Running payroll in Switzerland

With tax being levied by the federal government, the cantons and the municipalities, the Swiss tax system might seem overwhelmingly difficult at first. Luckily, the complexity of the tax system is not reflected in the payroll process as employers are not responsible for calculating and withholding income tax from employee salaries. Only in certain cases is income tax in Switzerland deducted at source.

Foreign employers can hire employees in Switzerland without setting up a local legal entity. However, they are obligated to register with the local authorities before they can start processing payroll. This mainly includes registration with the country’s different social insurance funds as follows. 

• Registration with the old-age, survivors’ and disability fund (includes registration for unemployment insurance): the employer will be contacted by the competent cantonal office after being added to the commercial register; new employees must be declared to the authority in the annual salary declaration

• Registration for an occupational pension fund: mandatory for employees with an annual income exceeding CHF 21,150; employers are free to choose a public or private pension provider

• Registration for occupational (and non-occupational) accident insurance: mandatory, but employers are free to choose a provider; registration is necessary as soon as the first employee starts working for the company; for employees working more than 8 hours per week, insurance coverage must be extended to include non-occupational accidents

• Registration with the cantonal family allowance fund: mandatory, even if none of the hired employees has children

• Registration with income compensation fund 

Depending on the circumstances, foreing employers might have to complete further registrations, especially if they are not liable for social security contributions in Switzerland. 

Usually, there is no need to register for payroll tax as income tax in Switzerland is not deducted at source. An exception applies to temporary residents without C-permit and to employees who are only temporarily working in Switzerland. In this case, a separate registration with the cantonal tax authority is necessary. 

Employers are free to decide whether they want to take out additional insurance to cover sickness benefits (KTG). Health insurance is to be taken out by the individual employee, i.e. there is no employer obligation to provide insurance coverage for this. There is no legal requirement to set up a local bank account, as payments to both employees and authorities can be issued from foreign bank accounts.

Income earned in Switzerland is subject to taxes levied on federal and cantonal level. Municipalities also have the right to fix a communal tax in addition to the cantonal tax rate. The Swiss social security system comprises a variety of different insurances and is funded by contributions made by both employee and employer.

Tax considerations

Both federal and cantonal tax rates are progressive - with the exception of two cantons. The federal tax rates range from 0.77% (or 1% for married taxpayers) to 11.5%. Annual income of up to CHF 17,800 (CHF 30,800 for married taxpayers) is exempt from federal income tax.

Cantonal income tax rates vary significantly. In many cases, tax rates even vary between different municipalities within one single canton. Cantonal tax rates can be as low as 11.2% (canton Zug) or as high as 34.2% (canton Geneva). When added, the tax levy on federal and cantonal level is between 21.92% and 44.5%. Registered members of one of the country’s official religious institutions are required to pay church tax which is also levied on cantonal level. 

Taxable income includes all types of employment-related remuneration, regardless of whether they are made in cash or in kind. Social security contributions and certain employment expenses (e.g. professional training or commuting costs) are deductible from the employee’s taxable income. 

There are several further personal deductions available, including life insurance premiums and medical expenses, as well as personal allowances which are granted to individuals depending on their family situation and the number of dependent children. Different deduction rules apply to non-resident employees. 

Resident taxpayers are taxed on their worldwide income while non-residents only pay tax on income earned in Switzerland and/or from Swiss sources. Rules for tax residency are quite strict in Switzerland. According to Swiss law, an individual is deemed to be a tax resident if: 

• They plan to stay in Switzerland permanently.

• They stay in Switzerland for more than 30 days while carrying out a professional activity.

• They stay in Switzerland for longer than 90 days (regardless of whether they carry out a professional activity).

Expatriates seconded to Switzerland for work purposes for a period of up to 5 years can benefit from certain tax exemptions for special expenses related to the assignment, such as relocation costs. 

Tax withholding and reporting 

Switzerland operates a different taxation system to the rest of Europe. In Switzerland, income tax is not deducted at source by the employer, but is instead assessed via a yearly tax return. Swiss employees (as well as foreing employees with a permanent right of residence in Switzerland, i.e. C-permit) are required to file an annual tax return by 31 March of the following year. Married taxpayers file a joint return. Depending on cantonal regulations, the income tax due is paid in several installments throughout the year or in one single payment.  

However, an exception applies to foreign employees temporarily living and working in Switzerland without a C-permit and to employees without permanent residence in Switzerland- this includes employees temporarily based in Switzerland as well as cross-border commuters. In their case, income tax needs to be calculated and deducted from the employee’s gross salary by the employer on a monthly basis (known as Quellensteuer, i.e. tax at source, in Switzerland).

In order to facilitate income tax calculation, employees are assigned a tax tariff by the respective cantonal authorities which takes into account the employee’s family status, income level and other factors influencing the amount of tax which needs to be paid. The withheld tax is remitted to the local tax authority by the employer on a monthly or quarterly basis. The due date for the payment is set by the tax authority of each canton. The tax payments comprise federal as well as cantonal, municipal and church tax (if applicable).

In addition, a detailed payroll tax report concerning the withheld tax at source needs to be filed either once a month or once every quarter (only if the number of employees is less than 10). The deadline for this report is usually the 10th of the following month. Depending on the canton, further reports and declarations may be required.     

Regardless of whether the employee is taxed at source or pays income tax directly to the authorities, employers are obligated to provide each employee with an annual salary certificate at the end of each year. The tax year is the calendar year. 

Social security contributions

The Swiss social security system comprises various social insurances, namely: 

• Old age, survivors’ and disability insurance (AHV and IV)

• Unemployment insurance (ALV)

• Insurance coverage for family allowances (FAK) 

• Income compensation for maternity and military services (EO)

• Occupational pension insurance (BV)

• Occupational and non-occupational accident insurance (BU/NBU)

• Health insurance (KVG)

It is worth noting that health insurance is compulsory, but privately taken out by the employee. The other insurances are under the responsibility of the employer.

Contributions towards the AHV, IV and EO funds amount to 10.6% of the employee’s salary and are borne in equal shares by employee and employer (no contributions are levied on income below CHF 16,800 per year). The same applies to the mandatory unemployment insurance to which both parties of the employment contract have to contribute at a rate of 1.1% each (1%, i.e. 0.5% each, is levied on the share of the employee’s income exceeding CHF 148,200 per year).  

Insurance premiums for occupational pensions (mandatory for employees earning more than CHF 21,510 per year) vary depending on the age of the insured employee and the selected pension plan, but employers are required to contribute at least as much as their employees. Minimum contribution levels vary between 7% and 18%. Occupational accident premiums and family allowance contributions are solely paid by the employer while employees contribute towards a non-occupational accident insurance plan. For more details, refer to the table below. 

Resident employers and foreign employers with a permanent establishment in Switzerland are responsible for withholding contributions from employee salaries on a monthly basis and submitting them to the respective social security funds and insurance providers together with their own contributions. The deadline for payments to the statutory social security funds (i.e. AHV, IV, ALV and FAK) is usually the 10th of the month following the pay period.

Payments can be made quarterly if the total payroll sum is below CHF 200,000. A year-end declaration must be filed by all employers, but modalities and deadlines vary from canton to canton. Payment deadlines and reporting requirements for contributions towards the other mandatory (non-statutory) social insurances are set by each insurance provider individually.

Employers without permanent establishment in Switzerland, on the other hand, are exempt from making social security contributions, which means that the payment obligation is entirely on the employee (known as ANobAG).

Employees in Switzerland are entitled to various benefits. These include:

• Annual leave and public holidays: 4 weeks (5 weeks for employees under 20), plus 5 to 15 public holidays (depending on the canton)

• Maternity leave: 98 days paid at a rate of 80% of the usual salary (capped at CHF 196 per day); some cantons have extended the maternity leave period

• Paternity leave: 2 weeks of paid paternity leave to be taken within 6 months after the child’s birth; paid at a rate of 80% (up to CHF 196 per day)

• Parental leave: there are no legal provisions for parental leave as such, but since July 2021, employees with a seriously ill or injured child can take 14 weeks of care leave; equally paid at a rate of 80% (up to CHF 196 per day)

• Sick leave: paid either directly by the employer or covered by the employer’s sickness allowance insurance (if one has been taken out); in the first case, the employers must continue paying the employee’s salary for between 3 weeks (only valid during the employee’s first year) and 4 months (exact duration depends on the employee’s seniority and the canton)

For more information on employee benefits and other employment requirements in Switzerland (including severance pay and termination procedures), check out our Global Hiring Guide.

Switzerland does not have a national minimum wage. However, there are certain minimum pay requirements which apply in different cantons. As of March 2022, there are four cantons in Switzerland which have introduced their own minimum wages:

• Jura: CHF 20 per hour

• Neuchâtel: CHF 20.08 per hour

• Ticino: CHF 19 per hour

• Geneva: CHF 23 per hour

From July 2022, employees in Basel City will be entitled to a minimum remuneration of CHF 21 per hour.  

Overtime work is allowed within the legal limits of 2 hours per day and 170 hours per year. Additional hours must be paid at a rate of at least 125% - unless stated otherwise in the individual employment agreement. Upon agreement, overtime can also be compensated by additional time off. There is no legal obligation for employers to pay their employees a 13th month bonus, but many companies offer their staff an annual bonus anyway.

It is mandatory to process payroll on a monthly basis. Payments to employees must be issued by the end of each month, usually in the local currency which is Swiss Francs. For most employees, the pay date is the 25th of the month. The common payment method is bank transfer. Employers are obligated to provide employees with a detailed payslip at the end of each payroll run. Payslips should include the following information: 

• Pay period and pay date

• Personal details of employee and employer

• Gross salary

• Social security contributions

• Child and education allowances (if applicable)

• Information on tax deducted at source - only applicable to foreign employees working in Switzerland

• Bonuses (if applicable)

• Holiday pay, sick pay and pay for public holidays (if applicable)

• Advance payments (if applicable)

• Other deductions (if applicable)

• Reimbursement for expenses (if applicable)

Both digital and paper payslips are legally accepted. Payroll records must be kept for at least 10 years.