Your guide to payroll in Switzerland

Switzerland’s payroll system is uniquely complex due to its 26 cantons, each with significant autonomy over employment-related rules. There is no single uniform framework for income tax, as rates differ across federal, cantonal, and municipal levels. 

This means an employee’s tax liability can vary widely depending on their place of work or residence.

The key employment aspects like minimum wages, sick leave, and maternity benefits may not be standardized. While federal laws provide a baseline, cantonal regulations and employment contracts often influence actual entitlements, leading to variations in how you pay employees in Switzerland. 

For employers, especially those hiring across multiple cantons, managing these variations can be challenging. A workforce management solution like Payoneer Workforce Management helps streamline payroll processes along with onboarding talent while helping navigate compliance with Switzerland’s diverse regulations.

In this guide, we will discuss how to manage payroll in Switzerland. 

Switzerland payroll: Wages and other payments

Partnering with a workforce management platform can help you navigate Switzerland’s laws regarding wages and other payments. 

Payroll cycle in Switzerland

The Swiss Code of Obligations states that employees should be paid at the end of each month, unless shorter periods or some other payment terms have been agreed upon in the employment contract. 

Minimum wages

There is no fixed minimum wage in Switzerland that all employers across Switzerland shall pay to their employees. Minimum wages vary across cantons, such as CHF 19 per hour in Ticino, CHF 20 in Jura, CHF 20.08 in Neuchâtel, and CHF 24.32 in Geneva. 

Overtime pay

The average working hours in Switzerland are 40 hours per week. However, in cases of excessive workload where overtime is necessary, you must pay a supplement of at least 40% for the overtime hours. 

Sick pay

If an employee is sick, you must pay the employee for the first 15 days of absence due to illness. Although there is no official provision for payment during absence due to illness, it depends on the employer. 

This may be determined by the employment contract.

As an employer, you may or may not be enrolled in an optional daily allowance insurance. It typically covers risks of an employee’s temporary loss of earnings due to partial or complete inability to work because of maternity,  illness, or accident. 

Maternity pay

Female employees in Switzerland are entitled to 14 weeks of maternity leave. During this leave, they are entitled to maternity allowance if they meet the following criteria:

• They are insured under the AHV scheme for the 9 months before the birth of the child. 
• They work for at least 5 months while they are pregnant.
• They are employed when the child is born. 

Paternity pay

You have to grant your male employees paid paternity leave of 2 weeks within 6 months of the child’s birth. This is paid for by the social security, up to 80% of the salary, capped at CHF 196 per day.

Severance pay

If you terminate the employment of an individual over the age of 50 who has completed at least 20 years of service, you are required to provide a severance payment of no less than two months’ salary.

Additionally, if a court determines that the dismissal was unjustified, you may be required to compensate the employee with an indemnity of up to six months’ salary.

Payroll in Switzerland: Contributions and deductions

When you prepare payroll for employees, you should have a clear idea about the deductions for taxes, contributions, and other essential components. 

Salary tax in Switzerland 

There is a uniform law regarding income tax in Switzerland that shall be followed across the country. An employee’s tax liability varies based on their individual circumstances and the canton where they work or reside.

Social security 

Switzerland has a robust social security system based on mandatory contributions from both employers and employees. 

While some contribution rates are fixed, others depend on the employees’ salary, age, and the risk associated. The fund thus formed secures long-term benefits like pensions, accidental coverage, and unemployment support. 

Employer’s rate of contribution towards the social security is 5.3%.

Switzerland payroll compliance best practices

For accurate payroll management in Switzerland, you need to be cautious and pay attention to detail, especially when you are hiring talent from across the country’s borders.

Have a look at some of the best practices that you, as an employer, can inculcate: 

• Always remain updated with Switzerland’s local regulations regarding cantonal differences in labor laws, varying tax rules, and other requirements, etc. 
• Make sure you classify your employees properly. If you misclassify employees, it may lead to complications related to payroll processing. 
• You should adhere to the payslip requirements in Switzerland and provide employees with a written salary statement for accountability. 

By leveraging workforce management solutions like Payoneer Workforce Management, you can streamline your payroll processing while adhering to local laws. 

Your options for payroll services in Switzerland

There are three main ways in which you can engage and pay talent in Switzerland: 

• Set up a local entity: If you plan to expand into a new country, you can set up a local entity. This allows you the freedom to function as a normal business. It will also facilitate easy communication with the Swiss government services.
  
  However, this is not feasible for small businesses because it can be time-consuming, expensive, and requires administrative overhead.
• Hire freelancers or independent contractors: If you want to accomplish project-based tasks, you can consider hiring independent contractors or freelancers.
  
  These professionals manage their own schedule and are in charge of their own taxes. This helps reduce the administrative burden on you and also slashes the employment costs in Switzerland considerably. However, misclassifying them may lead to penalties.
• Engage talent through a workforce management platform: A solution like Payoneer Workforce Management helps you navigate payment compliance in Switzerland, including local tax and payment laws. Payoneer Workforce Management also helps streamline processes like contract preparation, onboarding, and more. 
  
  Managing payroll in Switzerland for employees across different cantons and diverse roles is a demanding task. Payoneer Workforce Management helps enhance the efficiency of the process by managing the payroll processes locally while also helping organizations navigate payroll compliance in Switzerland. 

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