Complete Guide to Payroll Management in Switzerland

Switzerland is one of the most thriving economies in the world. Although the country is not a part of the EU or EEA, it is a part of the single market. Its stabilized economy remains largely unhindered by EU-related political and financial regulations. However, it owns mutual trade agreements with the bloc and other international trading partners. 

Companies can expand their businesses in Switzerland as it offers attractive tax rates, employer-first culture, high employment rates, and a robust economy. This country is home to a few of the world’s most reliable organizations, including the Red Cross, the UN, and the WHO. 

To attract, recruit, and retain the best talent in Switzerland, you must know how to efficiently manage each step of the onboarding process, including the Switzerland payroll process.

You need a solid understanding of payroll tax in Switzerland and labor requirements to ensure precise and accommodating payroll. Let’s discuss all you need to know about payroll in Switzerland.

How Is Payroll Calculated in Switzerland?

Payroll is the compensation that an employer pays to the employee in exchange for their services for a set period. The HR department or accounting manages it.  

The payroll process includes tracking employees’ working hours, calculating pay, and distributing payments. While calculating payroll, you need to maintain recordkeeping. You must set aside social security contributions and other deductions as per payroll rules and regulations in Switzerland. Some of these contributions include                

• Tax at source:
  All employers must calculate the Switzerland employer payroll taxes, including tax at source. The contributions for tax at source need to be submitted to the Swiss tax authority monthly or quarterly.
  The tax at source payment date is not the same among the cantons; it depends on the authority. Usually, employers must pay the tax at source 30 days after acceptance of the invoice from the authority. The filing deadlines are commonly less than thirty days after the termination of the reporting period.
  For the canton of Geneva, employers must submit additional forms at the year’s end for all employees subject to tax at source. The fine for late payment is up to 5% of the due amount.

• Social security contributions
  Payroll calculation in Switzerland includes the following social security contributions.

AHV

In Switzerland, employers must submit provisional salaries at the year’s start, and you must submit definitive salaries at the year’s end (January of the succeeding year). Usually, payment of the account is due at the beginning of the year. Final payment is made in the subsequent year after filing and receiving the invoice.

Usually, payments are due monthly (there might be other invoicing schemes for small amounts). Also, there is the possibility of submitting the exact monthly payroll figures. The same needs to be previously declared to the relevant authority.

• UVG/KTG
  The social security system in Switzerland also includes UVG and KTG.
  UVG stands for Unfall VersicherungsGesetz (Accident Insurance Law). It is obligatory by law.
  KTG stands for KrankenTagGeld (Short-Term Disability). The employer and employees offer to contribute to it. If employees become ill, they will pay a percentage of their wages for up to two years.

• Pension fund

Salaries need to be submitted at the year’s start. If salaries alter or if there are leavers/joiners or new salaries, such salaries need to be offered during the year. The resultant invoices are provided by the carrier of the pension fund (BVG).

Important Elements of Salary Structure in Switzerland

The following elements contribute to the salary structure in Switzerland:

Cost to Company (CTC)

A company incurs an annual amount called the CTC when it hires an employee. This element of salary structure encompasses the employee’s gross pay, net pay, additional benefits, payroll deductions in Switzerland, etc.

Gross salary

It summarizes all the elements that make up the employee’s compensation package. The gross salary states the total income before considering any payroll deductions in Switzerland, like health insurance, social security contributions, etc.

Net salary

It denotes the amount left after all deductions from the gross salary is calculated. This amount is added to the employees’ bank accounts.

Basic salary

The basic salary is the amount an employee receives after all the deductions and additions from the annual package are done. The employee’s base salary is 35 to 50% of the total compensation. 

A basic salary depends on two factors – 

• The employee’s designation in the company
• Sector’s activities  

Allowances

They represent job-related expenditures financed by employers to support their employees. All employees are eligible for multiple allowances, irrespective of the company and the industry.        

How to Set Up a Payroll in Switzerland?

The first step to set up a payroll in Switzerland is registering a business as a foriegn-owned or locally owned company. Setting up a limited company/ joint stock company is the country’s most popular form of business.

 An overseas business looking to set up payroll in Switzerland needs to follow the following steps: 

Step 1: You must first register with the Commercial Register. 

Step 2: You must submit certified bylaws, founding documents, and an application to complete the Switzerland payroll process. 

Step 3: Register the company with applicable tax and social security authorities for timely payments. 

Step 4: Companies must prepare a Swiss bank account to make payroll-related payments. 

Step 5: Most important step is calculating the payroll amount. Employers can check timesheets, and overtime, calculate taxes, social security contributions, and others. 

Step 6: Finalize the payroll cycle in compliance with Switzerland’s federal requirements.  

A Step-by-step Process of Payroll Processing in Switzerland

Go through all the steps considered in processing the payroll in Switzerland:

Pre-payroll phase

In Switzerland, the labor laws are centered on the Labor Act, the code of obligations, and any explicit terms approved within a contract of employment. While gathering payroll data for processing, companies need to adhere to these obligations. 

Leave policy

Payroll and compensation also depend on policies related to holidays and leave. Employers must clarify these at the beginning and make leave policies comply with Switzerland law.

Attendance policy

Work attendance is a prominent factor that decides base salary. So, it is inevitable to identify and set up well-defined policies related to permissions, attendance, and other special requests.

Pay schedule

Mostly, employees in Switzerland are paid once a month.

Employee information

Collecting information about every employee to calculate individual salaries and benefits is vital. Submitting some of these details to specific agencies to conform to payroll regulations may be required.

Payroll calculation phase

The next step is payroll calculation, wherein employers must calculate employees’ salaries. It involves the obligation to conform to requirements and laws and calculate deductions and benefits.

The last step in the payroll calculation phase is cross-verifying payroll data. You must validate the collected data for accuracy and correctness before further using it. This step eliminates the potential mistakes in payroll and the consequences while rectifying them.  

Post-payroll phase

This phase includes the following aspects.

Salary payments

The critical component of this phase is paying the employees’ salaries. In this stage, you must coordinate with your selected bank to process all the payments. You may pay the salary to your employees’ bank accounts by automated direct deposits. This approach makes the salary payment process faster and more efficient.

Payroll accounting

It keeps track of all the salaries already paid to employees.

Payroll reporting and compliance

The companies in Switzerland also have to report salary payouts to the applicable government agencies and departments. They may also need to submit invoices and tax forms.

Note: No time scale is applicable for employees who leave the organization. But the employee usually receives final payments along with their last salary. The notification from the leaver to the pension fund carrier (BVG) should be made when an employee leaves the organization.

Payroll Contributions

Depending on the salary, employers, and employees must contribute to social security in Switzerland as part of the Switzerland payroll requirements. 

Employers Contribution

Employees Contribution

Payroll Cycle

In Switzerland, employees are paid at the end of every month or per terms agreed in the collective labor agreement or employment contract. Employers must share a monthly payslip with the employee that states the employee’s salary and deductions.

Switzerland Payroll Options for Companies

Employers can choose different options to process payroll in Egypt according to their budget and requirements. The HR payroll Switzerland options are discussed below.

• Internal payroll

Larger companies that have made a long-term commitment to Switzerland might run their internal payroll. But, this option can be costlier because the company would need to hire the necessary staff in the HR department.

• Remote payroll

With this option of the Switzerland payroll guide, a parent company can help a company to manage its payroll. It is a cost-effective option but implies that the company needs to know various labor laws in Switzerland.

• A Switzerland payroll processing company

You need to research the market if you select this option thoroughly. You also have to make sure you choose a reliable and experienced processing company acquainted with payroll rules and regulations in Switzerland.

• Switzerland payroll outsourcing

Payroll outsourcing in Switzerland is the most straightforward, flexible, and cost-efficient approach to managing payroll in Switzerland. This option eliminates all the challenges related to payroll processing in Switzerland and lets you focus on the company’s development. The team of experts at Multiplier oversees all the elements of the Switzerland payroll process and assures that all those procedures follow compliance standards.

Entitlement and Termination Terms

Entitlement terms in Switzerland

Entitlement terms are one of the critical Switzerland payroll requirements available in the collective agreement or the employment contract. In Switzerland, an employee is entitled to the following benefits.

Sick leave

Switzerland’s sick leave allowance is 730 days for 900 days. Employees are compensated 80% of their salaries during this time.

Public holidays

Employees observe and enjoy a range of public holidays in Switzerland. These include regional and national holidays. The regional holidays are based on the canton an employee resides in.

Public holidays on a national level include:

• New Year’s Day
• Labor Day
• Whit Monday
• Good Friday
• Easter Monday
• Corpus Christi
• Ascension Day

Maternity and paternity leave

• Pregnant employees who have worked for the same organization for a minimum of 270 continuous days are eligible for 14 weeks of maternity leave. 
• They are eligible for 16 weeks of maternity leave if they live in the Canton of Geneva. 
• Employees must take eight weeks of maternity leave after the child’s birth.
• During this period, the employees would receive 80% of their standard salary, which is to be compensated for by social security. They can request an additional 14 days of leave, but it will be unpaid.
• Partners and fathers who have worked for the same organization for a minimum of 270 successive days get ten days of paid paternity leave. They must claim it within six months after the child’s birth.

Vacation

• Employees in Switzerland are eligible for four weeks of paid vacation each year. 

• They can take two weeks of vacation leave. The unused vacation leave can’t be carried over.

Annual leave

• The minimum allowance for paid annual leave is four weeks for new employees and employees above 20 in Switzerland. 
• It is five weeks for employees up to 20. 
• Full-time employees can get 20 days of paid time off each year. 
• This accumulates to 1.66 days every month. 
• Part-time employees get annual leave on a pro-rata basis.

Additional benefits

• Apart from healthcare, the Swiss social security system covers disability, unemployment, pension, and accident insurance.

Employer social costs cover a vast portion of employee incentives in Switzerland. However, if required, you can consult a global PEO platform like Multiplier that provides supplemental coverage options like life insurance or additional pension contributions.

Termination Terms in Switzerland:

Employment Termination is another complex matter for payroll in Switzerland.

Employees in Switzerland are terminated under the following criteria:

• Voluntary termination by the employees themselves or by mutual agreement
• Failure to fulfill the probation period
• Disciplinary issues
• Poor performance of employees
• Dictated by the termination of the contract

Note: Switzerland doesn’t present any standard requirements about severance pay for employees aged 50 years or less or those who have spent more than 20 years with the company. The employee would continue receiving their standard salary after the notice period.

Switzerland Payroll Processing Company

Switzerland’s payroll rules vary as each of its cantons usually functions by following its own rules. You can obtain the maximum benefits of payroll rules and regulations in Switzerland by partnering with an international PEO company like Multiplier. 

How Can Multiplier Help with Global Payroll?

Switzerland’s payroll management covers parameters like payroll, payroll cycle, payroll processing, and more. The entire payroll process can be time-consuming and complex for your business to handle on your own. You can eliminate these hassles and set up the Switzerland payroll process by accessing the service from a global PEO platform like Multiplier. 

Multiplier is renowned in Switzerland for providing EOR solutions to global corporations in 150+ nations. Our experts proficiently deal with payroll management, payroll processing, employee onboarding, and other associated tasks. Moreover, our SaaS-based PEO services ensure the efficient functioning of your payroll in the country. Contact us to understand more about our services.