Understanding Payroll in Switzerland: What Global Companies Need to Know About Switzerland's Payroll
Switzerland, officially known as the Swiss Confederation, is located in Western, Central, and Southern Europe of the European Union. Constituted on August 1st, 1291, this small country has no time zones, but it does have "language zones," such as German, French, Italian, and Romansh.
Switzerland has always been a neutral and independent nation with strong relations to all its neighbours – from Germany to France, Italy to Austria – including the Principality of Liechtenstein (using the same currency and Swiss German language as Switzerland while also being protected from it in the event of war). Switzerland is also proud of giving organizations such as the UN, International Committee of the Red Cross – founded by a Henry Dunant (CH) 1876 – and WHO a home.
Today Switzerland has a population of about 8.5 million (25.1 percent are non-Swiss citizens). It is well known for its banks, watchmaking, cheese, chocolate, and innovation. Switzerland is the world's most innovative economy, followed by Sweden, the US, UK, and Netherlands, according to the GII 2020. These are all factors leading to Switzerland's position as the second richest country globally (after Luxembourg) following GDP per capita, a useful proxy for measuring a country's standard of living. Furthermore, Federalism and direct democracy reflect the great importance that the Swiss political system places on the freedom of choice and self-determination. For a broad overview, you may find helpful information on this government page.
As Switzerland is not part of the European Union (EU) but still very much relies on its various "bilateral contracts" with the EU to ease the transfer of goods and regulate the transfer of money and, of course, citizens.
Some industry leaders, such as Nestlé, Novartis, Roche, Swatch Group, Rolex, and Swiss Re, have their headquarters based in Switzerland and their roots. Still, the backbone of the economy is the country's SMEs. As Switzerland does not have many raw materials, over 76 percent are working in the service sector, followed by the industrial sector where almost 21 percent work and last but not least the agriculture with a little over 2.5 percent. Foreign investors are welcome in Switzerland and profit from an investor-friendly environment with a stable currency.
Switzerland knows various types of companies. In fact, there are eight variations.
Numbers from 2018
- Sole Proprietorships (325,279)
- Partnerships (16,479)
- PLC (118,623)
- LLC (112,720)
- Cooperatives (3,209)
- Associations & foundations (13,885)
- Foreign Corporations (1,768)
- Public Companies (732)
As an example, here is how to establish a PLC:
The company's mandatory capital (share capital) is CHF 100,000* (as a minimum, divided up into registered or bearer shares of a nominal value of one centime or more, and must be paid (paid-up) based on at least 20 percent or covered by contributions in kind, but a minimum of CHF 50,000. A limited company is established by its registration on the trade register, notarized authentication of foundation, approval of the by-laws, selection of the Board of Directors, and the certificate of verification by the auditors. More details can be found here.
*CHF 100'000 ≈ € 91'000 / $ 110'000 / £ 79'000
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, with the last general strike taking place almost a century ago. The weekly working hours are, in most cases, about 42 hours.
Compensation and Severance
Only two of 26 Cantons have introduced a minimum Salary of CHF 20 – 22 per working hour. The annual average wage in Switzerland is CHF 78'000* (Gross Salary). The following monthly salaries (a sample and gross) are from 2018 and published by the Federal Statistics Office as an indicator. The figures also depend on the level of management:
- Production: CHF 6,388 – CHF 9,707 / € 5,800 - € 8,800 / $ 6,999 – $ 10,635 / £ 5,018 - £ 7,625
- Trade; repair of motor vehicles: CHF 5,634 – CHF 9,370 / € 5,127 – € 8,527 / $ 6,173 – $ 10,266 / £ 4,423 – £ 7,356
- Transportation and storage: CHF 6,097 – CHF 9,762 / € 5,549 – € 8,884 / $ 6,669 – 10,678 / £ 4,789 – £ 7,668
- Information and communication: CHF 8,724 – CHF 11,981 / € 7,939 - € 10,904 / $ 9,613 - $ 13,111 / £ 6,856 – £ 9,414
- Manufacturing: CHF 6,436 – CHF 10,499 / € 5,857 - € 9,555 / $ 7,043 – $ 11,489 / £ 5,057 – £ 8,250
- Services: CHF 6,624 – CHF 10,537 / € 6,028 - € 9,590 / $ 7,248 – $11,529 / £ 5,204 – £ 8,278
- Financial and insurance activities: CHF 9,286 – CHF 15,635 / € 8,451 – € 14,230 / $ 10,156 – $ 17,102 / £ 7,296 - £ 12,284
- Professional, scientific and technical activities: CHF 7,873 – CHF 11,825 / € 7,165 - € 10,762 / $ 8,606 - $ 12,926 / £ 6,190 - £ 9,296
- Administrative and support service activities: CHF 5,328 – CHF 8,565 / € 4,849 - € 7,795 / $ 5,826 - $ 9,365 / £ 4,188 - £ 6,733
- Other service activities: CHF 6,397 – CHF 8,964 / € 5,822 - € 8,158 / $ 6,993 – $ 9,799 / £ 5,026 - £ 7,043
* CHF 78,000 ≈ € 71,000 / $ 86,000 / £ 62,000
For the first three-month (trial period), Switzerland's notice period is usually one week. After the trial period is over, for the first year, the notice period is one month. From the second to the ninth year, the notice period is two months, and after year 10 it is three months. These periods vary. A management-level employee can have a notice period of three months directly after the trial period, for example.
Tax and Social Security
The Swiss social security system has five branches: old-age, survivors' and invalidity insurance, health and accident insurance cover, compensation for loss of earnings due to military/alternative civilian service or maternity, unemployment insurance, and family allowances.
The pension system rests on three pillars. The "first pillar" is the old-age and survivors' insurance scheme (AHV/AVS) and the invalidity insurance scheme (IV/AI). It is compulsory and is financed from employee and employer contributions. The "second pillar" is the occupational pension scheme, which is also compulsory. Employees with annual earnings of at least CHF 21,150* are automatically insured with an occupational pension fund. The "third pillar" is an optional, private savings scheme.
The Swiss healthcare System accounts 12.2 percent of the GDP. This is above the OECD average of 8.8 percent, making it one of the most expensive in the world.
Switzerland has no Tax at Source system (with exceptions on the Residential Permit or Domicile). The only deduction from the monthly wage is for salaries up to CHF 148,200* are the following: Old-age and survivors' insurance, disability insurance, acquisition substitution scheme and unemployment insurance what equals a total of 6.4 percent. The employer also covers the same percentage. Related to age and salary is the pension fund's deduction (only applicable after the age of 25). The rates per age are: 25 – 34 = 7 percent, 35 – 44 = 10 percent, 45 – 54 = 15 percent, 55 – 64(65 men) = 18 percent (also at least 50 percent of the deductions are covered from the employer. On the other hand, there are Canton-related child allowance bonuses between CHF 200 – 300 and a few Cantons pay birth primes for up to CHF 3,000 (one-off payment).
* CHF 21,150* ≈ € 19,850 / $ 22,759 / £ 16,477
** CHF 148,200*≈ € 134,957 / $ 163,326 / £ 117,137
Holidays and Leave
Holidays are handled as: up to the age of 20, five weeks per year of service, for all other employees four weeks per year of service. In many companies, 25 days is the average, and after the age of 50, even 30 days. On the other hand, the maternity protection is 98 days, being paid 80 percent with a daily max of CHF 196*. Since January 2021, Switzerland also introduced a paternity leave of two weeks. The retirement is at 64 years for women and 65 for men.
*CHF 196≈ € 178 / $ 216 / £ 155
Sick pay in Switzerland is 100 percent paid for three weeks in the first year of employment.
Attractive tax rates for companies and an investor-friendly economic environment make Switzerland one of the world's top countries to do business with. Furthermore, the stable political situation, innovative backdrop, and leading role in Pharmacy, Watchmaking, Fintech, High-tech, Biotech, and many more, makes the country appealing to business. Also, the stable currency is boosting the market reputation.
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.
This blog is brought to you by Trianon SA, a leading provider for Payroll Solutions and HR Services, including Pension funds in Switzerland.