As in every country, Switzerland has a specific set of rules that must be abided by for the proper processing of payroll. While determining the optimal system for payroll withholding is a detail-intensive endeavor that is unique to each business, understanding a few keys of the Swiss system can add a lot of clarity.
There are many different contributions, deductions, and varying taxes, depending on the canton (or region) of Switzerland, that should be considered during payroll calculation. Three of the most important payment processing regulations to anticipate are the type of employee status, calculation of individual income tax, and Switzerland´s three pension pillars.
Type of Employee
Before payroll can be processed for an individual employee, their working status must first be determined. Payroll administration varies depending on the type of Swiss work permit granted to the employee. Employees working in Switzerland or Swiss nationals working for companies outside of the EU are subject to varying degrees of deduction, contributions, and allowance that will affect how payroll is processed.
Some of the most common types of permits are:
Type | Features | Payroll Consideration(s) |
L | Contracts specifying end date | Expense allowances |
B | Open ended contracts | Restricted tax-free allowances |
C | 5 years from entry (EU citizen);10 years from entry (non-EU citizens) | Subject to standard Swiss deduction & contribution obligations |
D | Living outside of Switzerland with Swiss work contract | Varies depending on individual circumstances |
Income Tax
All wage earners in Switzerland, with few exceptions, are subject to tax at the source.
The employer is obliged to deduct all tax amounts for employees and must deduct, report, and transfer the calculated amount to the authorities either quarterly or monthly.
The amount of tax varies by canton and is dependent on, but not limited, the following:
- Place (tax tariffs vary widely by region in Switzerland)
- Civilian status (Swiss nationals, foreign nationals, c-permit holders)
- Religion (officially registered members)
- Income and wealth
Pension Plans
Equally important to calculating proper income tax withholding are Swiss social security contributions, including mandatory and optional plans. There is a three-pillar system on which Swiss social security contributions are based.
Pillar I: State Pension Plan
This is a compulsory state pension plan that consists of various insurance schemes. It guaranties a minimum support and includes old age survivor’s insurance, disability insurance, and income compensation allowances.
Pillar II: Occupational Pension Plans
Also mandatory are occupational pension plans and accident insurance. These occupational and accident insurance deductions are designed to maintain an individual’s standard of living.
Pillar III: Private Pension Plans
Private pension plans are optional. They often come in the form of a flexible savings or retirement account. Individual employees can choose to cover the remainder of their income that would not be supplemented by the first two pillars.
It should be noted that in Switzerland these mandatory and optional pension pillars are reconciled with the specific insurance schemes at the end of the year on behalf of the employee.
Payroll calculations and payment processing are unique in every country, and policies will be unique to each company. Due to this complexity, partnering with an experienced global payroll provider may be the best way to ensure confidence in a business´ payroll compliance on national and local levels.