How to hire and pay independent contractors in Switzerland

There’s more to Switzerland than chocolate, cheese, and stunning scenery. The country is also one of the richest economies in the world and is home to a highly educated and globally fluent workforce. There are many benefits to hiring remote Swiss workers. Hiring from Switzerland can give you access to one of the most skilled labor markets in the world. Additionally, Swiss workers speak multiple languages, including French and Swiss German, which is an asset to help you expand your client base. 

But, hiring independent contractors in Switzerland has its fair share of challenges. You’ll have to deal with unfamiliar labor laws, understand tax practices, and comply with local regulations. Misclassifying your employees puts you at risk for fines and IP and invention rights. 

Luckily, we’ve created this guide to help you consider key aspects of hiring and managing Swiss contractors. We’ll also explain how to classify your Swiss workers correctly, and how to ensure compliance with Swiss laws.

Unique considerations of managing contractors in Switzerland

Swiss companies are known for paying some of the highest salaries in the world. If you’re considering top talent, be prepared to pay for expertise. The country is also known for its strong employee protections. 

Most Swiss employers are generous with paid leave and holidays. Employees over the age of 20 get four paid weeks of vacation, along with the holidays celebrated in their canton. Swiss employers offer 14 weeks of maternity leave paid at 80%. Sick leave and paid holidays vary by canton, so check local rules when you’re onboarding a new employee. Swiss workers are used to a wide variety of benefits, so you have to make sure you’re offering a competitive benefits package when hiring from Switzerland. 

When you’re hiring employees from Switzerland, you might risk triggering permanent establishment, which means that you have to pay corporate taxes and meet other compliance requirements in Switzerland. It often depends on the nature of your work and its business within the country. A global employment solutions specialist like Remote can help you determine if you are at risk of needing a permanent establishment. 

Although there isn’t a national minimum wage, some of the country’s cantons have separate minimum wage laws. Remote can help you determine the minimum wage laws in your independent contractor’s specific location to make sure you comply with all local regulations. Once you’ve settled on acceptable wages, you will need to set up your Swiss employees on your payroll system. 

How do I pay independent contractors in Switzerland?

If your new Swiss remote worker is an independent contractor, they may have already set up their own sole proprietorship. If they have not set up a sole proprietorship, you should verify that they are registered as self-employed within Switzerland before you pay them.

You can pay your independent contractors in Switzerland directly after they submit an invoice to you. Some popular payment methods used to pay contractors in Switzerland include bank transfers, direct deposits, paper checks, and online payment platforms like Wise or PayPal.

Alternatively, you could use Remote’s global payroll services to help you pay contractors without transfer fees or currency conversion costs. You can also automate invoice approvals and the payment process with Remote, saving you the hassle of managing multiple contractor payments.

When you hire an independent contractor from Switzerland for a long-term contract or more consistent project work, you might be required to classify them as an employee, which subjects you to Swiss payroll and tax regulations. In this instance, Remote can manage the setup and payroll process along with benefits and taxes. 

What are the risks of misclassifying Swiss independent contractors as employees? 

Studies have shown that up to 20% of American employers have misclassified their workers at least once. When you're hiring independent contractors from foreign countries, it’s important to avoid these onboarding mistakes. Switzerland considers remote workers to be independent contractors, as many of them may already be set up as sole proprietors.

However, classifying a remote worker as an independent contractor or an employee is your responsibility. Like many countries, Switzerland makes the distinction between employees and independent contractors. 

According to Swiss law, the key factor that differentiates an employee and a contractor is subordination. Some indicators that a worker can be classified as an employee include:

• The employer directs the worker’s performance and daily operations.

• The employer fixes the worker’s working hours and location.

• The employer provides tools and work equipment to the worker.

• The employer pays the worker regular wages.

For many companies, hiring remote workers as independent contractors is usually more beneficial. But you can only classify them as independent contractors if they have control over their work and the freedom to take on projects from other employers. You, as an employer, don’t have as much control over their actions. 

If your Swiss workers are classified as employees, you need to use a legal entity established in the country to comply with local regulations. For employees, this legal entity will manage payroll, tax, benefits, and compliance. 

Switzerland has certain rules and regulations regarding minimum wage, paid leave, overtime, termination, unemployment, and benefits. The country requires employers to comply with these laws and minimum wage requirements, or they could risk facing penalties or lose the ability to do business in the country.

When you’re hiring independent contractors from Switzerland, you have to be aware of the dangers of misclassification. You risk higher fines by intentionally misclassifying someone as an independent contractor to avoid paying insurance and other benefits required by Swiss law. It could be an honest oversight on your part, but you will still have to pay.

To avoid these issues, you could consider conducting regular classification reviews to help you properly classify employees. Alternatively, you could make your life easier by partnering with a global contractor management service that can do the hard work for you.

Remote can help you classify your workers correctly during the onboarding process. Use our localized contracts to hire and onboard your team of contractors, while being fully compliant with Swiss laws and regulations. 

What are the labor laws in Switzerland?

Switzerland has strong labor laws and benefits, which favor workers. For instance, there are caps on working hours, mandatory holiday pay, and overtime requirements.

Some notable Swiss regulations include: 

• Employees are only allowed to work between 45 and 50 hours a week, depending on the industry.

• If employees work longer, their overtime pay must increase by at least 25%.

• Most Swiss employers have to offer flexible work hours.

• Swiss employees get a 15-minute break for 5.5 hours of work, 30 minutes for seven hours, or an hour break for nine hours.

• Everyone who lives and works in Switzerland is eligible for benefits including healthcare, parental leave, retirement, family allowance, and unemployment allowance.

• Swiss income taxes are determined by federal, canton, and municipal rates.

• Swiss employers are prohibited from discriminating based on religion, race, gender, sexual orientation, and ethnicity either directly or indirectly.

• Switzerland is technically an employment-at-will country, but employers often try to rectify a situation before terminating an employee.

Self-employed individuals in Switzerland, such as independent contractors, are not protected by Swiss employment law, nor are they entitled to benefits.

Tax and compliance practices for hiring independent contractors from Switzerland

One of the challenges faced by businesses that employ independent contractors and remote workers in other countries is to stay compliant with local tax laws. Independent contractors in Switzerland are required to file and submit their own tax returns.

If you’re a US-based company, you have to meet IRS rules and regulations. You should also become familiar with municipal tax forms required for the canton and the municipality where your independent contractor is located. 

If you’re hiring independent contractors from Switzerland, you may be required to submit these forms to the IRS.

• The W-8 BEN Form is used to determine a non-resident's foreign status.

• Form 1096 is used for reporting payments to independent contractors in Switzerland who are US citizens or residents.

• The 1042-S Form is required by the IRS for every foreign citizen receiving payments from a US company.

• Accounts and invoices. Self-employed residents are required to declare their accounts, so keep a record of all invoices and subsequent payments.

Remote’s contractor management platform includes features you can use to stay in compliance with US tax laws. Using Remote can help hiring managers and small business owners ease the burden of filing and reporting taxes for their Swiss employees. 

Our platform walks you through the forms you need for reporting payments to independent contractors living outside the country. During the onboarding process, your new contractors will be directed to download the relevant correct forms and fill them out. You might be tempted to skip sending and collecting tax forms from your independent contractors, but failing to file tax paperwork could land you with some steep penalties of up to $270 per contractor along with any accumulated back taxes. Remote gives you the tools to make tax compliance simple.

How do I convert an independent contractor in Switzerland to an employee?

There are many advantages to working with independent contractors from Switzerland compared to hiring a Swiss person as an employee. But there may come a time when you need to hire one of your remote workers as an employee.

If an independent contractor works with you consistently on multiple projects, you might consider converting them to an employee. 

It also frees you from the risk of losing your intellectual property rights. As an independent contractor, your remote workers have rights associated with their work. They might retain the rights to any inventions, developments, or procedures they develop for your company. 

This might seem innocuous if you're only working on a small project with a remote worker. But when you start working with a contractor for long periods on multiple projects, you could find that they own a significant amount of company-specific intellectual property. You may find that you have no legal means to keep your contractors from taking their work or innovations to other companies. Converting your contractor to an employee means that you gain more control over your intellectual property.

Hiring an independent contractor as an employee protects you from potential fines and other repercussions of misclassification. If you’re uncertain whether you should hire an independent contractor as a full-time employee, here are some guidelines to help you decide.

• Are they currently misclassified based on their work and level of autonomy?

• Do you want protection for proprietary innovations and collaborations?

• Do you want to provide benefits to your remote workers?

• Do you want the contractor to feel more aligned with your company and its culture?

• Do you want to integrate your contractor into the business planning process?

If the answer is yes to any of the above, then you might want to consider converting your contractors to employees. At the end of the day, the final decision should be made based on your business needs. When you’re ready to start the process, Remote can handle everything seamlessly for you.

The best way to hire independent contractors in Switzerland

With its highly skilled talent pool, Switzerland is a great location for finding your next independent contractor. And, when you have the right platforms and tools, you can let people work virtually, and effectively manage them from anywhere. Of course, hiring global contractors and managing them remotely, is not easy.

Since classifying remote workers is a crucial part of the onboarding process, you'll have to do it correctly or risk the consequences of misclassification. You’ll also need to make sure you remain compliant with Swiss employment laws and tax practices.

But you don't have to stress because Remote makes it easy for you to hire and onboard employees from many countries, including Switzerland. If you’ve decided to take the plunge and start contracting Swiss workers, our contractor management services can make the hiring, onboarding, and managing of international talent a simple process.

Our platform has everything you need to create contracts, manage payroll, determine if you comply with regulations, and more. With Remote, you can:

• Onboard contractors in minutes with our customizable contractors

• Automate invoicing approvals and payments

• Classify your workers correctly and stay compliant with Swiss labor laws

• View and manage all your contractors in one place

Contact us if you would like to learn more about our contractor management and payroll solutions. If you’re ready to start onboarding contractors in Switzerland with Remote, sign up today and get started in minutes.