How to run international payroll for employees in Switzerland (2024)
Hiring in Switzerland for the first time? Before you can consider finalizing an employment contract, you need to understand how to run payroll for Swiss employees. To keep your business running smoothly, it’s crucial to get it right and avoid potential missteps that could land you in hot water with any one of the several government agencies that oversee tax collection.
In this guide, we’ll walk you through the steps of running payroll in Switzerland and ensure you have all the information you need to start paying your employees.
Step #1: Decide whether or not to create your own entity in Switzerland or use an Employer of Record (EOR)
You need to establish a business entity in Switzerland in order to hire and pay full-time employees. To do this, you can either use an Employer of Record (EOR) or create your own local entity.
An EOR takes on various responsibilities, such as calculating and withholding the appropriate taxes, allowing you to hire and pay workers through the EOR.
When, why, and how do companies use an EOR?
Companies looking to expand their operations to Switzerland often use EORs to run payroll and perform other similar tasks rather than creating their own legal entities.
That’s because setting up a legal entity in Switzerland takes two to four weeks, and all the startup capital needs to be in a Swiss bank account. And there’s one more hurdle: If you’re a foreigner, you’ll need to obtain a Swiss residency permit. An EOR will remove these obstacles, ensure you’re compliant with Swiss laws, and save you time and resources.
When, why, and how do companies create their own entity?
When you create your own legal entity, you hire employees and run payroll rather than the EOR. Generally, companies choose this option once the costs of an EOR outweigh the costs of establishing their own entity.
Normally, when you scale your business, you have to deal with the inconvenience of switching systems as you scale. That’s not the case with Rippling. Our EOR is built on top of our native payroll rails, which means that when the time comes, you can move from our EOR to Global Payroll through your own entities—in minutes.
If you wish to set up a legal entity in Switzerland, there are five steps you must take.
First, you must choose from one of the four types of businesses available. They are as follows:
- Sole proprietorship: You’ll choose this type if your company is comprised of just one person. While Swiss law doesn’t require you to raise a minimum amount of capital to start a sole proprietorship, you’ll need to register in the commercial register if your profits exceed a certain amount. And you need to register with the OASI (Old Age and Survivors’ Insurance Fund) to be considered officially self-employed.
- General partnership: This form of business is made up of two or more people, and similarly to the sole proprietorship, you don’t need to raise a minimum amount of capital. However, your business must be registered in the commercial register.
- Limited Liability Company (LLC): Swiss law requires you to raise a minimum of CHF 20,000 to form an LLC, register it in the commercial register, and have a notary present at the official meeting when it is formed.
- Limited Company (LTD): This is similar to the LLC in many ways, save for the following: The minimum capital required is CHF 100,000, and the profits and dividends of the company’s shareholders will be taxed.
Once you select the right business form, the next step is to draw up a detailed business plan. This should cover everything from your market analysis to your financial projections, the products or services you plan to sell, and so on. There’s no such thing as too much detail with the business plan: Be exhaustive.
The third step is having the company founder sign a notarized deed. If you’re setting up an LTD or an LLC, you’ll need a board of directors along with an auditor for the former and a managing director for the latter.
Fourth, register your company in the official Commercial Register. Once this has been processed, the capital you raised is free for you to use for business purposes.
With Rippling, you can hire and pay Swiss employees with either method:
- Rippling offers a native global payroll system, which allows you to pay employees who work in Switzerland—and around the world—in a single pay run.
- We also have our own native EOR service, which allows you to hire and pay employees in Switzerland even if you haven’t set up an entity there.
Step #2: Pick a global payroll software solution
You have two options when it comes to international payroll solutions: global payroll aggregators and global payroll processors. We’ll review them briefly here; for more detailed information, check out our guide.
- Global payroll aggregators, like Deel and Papaya Global, aggregate local payroll providers in every country and manually transmit your payroll files to them.
- Global payroll processors, like Rippling, process your payroll, transfer funds, and calculate and file taxes through their own software. Put simply: global payroll processors allow you to pay your international employees just as easily as your local employees: together in a single pay run.
Step #3: Determine your workers’ employment status
Before you can draft your employment contracts and onboard your workers, make sure you’re classifying them correctly according to Swiss law.
If you misclassify your workers, you can face fines and other penalties. Employees are legally entitled to benefits like maternity leave and paternity leave, as well as insurance, and you’ll have to back pay those if you misclassify them as independent contractors.
In Switzerland, the key difference between an independent contractor and an employee is subordination. Employers direct an employee’s schedule, determining when and how they will perform their tasks. They also pay them on a regular schedule regardless of whether a task is completed or not, and they provide the equipment the individual needs to perform their job. Independent contractors have more control over their schedule, often determining when, where, and how they perform their work. They also must send an invoice in order to receive payment for completed tasks.
Step #4: Capture your new hires’ Swiss payroll information
Now, it’s time to collect the information you need to run payroll and pay your employees in Switzerland.
There are two parts to this: First, you’ll need to collect some basic employee information. This includes:
- Name (matching the account where you’ll deposit their pay)
- Date of birth
- Date of hire
- Contact information, including their mailing address in Switzerland
- Bank account information
- Amount to be paid in CHF (including any bonuses)
Foreign employers also need to register with Switzerland’s varying social insurance funds, including OASD, an occupational pension fund for each employee, the income compensation fund, and the cantonal family allowance fund (regardless of whether the employee has children or not). You can register for these funds through your local cantonal office where your business is registered. Switzerland has 26 cantons; two of the best known are Zurich and Geneva.
Step #5: Pay employees in the local Swiss currency (CHF)
USD and other foreign currency is not accepted in Switzerland. You must pay your Swiss employees using Swiss francs (CHF).
With Rippling, you can pay everyone in Swiss francs, in minutes, without waiting on transfers or conversions.
Step #6: Run payroll
Now that you’ve created an entity–whether by doing it on your own or using an EOR–set up a global payroll system, and correctly classified your employees, it’s time to run payroll!
Here’s a preview of how Rippling’s global payroll system works:
Step #7: File your taxes in your canton annually
Swiss companies are required to file annual tax returns with their local cantonal tax administration, which is responsible for the collection of federal, state, and cantonal taxes. Your local cantonal tax administration will be the tax office of the canton you registered your business in. Filing deadlines differ from canton to canton, so check with your local office to ensure you don’t miss a deadline.
Rippling can reduce your busy work by automatically calculating and filing your taxes in Switzerland.
Frequently asked questions about running payroll in Switzerland
What is the average gross salary for employees in Switzerland?
Switzerland is known for its high quality of life—and that includes excellent annual salaries. An OECD report from 2020 showed the average annual salary was nearly 70,000 CHF and that that number had remained steady for about a decade.
What is the national minimum wage in Switzerland?
Interestingly, Switzerland doesn’t have a national minimum wage.
What information is needed from employees to run payroll in Switzerland?
To process payroll for employees in Switzerland, you’ll need the following information from them:
- Name (matching the account where you’ll deposit their pay)
- Date of birth and date of hire
- Contact information, including their mailing address in Switzerland
- Bank account information
- Amount to be paid in CHF (including any bonuses)
How much does it cost to run payroll in Switzerland?
The majority of payroll software charges either on a per-employee or per-pay run basis. The prices can vary according to several different factors, including:
- Payroll frequency
- The number of cantons where you employ Swiss workers
- How often you add and remove payees
- The number of employees on your payroll
- Any additional services you need, such as year-end processing or mailing out pay stubs
Can I manually run payroll for workers in Switzerland?
Business owners are always looking for ways to cut down on their overhead costs and some choose to do so by running payroll themselves. But the manual method—using a payroll calculator and making a direct deposit to each employee yourself—can be time-consuming and carries with it the following risks:
- Compliance: If you don’t use native global software and decide to manually run payroll in Switzerland, there’s a high chance you’ll make manual errors. Rippling handles your compliance work for you and ensures all your Swiss employees will be paid the correct amount and have the correct amount of tax and insurance deducted from their paychecks, saving you from potential fines.
- Security: Cybersecurity is a top priority these days, specifically when it comes to safeguarding sensitive data in a nation that’s vigilant about its citizens’ privacy. If you choose to process payroll manually, especially if you’re still doing so the old pen-and-paper way, you’re putting yourself at risk for a data breach.
Rippling syncs all your business’ HR data with payroll so you’re never calculating or entering data manually, like hours and payroll deductions. Rippling also handles your tax and compliance work and is an authorized payroll provider in each of the 26 Swiss cantons, which are responsible for collecting the nation’s taxes.
What are payroll taxes in Switzerland?
The tax system in Switzerland is mind-bogglingly complex. The rates vary from canton to canton, and taxes are collected at the federal, state, and cantonal levels. Switzerland has a robust social security system, including a number of social insurance funds that come out of employees’ paychecks.
Here’s a brief overview of what comes out of paychecks in Switzerland:
- Federal corporate income tax (at a rate of 8.5%)
- Federal income tax (which is levied on a progressive scale, similar to other European countries)
- Jurisdictional income tax (each canton has its own income tax amount residents must pay; in some cantons, church tax is also required)
- Social security taxes (these cover OASI, unemployment insurance, maternity leave, paternity leave, accident insurance, etc., and are paid by both the employee and the employer)
Remember: All taxes are paid to the local tax office in your canton. Do not send them to any federal tax offices.
Rippling can automatically sync tax deductions to payroll, and handles your tax and compliance work for you.
How much do employees contribute to disability insurance in Switzerland?
Employees in Switzerland are required to contribute 0.7% of their gross salary towards disability insurance.
How much do employers pay for occupational accident insurance in Switzerland?
In Switzerland, employers are required to take out occupational accident insurance for each employee they hire, as well as non-occupational accident insurance for all employees who work more than eight hours each week. Employers in the federal, industrial, and construction sectors must use the government-approved insurance provider Suva; all other employers are free to choose their own insurance provider. The premiums they pay depend entirely on the provider.
Keep in mind: The coverage you offer for occupational accident insurance must be in line with what's mandated under the Federal Accident Insurance Act (UVG).
What are the late tax filing penalties in Switzerland?
When a taxpayer fails to file their return, the cantonal tax authority’s first step will be to send them a reminder that they missed the deadline. Should the taxpayer fail to respond to the reminder, the canton’s next step will be to assess the fine that should be levied based on the taxpayer’s previous tax returns. The amount varies from canton to canton and can range anywhere from CHF 1,000 to as high as CHF 10,000.
How do you pay contractors in Switzerland?
- First, make sure you have correctly classified the individual as an independent contractor (you can use Rippling’s free Worker Classification Analyzer to check).
- Next, verify the independent contractor has registered themselves as a sole proprietorship in Switzerland.
- Third, agree on the payment terms with the contractor: Will you pay them by the hour or by the project? What will be the rate? How will you pay them?
- Collect the necessary payroll information, including name, date of birth, bank account information, and contact information.
- Use your chosen payroll software to pay the contractor in CHF. With Rippling, you can pay both contractors and employees in Swiss francs in a single pay run, without waiting on transfers or conversion.
Remember: Independent contractors are responsible for deducting their own taxes from their paychecks in Switzerland. However, employers should still keep accurate records that include information about each contractor and how much they are being paid.
Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any related activities or transactions.
