Switzerland, known for its stable economy, skilled workforce, and business-friendly environment, is an attractive destination for international businesses. However, navigating the complexities of Swiss labor laws, tax regulations, and compliance standards can be daunting. For companies looking to expand into Switzerland without establishing a legal entity, using an Employer of Record (EOR) solution offers a streamlined approach, and as well as the following positives:
- Quick Market Entry
- Compliance with Swiss Labor Laws
- Cost-Efficient
- Employee Benefits and Payroll Management
- Risk Management
How Does an EOR Work in Switzerland?
The EOR model in Switzerland involves a clear division of responsibilities between the client company and the EOR provider. Here’s how the process works:
Employee Hiring and Onboarding:
- The client company selects a candidate and defines the job responsibilities, salary, and other terms of employment.
- The EOR service provider legally hires the employee, signing an employment contract in compliance with Swiss labor laws.
Payroll and Tax Management:
- The EOR handles the payroll process, ensuring that employees are paid on time, with the correct tax deductions and contributions to social security and pension funds.
- The EOR also files all required tax returns and ensures compliance with Swiss tax regulations.
Benefits Administration:
- The EOR manages all statutory employee benefits, including health insurance, pension schemes, and unemployment insurance.
- The provider also ensures that the employee’s benefits meet both legal requirements and market standards.
Ongoing Compliance:
- The EOR stays up-to-date with any changes in Swiss employment law and ensures that the employment terms, including salaries, benefits, and contracts, are updated accordingly.
- The EOR manages terminations or disputes in accordance with Swiss labor law.
Day-to-Day Management by Client:
- While the EOR takes care of the legal employer responsibilities, the client company remains in control of the employee’s daily activities, performance management, and business operations.
Legal Considerations When Using an EOR in Switzerland
1. Employment Contracts
In Switzerland, employment contracts must adhere to Swiss labor law, including regulations on working hours, overtime, holidays, and termination. The EOR ensures that all contracts are compliant and transparent, outlining all terms, including salary, work location, benefits, and notice periods.
There are several types of employment contracts, each with its own legal framework and implications for both the employer and employee. Here’s the 2 that Quadlux offers:
Permanent Employment Contract
This is the most common type of employment contract in Switzerland. It is open-ended and does not have a fixed termination date.
- Notice Period: There is a legally defined notice period that depends on the length of employment (usually between 1-3 months).
- Termination: Both the employer and employee can terminate the contract within the notice period.
- Advantages for Employers: Stability in workforce, flexibility to terminate with notice.
- Disadvantages: Higher commitment, more legal obligations.
Fixed-Term Employment Contract
This contract has a defined end date and is usually used for temporary projects or seasonal work.
- Termination: It automatically ends at the specified date or upon completion of the project.
- Advantages for Employers: Flexibility for temporary staffing needs.
- Disadvantages: If improperly drafted, might lead to conversion into a permanent contract under Swiss law.
2. Taxation:
Swiss income tax is calculated on a sliding scale and includes federal, cantonal, and community taxes. With social security, pension schemes, and insurance they total approximately 15-25% on top of employee salaries.
Residency status impacts taxation. Employees with Swiss citizenship or type C permits file their taxes independently, while those with type B or L permits have their taxes deducted at source by the employer.
3. Pension System:
- Pillar 1 (State Pension): A mandatory pension that covers basic living needs, including old-age and survivors’ insurance (AHV/OASI), disability insurance (DI), and income replacement insurance (EO). Employers and employees each contribute 5.3% of gross salary.
- Pillar 2 (Occupational Pension): Mandatory for employees earning between CHF 25,095 and CHF 88,200. Contributions are shared between employers and employees and increase with age, ranging from 7% to 18% of the insured salary.
- Pillar 3 (Private Pension): A voluntary, tax-deductible pension scheme to supplement the first two pillars, helping maintain a person’s accustomed lifestyle in retirement.
4. Insurance:
There are three types of insurances.
- KKV (Salary Compensation Insurance): Provides income replacement in case of illness. It costs around 0.914% to 1.22% of the salary, split between employer and employee.
- Accident Insurance (UVG): Mandatory insurance for accidents during work hours, paid by the employer. Non-professional accident insurance is covered by the employee at 0.962% of the salary.
- Supplementary Accident Insurance (UVG-Z): Covers salaries above CHF 148,200 up to CHF 300,000, paid by the employer.
5. Social Security:
Social security in Switzerland is very comprehensive ranging from unemployment insurance, family allowances.
- Unemployment Insurance (ALV/UI): A 2.2% contribution shared equally between employer and employee. It covers up to 80% of the salary (with children) during unemployment for up to two years.
- Other Contributions: These include family compensation fund (1.08% of gross salary), administrative costs (0.3%), and liability insurance (1%).
6. Work Permits and Visas
If a company is hiring foreign employees in Switzerland, the EOR can handle the work permit and visa application process. Switzerland has stringent immigration rules, and obtaining the correct permit for non-Swiss or non-EU employees can be a complex task that an EOR simplifies.
7. Employee Termination
Switzerland follows strict rules regarding employee termination. The notice period, severance payments, and reasons for termination must comply with Swiss law. An EOR ensures that terminations are managed legally, reducing the risk of wrongful termination claims.
Conclusion
Expanding into Switzerland offers tremendous opportunities, but the complexities of Swiss labor laws, taxes, and compliance requirements can be overwhelming for foreign companies. An Employer of Record (EOR) solution provides a hassle-free, cost-effective way to hire employees in Switzerland while ensuring full compliance with local regulations.
Are you looking to expand your business into Switzerland? Talk to us today about partnering with Quadlux to allow you a flexible, risk-free entry into one of Europe’s most dynamic and prosperous markets.
