How to hire and pay an employee in Switzerland – Guide to Swiss payroll and employment law

Switzerland’s highly developed economy and strategic location make it an attractive destination for international businesses looking to expand. However, hiring and paying employees in Switzerland involves navigating complex payroll systems, understanding strict employment laws, and offering competitive benefits. This guide provides a comprehensive overview for businesses to ensure compliance and create a smooth hiring process.

Overview of Swiss employment law

Switzerland’s employment laws are governed by a combination of federal regulations, collective labour agreements (CLAs), and individual employment contracts. Here are the key aspects:

• Employment contracts: Contracts can be written, oral, or implied, but written contracts are strongly recommended to detail job roles, salary, and benefits.
• Probation period: Typically lasts 1–3 months, during which termination notice is shorter (7 days minimum).
• Termination laws: Employment can be terminated with notice, but wrongful dismissals are prohibited. Termination during pregnancy, illness, or military service is restricted.
• Working hours: The maximum legal workweek is 45 hours for most industries, but variations may apply under CLAs.
• Minimum wage: Switzerland does not have a federal minimum wage, but some cantons (e.g., Geneva and Ticino) enforce minimum wage laws.

Hiring employees in Switzerland

1. Legal registration

Before hiring, businesses must register with Swiss authorities:

• Company registration: The business must have a legal entity in Switzerland (e.g., GmbH, AG, or branch office).
• Social security registration: Employers must register with the Swiss Social Insurance System to pay employee contributions.
• Accident insurance: Mandatory registration for occupational and non-occupational accident insurance.

2. Work permits

For non-Swiss or non-EU/EFTA employees, businesses must secure work permits. These are quota-limited and require proof that no local talent is available.

Swiss payroll essentials

1. Payroll setup

Swiss payroll requires accurate compliance with tax and social contribution laws:

• Gross salary calculation: Includes basic salary, bonuses, and allowances.
• Mandatory deductions:
• AHV/IV/EO: Old-age, survivors’, and disability insurance (approx. 5.3% for employees).
• ALV: Unemployment insurance (approx. 1.1% for employees up to a threshold).
• Pension fund contributions: Employers and employees share contributions, varying by pension plan.
• Accident insurance: Non-occupational accident insurance is usually covered by employees.

2. Taxes

Employees are subject to:

• Income tax: Withholding taxes are deducted directly for non-residents. Swiss residents pay based on their annual declaration.
• Tax variations by canton: Each canton sets its own tax rates, which can lead to significant regional differences.

3. Payment schedule

Salaries are typically paid monthly. Payment must be in Swiss francs unless agreed otherwise.

Payroll process in Switzerland

Managing payroll in Switzerland requires strict adherence to local laws, accurate calculations, and timely payments. Below is a step-by-step outline of the payroll process in Switzerland:

1. Registering the business

Before hiring employees, businesses must complete the necessary registrations:

• Social security: Register with the Swiss social insurance system (AHV/IV/EO) to deduct contributions.
• Accident insurance: Obtain mandatory occupational and non-occupational accident insurance coverage.
• Tax authorities: Register with local tax authorities for withholding tax compliance.

2. Collecting employee information

To process payroll, employers must collect the following details from employees:

• Personal information (e.g., name, address, national ID)
• Work permit details (if applicable)
• Social security number
• Bank account details for salary payments
• Declaration of residence for tax purposes

3. Determining gross salary

The gross salary includes:

• Agreed base salary
• Bonuses, allowances, and overtime (if applicable)

4. Calculating deductions

Employers must deduct statutory contributions from the gross salary:

• Social security (AHV/IV/EO): Covers old-age, disability, and survivor benefits (~5.3% of gross salary from employees).
• Unemployment insurance (ALV): Deducted up to the threshold (typically ~1.1%).
• Pension contributions: Based on the employee’s age and salary bracket, shared between employer and employee.
• Accident insurance: Employers often deduct premiums for non-occupational coverage (~1–2%).

For non-residents, withholding taxes are deducted directly from the gross salary, based on canton-specific rates.

5. Employer contributions

In addition to employee deductions, employers contribute their share to social security, unemployment insurance, and pension funds. These costs typically add 14–18% of the gross salary.

6. Payroll processing

• Use compliant payroll software or outsourcing services to calculate net salaries, ensure accuracy in deductions, and generate payslips.
• Payslips must detail gross salary, deductions, net salary, and employer contributions.

7. Tax filings and payments

• Withholding tax: For non-residents, employers must remit the deducted tax directly to the cantonal tax office.
• Social security contributions: Paid monthly or quarterly to the appropriate authorities.
• End-of-year reporting: Employers must provide employees with salary certificates and file required tax and social security documentation.

8. Payment of salaries

Salaries are typically paid monthly, on a date agreed in the employment contract. Payments are made in Swiss francs unless otherwise specified.

9. End-of-employment considerations

When an employee leaves, employers must:

• Calculate final pay, including unused holiday entitlement.
• Issue a salary certificate for tax purposes.
• Ensure proper termination notifications and payments to social security and pension funds.

Key tips for smooth payroll processing

• Stay updated on laws: Swiss payroll laws are complex and subject to regional variations. Engage local experts to remain compliant.
• Automate the process: Use payroll software tailored to Swiss regulations to ensure accuracy and timeliness.
• Audit regularly: Regular audits help identify discrepancies and avoid penalties.

Benefits and entitlements

1. Mandatory benefits

• Holiday entitlement: At least four weeks per year (five for employees under 20). Public holidays vary by canton.
• Sick leave: Employees are entitled to up to three weeks of paid sick leave during the first year of service, increasing with tenure.
• Maternity leave: 14 weeks at 80% of salary. Paternity leave is 10 days.

2. Optional benefits

To remain competitive, many employers offer:

• Supplementary pension schemes
• Health insurance contributions
• Commuter or housing allowances
• Training and development budgets

Employment contracts in Switzerland

Key inclusions:

1. Job description: Clearly outline duties and responsibilities.
2. Compensation: Specify salary, bonuses, and any variable payments.
3. Working hours: Adhere to legal and industry-specific standards.
4. Termination terms: Include notice periods and grounds for dismissal.
5. Additional benefits: Detail supplementary perks and benefits offered.

Compliance tips for international employers

1. Engage local expertise: Partner with Swiss payroll providers or legal consultants to navigate canton-specific regulations.
2. Automate payroll: Use compliant payroll software to ensure timely and accurate payments.
3. Understand CLAs: Many industries (e.g., hospitality, construction) operate under collective agreements that influence pay scales and benefits.
4. Regular audits: Conduct periodic reviews to ensure compliance with changing laws and tax regulations.

Hiring options for foreign businesses

For businesses without a local entity, there are two primary solutions:

• Employer of Record (EOR): Enables businesses to hire and pay employees in Switzerland without establishing a legal entity. The EOR handles payroll, compliance, and tax filings.
• Temporary staffing agencies: Ideal for short-term hires, these agencies manage recruitment and payroll.

Cost breakdown of hiring an employee in Switzerland

Below is an estimate of employer costs based on an annual gross salary of CHF 100,000:

Category	Percentage	Amount (CHF)
AHV/IV/EO contributions	~5.3%	5,300
ALV contributions	~1.1%	1,100
Pension fund contributions	~7–10%	7,000–10,000
Accident insurance	~1–2%	1,000–2,000
Total employer cost	~14–18%	14,400–18,400

Summary

Hiring and paying employees in Switzerland requires a deep understanding of local laws and regulations.

By ensuring compliance with payroll systems, offering competitive benefits, and understanding regional differences, businesses can successfully navigate the Swiss employment landscape.

For optimal results, consider working with international payroll providers or HR consultants to handle the complexities of Swiss payroll and employment law.

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