With just over 8.7 million inhabitants, the population of Switzerland is 8-10 times less than that of Germany, the UK and France. All these countries are prolific start-up hubs. So how does Switzerland rank in terms of market share for start-ups.
After a slow start in the 1990’s, Switzerland is now a start-up leader in Europe with close to 300 start-ups launched alone last year, compared with just 45 in 1996.
One reason behind this success is the local ecosystem. Most start-ups in Switzerland are located near one of the two best ranked universities globally for computer science: ETH in Zurich ranked third in the world in 2020 and EPFL in Lausanne ranked twentieth in the same year. The cantons where these universities are located (Zurich and Vaud), are home to half of the start-ups launched in Switzerland each year. The current top three sectors are:
- Fintech and Financial Services
- Switzerland ranks second from the four nations with a 6.28% sector share behind the UK in first place, which has a 6.98% sector share.
- Germany and France are ranked in joint third place with an equal share of 4.68%.
- IT –Security
- Given the boom in digitalisation, IT security and trust are a key requirement to protect data and applications against attack and theft.
- Switzerland is a leader in this sector with its sector share of 2.15% significantly higher than the UK (1.71%), Germany (1.17%) and France (1.16%).
- Industrial Products and Technology
- Switzerland also takes a leading position in Europe in this sector and it is now an important supplier of Robotics to the automotive industry.
The ecosystem for Start-ups in Switzerland is robust, so how do start-ups attract their highly skilled workers?
The main components of the start-up compensation package usually revolve around three components; salary, benefits and equity, with the latter playing a major role depending on the development stage of the start-up. This differs from the structure of a mature company which places more emphasis on salary, then benefits and equity.
Salary
This is dependent on the start-up sector, type of company and development stage the company is actually in. In the earlier stages workers can expect a lower base salary than the “market norm”. As the company and role mature, salaries usually increase to near-market level. A useful compensation tool can be found at Angel.co .
The administration of salaries can be done in-house (requiring an accountant or payroll expert), but in most cases at the early life-cycle stage, these are be outsourced to a payroll provider, who will either administer the payroll or even employ and lease employees to the startup.
Benefits
Typically, these are dependent on life-cycle stage. In the earlier phases benefits may be basic but as the start-up expands, these can become more varied and become an extension of the company culture and used to enhance recruitment efforts. Here again, there are no hard and fast rules and the motto for start-ups seems to be: the quirkier the better. Pets in offices, flexitime, home and remote working, catered lunches, extended free time, games and relax rooms and more, are all new norms in the start-up world.
At a later stage the company may bring payroll back in-house with their own HR as part of the development of company culture. However it is increasingly probably that they decide to keep payroll outsourced, as it is not considered a core or differentiating service. As a result some payroll companies, for example Accurity are already capable of supporting salary, benefits and equity awards as part of their standard service.
Equity
This refers to ownership participation in the company by employees and can be one of the main reasons for a person wanting to join a start-up. The chance to exit the company in a few years and cash-in can be a very attractive part of any start-up compensation package.
Rather than receiving equity directly it is usually awarded as options to buy stock at heavily reduced rates. These stock options are distributed according to a “Vesting Schedule” typically spread out over several years to ensure the loyalty and longevity of employees. Once stock options vest, employees have the right to purchase the stock. An employee entering the company early will usually get more stock options, which could be far more valuable when the company is finally sold. The advantage for workers who enter a start-up early can make them very wealthy, as examples with giants such as Facebook have shown.
Payroll best options for Start-ups
- Most start up companies choose to outsource their payroll at the outset allowing founders and first employees to focus their efforts on the core tasks at hand.
- As the company grows and receives additional funding, bringing payroll services in-house may be seen as a key part of the company culture, and a value add. But this can be costly and is not the most efficient use of resources.
- Payroll outsourcing is currently the fastest growing segment for HR outsourcing and this has been accelerated by COVID-19, with companies looking to cut expenses in their non-core areas, and remain compliant.
- While there are a myriad of global professional employment organisations (or PEO’s) offering “their” services, local compliance regulations mean that to deliver the seamless services these PEO’s offer, they either have to have their own presence in every market where they offer their services or (more usually) work with local partners – in effect outsourcing the payroll themselves.
- Therefore the recommended strategy for a start-up is to work with a local payroll provider, one that understands the sector and matches the culture of the start-up. Language, cultural and legal barriers should never be underestimated.
- As the start-up grows the local payroll provider may even act as an international PEO by partnering with like-minded payroll organisations in the target markets of the start-up. This is more a think global, act local strategy as opposed to “one-shoe-size-fits-all” approach.
The advantages of outsourcing payroll can far outweigh any emotional feelings for keeping this specialist discipline in-house. Some of these include:
- Cost Savings – with employment of payroll and employment specialists, office space, licences, software, training etc all not being required.
- Access to new business processes and technology – which would be expensive and time-consuming for the start-up to invest in and maintain. Often these can be modified to match the exact requirement of the start-up.
- Data protection and security cover – which are guaranteed as part of the outsourced service agreement.
- Ensuring compliance and enabling employees to have local expertise at their disposal for payroll or tax issues. This frees up HR management to focus on recruitment and the development of company culture.
If you are a start-up looking for an outsourced payroll solution and would like to speak to one of our team of experts, don’t hesitate to contact us today to see how we can make Switzerland easy for you!
