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Key Aspects of Swiss Payroll

By Kira Rubiano

ManSwissMountainPayroll in Switzerland operates differently from payroll in the rest of Europe. Swiss payroll is based on different types of insurance. The processing of a payroll is a play on estimate calculations versus actual payment of insurance invoices. The below will shed some light on what to expect when starting to run payroll.

Switzerland has several different types of social insurance, which offer the employees and their dependents a broad protection against risks.

The social security system is divided into four areas:

1. Old age, survivors’, and invalidity insurance (divided into three pillars: State, Occupational, Private)

  • State-run pension is the basic pension known as AHV and invalidity (IV) insurance. This is compulsory.
  • Occupational benefit plan (BVG). This is mandatory and enables those insured to maintain their accustomed lifestyles after retiring. 
  • Private pension is individually supplemented.

2. Protection against the consequences of illness and accidents

  • Accident and occupational disease insurance (UVG) is compulsory.
  • Insurance for loss of income due to sickness (KTG) is different from health insurance. The employee must arrange health insurance; it is not done by the employer as it is private insurance. KTG is an insurance that covers the interests of the employer and employee and ensures that the employer continues payment of income for a specific period of time following illness. 

3. Unemployment insurance

  • Unemployment insurance (ALV) compensates loss of income in case of unemployment.

4. Family allowances

  • Family allowances are the main form of compensation for the cost of raising children. This is financed solely by the employer as a percentage of salary (varies depending on canton, salary, etc.). Parents of children up to age of 25 can claim family allowances. 

With regard to income tax, Swiss citizens and established residents are taxed on their income and their assets. The calculation of their taxes is based on the tax return they have to submit each year. Swiss citizens who are working in Switzerland but living abroad are subject to what is called the tax at source.

The payroll calculation and payment process is unique in Switzerland. What the payroll provider calculates as employer/employee insurance contributions (based on the insurance percentages) for a particular pay run is not what gets paid over to the insurance schemes. The insurance companies issue invoices to the employer with the exact amounts to be paid over on a monthly/quarterly basis. The invoices issued are based on calculations that take into account the previous year’s earnings. At the end of the year, the payroll provider will reconcile what was paid to the insurance scheme and what was calculated through payroll and do a true-up.

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