Payroll Guide Switzerland

January 10, 2020 | IZest Marketing 5 mins read

 

If you’re looking to expand into a wealthy country with leading economies in agriculture, services, and manufacturing, Switzerland should be one of your top picks. Taxes are generally low, as well as labor regulations. That doesn’t mean, however, that employers can take advantage of their employees. In fact, regulations are low because of the high standard of collaboration between employer and employee. 

Before you begin hiring in Switzerland, there are a few unique aspects of Swiss payroll that you ought to know, and this guide will help acclimate you to how payroll works.

 

Ease of Doing Business in Switzerland: An Overview

 

Compared to most first world nations, Switzerland is a much happier country. Employment exceeds 80%, and the Swiss culture places great emphasis on families. That being said, experts consider the Swiss economy to be an employer-centric one.  Corporate taxes are set at 8.5% (excluding dividends, interest income, and private pensions), along with an 8% withholding tax. Employers negotiate directly with their employees on work, compensation, and benefits terms. 

Citizens are highly affluent, and while there is a considerable wage gap between high and low income earners, citizen life satisfaction still scores among the top countries in Europe.

 

Recent Developments in Switzerland’s Payroll Laws

 

Tax deductions for Swiss residents (especially those with families) are generous. Recently, the Swiss government made these deductions available to non-resident employees, as well. The only stipulation is that the non-resident employee have earned 90% or more of their income from Switzerland. Also, they are required to file a tax return in Switzerland to access those deductions.

 

Basic Facts about Payroll in Switzerland

 

Payroll in Switzerland is not simple. Tax collecting authorities invoice employers for income taxes owed. Employers file withheld taxes on a monthly or quarterly basis.

As such, employers must withhold federal, cantonal, and municipal taxes. Keeping track of which authority is owed what amount is a complex task, and employers are encouraged to work with a payroll professional.

Further complicating payroll in Switzerland is the country’s liberal approach to residency and work permits. A Swiss workforce is made up of many residents and non-residents, some of whom live just across the border and commute to work in Switzerland. Each of these employees are taxed differently.

 

Taxes

 

While federal government income taxes are low, Swiss employees must also pay cantonal, commune, and municipal taxes. There are significant tax breaks for employees with children. Social security taxes are a shared expense by the employee and employer, split evenly at 6.225% each. Social security in Switzerland services the elderly, unemployed, sick, and disabled.

 

Rates and Thresholds

 

The average household income in Switzerland is approximately CHF 36,400/year ($37,500/year) taxed federally at about .005%. Federal taxes for the highest incomes max out at 11.5%. For a full breakdown of income taxes, consult the chart below.

At first glance, it appears that most Swiss employees pay little to no taxes. However, income taxes can increase from less than 1% to over 10% after adding in cantonal and municipal taxes. Overall, income taxes in Switzerland are far from overbearing.

 

How Withholding Works

 

Employers withhold income and social security taxes from their employees’ paychecks at whatever frequency they’ve agreed to be paid. While there are no payroll taxes in Switzerland, there is an 8% withholding tax.

 

Tax Credits, Returns and Remittance

 

Switzerland’s tax year is identical to the United States (January 1 – December 31). Employers file tax returns by January 31 of the following year, and resident employees must file their returns (along with any taxes owed) by March. Specific filing requirements vary by canton.

Penalties

 

There are tax penalties in Switzerland on unpaid taxes, to include fines and interest charges. Employees that fail to file taxes by the due date more or less surrender tax calculations to the Swiss tax authorities. These authorities are not generous in such cases, and employees that fail to file undoubtedly pay more in taxes than they would have had they filed on time.

 

Tax Rate Chart

 

Income Tax Chart for Single Employees without Children

USD Comparison Income Range (Swiss Franc) Income Tax Amount Income Tax Rate on Excess*
$0 – 14,920 0 – 14,500 CHF N/A N/A
$14,920 – 32,516 14,500 – 31,600 CHF N/A .77%
$32,516 – 42,600 31,600 – 41,400 CHF 131.65 CHF .88%
$42,600 – 56,799 41,400 – 55,200 CHF 217.90 CHF 2.64%
$56,799 – 74,601 55,200 – 72,500 CHF 582.20 CHF 2.97%
$74,601 – 80,363 72,500 – 78,100 CHF 1,096 CHF 5.94%
$80,363 – 106,602 78,100 – 103,600 CHF 1,428 CHF 6.6%
$106,602 – 138,500 103,600 – 134,600 CHF 3,111.60 CHF 8.8%
$138,500 – 181,100 134,600 – 176,000 CHF 5,839.60 CHF 11%
$181,100 – 777,083 176,000 – 755,200 CHF 10,393.60 CHF 13.2%
$777,083+ 755,200 + 86,848 CHF 11.5%

 

* “On excess” refers to any amount above the base number in the income range in column 2. For example, for the income range CHF 31,600-41,400, income taxes are CHF 131.65 on 31,600 and any amount above that amount but less than 41,400 is taxed at a rate of .88%.

 

Income Tax Chart for Married Employees and/or Employees with Children

USD Comparison Income Range (Swiss Franc) Income Tax Amount Income Tax Rate on Excess*
$0 – 29,120 0 – 28,300 CHF N/A N/A
$29,120 – 52,375 28,300 – 50,900 CHF N/A 1%
$52,375 – 60,092 50,900 – 58,400 CHF 226 CHF 2%
$60,092 – 77,482 58,400 – 75,300 CHF 376 CHF 3%
$77,482 – 92,917 75,300 – 90,300 CHF 883 CHF 4%
$92,917 – 106,396 90,300 – 103,400 CHF 1,483 CHF 5%
$106,396 – 118,024 103,400 – 114,700 CHF 2,138 CHF 6%
$118,024 – 127,799 114,700 – 124,200 CHF 2,816 CHF 7%
$127,799 – 135,516 124,200 – 131,700 CHF 3,481 CHF 8%
$135,516 – 141,278 131,700 – 137,300 CHF 4,081 CHF 9%
$141,278 – 145,291 137,300 – 141,200 CHF 4,585 CHF 10%
$145,291 – 147,246 141,200 – 143,100 CHF 4,975 CHF 11%
$147,246 – 149,202 143,100 – 145,000 CHF 5,184 CHF 12%
$149,202 – 921,860 145,000 – 895,900 CHF 5,412 CHF 13%
$921,860+ 895,900+ 103,040 CHF 11.5%

 

*“On excess” refers to any amount above the base number in the income range in column 2. For example, for the income range CHF 50,900-58,400, income taxes are CHF 226 on 50,900 and any amount above that amount but less than 58,400 is taxed at a rate of 1%.

 

Compensation and Benefits

 

Swiss employers and employees negotiate directly over pay and benefits. There is no set minimum wage for most industries, and this is primarily due to employees and employers being able to come to mutually-beneficial terms.

Employees with families are given an extra allowance by their employer. Maternity leave is generous in Switzerland. For work hours, normal workweek hours and overtime are also negotiated in work contract.

 

Minimum Wage

 

In most Swiss industries, there is no standard minimum wage. Neither Swiss employers nor employees are interested in minimum wage terms, since most are paid a livable wage as is.

Overtime

 

Most industries do not have a required overtime rate. However, overtime is frequently negotiated between employer and employee in a work contract. Most employees enjoy time and a quarter overtime pay or extra days off in lieu of overtime pay.

Hours of Work

 

Office staff and industrial employees have standard workweeks of no more than 45 hours. All other full-time employees generally work 40-50 hours/week, Monday through Friday.

Holiday &  Leave

 

Switzerland has five national holidays (that includes New Years and Christmas), but most employers also observe as many as 20 regional holidays. Employees older than 20 are entitled to a minimum 25 paid leave days each year. New mothers are entitled to a minimum 8 weeks of maternity leave, with the option to extend that leave to 14 weeks.

 

Foreign Hires

 

Citizens of a European Union country may come and go freely as employees of a Swiss employer. 

Foreign hires from non-treaty or non-EU nations must first obtain a work permit. These foreign workers are not guaranteed a work permit since Switzerland sets visa caps.

 

For more information about how our Global Payroll Technology integrates with local payroll providers in Poland, contact us today

 

Using Payslip, we can manage all our payrolls across nine in-country vendors on one platform. When the global Covid-19 pandemic arose, it was not an issue from a payroll perspective, and critically getting everyone paid. The Payslip platform enabled continuity for our international payroll service including the fast and seamless implementation of the Payslip Employment Self Service during this time.

Colin Smith

Payroll Manager, LogMeIn

With business and employee growth rates of above 50%, we rely on our vendors to deliver on time, every time. Payslip’s workflow automation, enables Phorest to manage our payroll provider process – data driven, real time and transparent. Payslip saves us time so we can focus on our business growth.

Ana Kelly

International Payroll Manager, Phorest