As a neutral country with one of the highest standards of living in the world, Switzerland is an attractive place for skilled contractors and freelancers to engage their skills with new clients. But what are the alternatives when it comes to invoicing clients, salary calculation and payroll management?
Workers entering Switzerland to take up a new contractor role, can expect to be greeted with a myriad of rules and regulations. Starting with work permits, social insurance and the fact that each of the 26 Cantons applies varying tax rates – all make managing payroll and client invoicing more challenging.
Parameters when working as a Contractor in Switzerland
For work contracts over 90 days, full compliance with Swiss law is essential. To enable this, the independent foreign contractor will generally be required to be employed by a Swiss umbrella company. The Umbrella company invoices the end client or agent for the hours worked, according to a timesheet submitted by the contractor.
In certain instances, such as when there is a direct contact with the end client, freelancers may choose to form their own sole trader or limited liability company vehicle (Ltd) or work with a payroll accountant to invoice (their) clients. For foreign contractors, this is however subject to type of permit granted, and is not always possible for some non-Swiss nationals.
- Most EU/EFTA citizens can work under self-employed status and invoice clients directly via their own limited company for a period of up to 90 cumulative days in any one calendar year.
- If a contractor has a limited company, they can employ themselves. And in the case of a Swiss (GmbH/AG), they can use a Treuhand or Payroll Accountant.
- In the case of a foreign client, the contractor can work under ANobAG status as an employee of the foreign company.
- For periods over 90 days, the contractor must either be able to register as a Swiss based self-employed person or work with a SECO-licensed umbrella company. Both of these methods would require local payment by the client.
- In the case of the contractor or freelancer working for a Swiss end client, the most important factor as to whether the self employed status will work, is whether the individual is offering a managed service, or if they are just being indirectly employed under the management of the client company they are supplying to. In the latter case, neither the sole trader, nor the Ltd company vehicles will work without potential problems between the leasing client and SECO.
- When the contractor is employed via a labour leasing company in Switzerland and working for a foreign end client, the end client will not be subject to SECO control.
- A sole trader company vehicle is only accepted if the individual is taking an entrepreneurial approach (i.e. is a genuine freelancer, with several clients and jobs). This is subject to interpretation by the social/tax offices. This could mean retrospective problems and significant extra charges once annual returns have been received and scrutinized by the authorities.
Umbrella Payroll Service – For contractors on a fixed term work contract
Process
- The umbrella company that the contractor agrees terms with, signs a contract with the recruitment agency or end client directly (when no agency involved).
- The contractor then signs an employment contract with the umbrella company.
- Timesheets are submitted by the contractor to the umbrella company for work completed on behalf of the client company, plus any expenses as agreed.
- The umbrella company then invoices the client company or agent for the work completed by the contractor.
- The umbrella company then calculates the salary and minus all taxes, social deductions, pensions, etc., pays the salary into the contractor’s bank account.
- In Switzerland, it is important to note that the umbrella company fee is generally calculated as a percentage of the client billing rate.
- Buyer beware! The low fees some umbrella companies advertise can be akin to loss-leader-pricing, with any additional services being charged extra.
- Switzerland is an expensive country and the standard hourly charge for administration tasks and management of payroll typically ranges between CHF120-150.
Advantages
In addition to benefiting from employment rights, contractors and freelancers may choose to work with an umbrella company partner for the following reasons:
- Tax is calculated and deducted by the umbrella company saving the contractor time and expense.
- Working with an umbrella company is a fast, simple and legal way to start working on a new assignment – and very often for foreign contractors is the only accepted way to work with their recruiters and the end client.
- Some business expenses can generally be claimed as agreed with the end client.
- After sales service: with reputable umbrella companies, the service doesn’t just end with the salary calculation and on-time salary payment. Additional services such as: advice regarding the local Commune or Gemeinde, permits, taxes and even support finding suitable accommodation may be offered as part of the fee or at an additional cost to the contractor.
Contractor Work Conditions
- The umbrella payroll company is responsible for issuing a compliant contract to the contractor and managing all the mandatory deductions.
- The umbrella company will also monitor which contractors fall under the GAV Labour Leasing contract which means those earning less than full time equivalent salary of CHF 148’200.- per year the contractor must be pay-rolled under a slightly more stringent general employment agreement for leased personnel (German: GAV Arbeitsverleih). Those contractors earning more than this limit benefit from a slightly more flexible employment contract, and do not have to pay the extra GAV premiums (totalling 1% of salary).
Payroll Accountant or Trustee – Contractor with own Company Vehicle
Payroll accounting is essentially the calculation, management, recording, and analysis of salary compensation. Freelancers or in some cases contractors with the ability to register their own company in Switzerland, may choose to engage a payroll accountant instead of an umbrella company as this offers the ability to invoice multiple jobs on an hourly, daily, weekly or monthly basis. Only a few umbrella companies will offer such flexibility. Accurity, with its “Virtual GmbH” model does offer such flexibility.
The main difference between a Payroll Accountant and an Umbrella Company is that the Payroll Accountant does not employ the contractor or freelancer but prepares all documentation and administration for the worker as outlined. This means that the contractor will be expected to have their own company vehicle and be a director and shareholder of the company to work with a Payroll Accountant or Trustee.
In Switzerland the cost of engaging an accountant or trustee starts at around CHF250 per hour. This does not include the costs of registering and setting up the company.
Work: Preparation of tasks by the Payroll Accountant:
- AHV registration and declaration
- Wage statements and payslips – freelancer has to pay
- Insurance – Trustee prepares – freelancers pays
Summary
Contractors wanting to work with a Payroll Accountant to prepare administration, will need to do that though their own company vehicle. Any contracts will be between the business and the contractor’s client, and any profits and losses belong to the company.
Company accounts must be submitted annually, as well as other administrative documents. These can be prepared by the Payroll Accountant. Switzerland levies a direct federal CIT at a flat rate of 8.5% on profit after tax.
An own company vehicle can be a tax-efficient structure through which to conduct business for a contractor, but a limited company does come with a much higher administrative burden for the contractor than the employment solution with an Umbrella company.
Accurity GmbH has over 20 years’ experience delivering tailor-made solutions for our clients. And as Switzerland’s most trusted payroll provider, we provide the best advice to all of our stakeholders to ensure they make the right decisions. We work with corporate clients, recruitment agents, & contractors as well as international PEO’s. If you would like to speak with one of our team of experts, simply contact us now to see how we can make Switzerland easy for you!
