payroll provider. 

In this guide, we’re focusing on the cantons of Geneva and Zurich, as the two main business centers that you’ll most likely be expanding into. 

Getting Started 

Let’s start with the easy part. Setting up a business in Switzerland, a country long known for welcoming foreign trade, is a quick and simple process, and most of what you need to do can be done online.

If starting a limited-liability company in Switzerland, you’ll need minimum startup capital of at least CHF 20,000 (approx. £17,800; $22,800; €20,900). Start by registering the company name online on the EasyGov platform, then sign up for the commercial register. You’ll also be required to draft by-laws and articles of association (and get them notarized), and then sign up for tax, social security, business insurance, and any relevant licenses or permits. An in-country bank account is required, but these are easy to set up, and can even be done entirely online.

Employment Considerations

The Swiss labor market is characterized by its high productivity, low unemployment rate, and its flexible regulations, all of which have led to a constructive relationship between employees and employers. The strong rapport between the unions and company directors is based on cooperation and dialogue, which has made Switzerland’s economy one of the most stable and productive in the world; strikes are almost non-existent. 

The standard working week in Geneva is 40 or 42 hours, but can be increased to a maximum of as much as 50 by prior agreement. In Zurich, however, the standard is 45 (with a potential maximum to 50), and employers can add two hours per day or 170 hours per year in case of unforeseen urgent circumstances. In both cantons, overtime is capped at two hours per day and paid at 125% of salary, but collective bargaining can influence this.

Probation periods range between one and three months. Notice periods are seven days during the probation, rising to one month after this, two months after a year’s service, and three months after nine years’ service.

Compensation, Bonuses and Severance

Minimum wages in Switzerland are decided at canton level rather than by the federal government. As of the end of 2023, the rate in Geneva was CHF 24 per hour (approx. £21.40; $27.40; €25.00), while Zurich was just behind at CHF 23.90 per hour. These are two of the highest minimum wage rates anywhere in the world. It’s also worth noting that earnings in general are extremely high in Switzerland, with an average gross wage of around CHF 80,000 per year (approx. £71,400; $91,300; €83,500).

Discretionary bonuses are common in Switzerland – as are 13th-month bonuses – but they are not required to be paid by law. Generally, the terms for these will be defined in employment contracts and through collective bargaining.

Statutory severance pay is very rare, as it only applies to employees over 50, with at least 20 years’ service. Normally, they will receive between two and eight months’ salary. Other severance pay entitlements are up for negotiation in contracts and collective bargaining agreements.

Tax and Social Security

Switzerland has three different types of income tax, which can be very complex to keep track of. The first is the direct federal tax, levied progressively up to a maximum rate of 13.2%, but with slightly different rates for married taxpayers and single parents. Then, the cantonal tax is also applied, again progressively up to a maximum of 13%. And finally, a local communal tax is applied within each commune of a canton: this can run to as much as 51% of the basic cantonal tax.

Federal corporation tax is applied at 8.5%, on top of which each canton or commune will levy their own local taxes at various different rates. The standard rate of VAT in Switzerland is 8.1%.

Unsurprisingly, there are also many different types of social security contributions, and these also vary across different cantons. The rates for Geneva are:

• Disability/old age: 5.3% employer, 5.3% employee
• Unemployment insurance: 1.1% employer, 1.1% employee (rising to 1.6% for earnings above CHF 148,200 per year)
• Family compensation fund: 2.45% employer
• Maternity insurance: 0.043% employer, 0.043% employee
• Early childhood contribution: 0.07% employer
• Vocational training: CHF 31 employer
• Income compensation: 0.025% employee
• Occupational accident insurance: 1%-4% employer, variable for employees – according to insurance provider and level of risk in job role

For Zurich, the above rates apply, but with the following variations:

• Family compensation fund: 1%-3% employer
• Vocational training fund: 0.1% employer

Holidays and Leave

Paid leave entitlement is four weeks per year, increasing to five weeks for employees under 20 and over 50 years old. Carrying holiday over is permitted, and it’s up to the employer to set out a carryover policy.

There are only four days of public holidays that are observed nationally: New Year’s Day, Ascension Day, National Day and Christmas Day. But every canton will have its own set of public holidays that are observed locally.

Maternity leave is 16 weeks in Geneva and 14 weeks in Zurich. Mothers who have made sufficient payments into the social security system receive 80% of their normal salary, up to a maximum of CHF 196 per day (approx. £175; $225; €205). Paid paternity leave works in a similar way; fathers are entitled to 14 days off, including weekends, and are paid by social security at 80% of their salary, up to the cap of CHF 220 per day (approx. £195; $250; €230).

Paid sick leave entitlement is three weeks in the first year of employment. After that, most employees and employers enter into a benefits insurance scheme, which helps cover 80% of salary when sick leave is taken.

Leave for bereavements and weddings is a statutory requirement, but the length of the leave is at the employer’s discretion.

In Summary

When you consider that this guide covers just two of the 26 cantons of Switzerland, it’s clear that it can be a major undertaking to maintain payroll compliance there. In this country perhaps more than anywhere else, it’s vital to partner with a global payroll expert, who can support you with all the ins and outs of Swiss payroll, and ensure everyone gets paid on time, accurately, and with the right entitlements and withholdings applied.

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.