Payroll taxes in Switzerland: An employer’s guide

When you hire in Switzerland, you — as the employer — are responsible for calculating, withholding, and submitting payroll taxes from your team members’ pay slips. For some taxes, you are also required to make employer contributions.

In this article, we’ll explain clearly which taxes you need to withhold, which taxes you need to contribute to, and how to remit and make payments. So let’s jump straight in.

What is payroll tax?

Payroll taxes are the contributions employees and businesses make to the government to fund public programs, such as retirement, healthcare, and unemployment insurance. They typically include income tax and social contributions, and are set at pre-determined rates.

These rates (and the rules governing them) vary by country, but it’s every employer’s responsibility to ensure they are compliant, and that they are withholding and submitting the correct amounts.

What is the difference between payroll taxes and corporate taxes?

Generally, payroll taxes are tied to your employees’ wages, while corporate taxes are based on your company’s profits. 

Which payroll taxes do you need to withhold from your employee in Switzerland?

In Switzerland, the taxes you’ll need to withhold are:

​​Old Age and Survivors' Insurance (AHV/AVS)

This insurance provides pensions to retirees and dependents of deceased workers, with employees contributing 5.3% of their gross salary. It also covers:

• Disability insurance: This program offers financial support to individuals unable to work due to disability.

• Income compensation insurance: This program covers loss of income due to military service, maternity leave, or other qualifying events.

When to pay: Payments are typically due monthly, with final adjustments made after filing and receiving the invoice.

Unemployment Insurance (ALV/AC)

This program provides benefits to unemployed individuals, with employees contributing 1.1% of their gross salary.

When to pay: Payments are typically due monthly, with final adjustments made after filing and receiving the invoice.

Non-Occupational Accident Insurance (NBU)

This program covers accidents occurring outside the workplace. Employees typically contribute around 2% of their salary, though rates can vary based on the insurer and occupation.

When to pay: Premiums are usually invoiced annually or semi-annually, with payment deadlines specified by the insurer.

Note that, in Switzerland, employers only withhold income tax (Quellensteuer) if the employee in question:

1. Does not have permanent residence (C permit). Foreign workers without a C permit are subject to withholding tax.

2. Is a cross-border worker. Employees who live in a neighboring country but work in Switzerland are subject to withholding tax.

3. Has a limited residence permit (e.g., a B permit). Foreigners on temporary residence permits typically have their income tax deducted at source.

Employees who are Swiss citizens (or who have a C permit) are generally required to file their own annual tax returns, and pay taxes directly to the authorities.

For employees subject to withholding tax, you must deduct the appropriate amount from each salary payment and remit it to the cantonal tax authority monthly or quarterly, depending on cantonal regulations.

You may also be required to withhold additional taxes for certain employees, such as child support payments, student loan repayments, or any other court-ordered garnishments.

Which payroll taxes does your business need to contribute to?

As well as withholding the contributions listed above, you are also required to make your own contributions, as follows:

Family Compensation Fund (FAK/CAF)

This fund provides family allowances to employees with children. As the employer, you contribute approximately 3% of your employees’ gross salary, though rates vary by canton.

When to pay: Payment schedules vary by canton, with contributions often due monthly or quarterly.

Occupational Accident Insurance (BU)

This program covers work-related accidents. Employers typically contribute around 3% of the gross salary, though rates can vary based on the insurer and occupation.

When to pay: Premiums are usually invoiced annually or semi-annually, with payment deadlines specified by the insurer.

Occupational Pension Plan (BVG/LPP)

This fund provides additional retirement benefits. Contribution rates vary between 7% and 18% of the employees’ gross salary, shared between employer and employee, depending on the employee's age and the pension plan specifics.

When to pay: This depends on the specifics of the pension plan.

To quickly see a full breakdown of payroll taxes and employment costs for your Swiss hire(s) based on their salary, use our free Employee Cost Calculator tool.

How do you remit and pay payroll taxes in Switzerland?

You must first ensure that you are registered with the relevant social security and tax authorities, including the AHV compensation offices, accident insurers, and cantonal tax offices.

At the beginning of the year, you must submit your provisional salary declarations to determine advance payments. At year's end, definitive salary declarations are then submitted for final settlement. Based on these declarations, you will need to make regular payments (monthly, quarterly, or as invoiced) to the respective authorities and insurers.

You should remit and make the relevant payments through each agency’s online portal, in line with the deadlines listed in the previous sections.

How do you manage payroll taxes as an international employer?

When you hire a Switzerland-based team member from abroad, there are several ways you can manage their payroll and payroll taxes.

If you already have your own legal entity in Switzerland, you can:

• Handle it in-house. You can hire your own payroll tax specialists and manage everything internally. This can be costly, however.

• Use a local third party. You can hire a local firm to handle payroll, although this can be unreliable, costly, and pose data risks.

• Use a PEO. A professional employment organization (PEO) acts as an outsourced HR provider, and includes payroll.

• Use a global payroll provider. Global payroll providers — like Remote — have local specialists in multiple countries, ensuring that you are fully compliant with all tax requirements in each one. This is especially convenient if you have (or plan to have) employees in different countries, as you can manage all of them through one platform.

If you don’t have your own entity in Switzerland and you still want to hire there, you can:

• Set up your own entity. This can be extremely costly and time-consuming, but if you plan on establishing your business long-term in Switzerland, it might be a viable approach. To pay your employees, you would then need to choose one of the options above.

• Use an EOR. Employer of record (EOR) providers — like Remote — enable you to quickly and easily hire anywhere in the world, and also handle all the core HR functions (such as compliance and payroll). As well as being generally more cost-effective than opening your own entity, this option is highly scalable and, again, enables you to streamline all your global HR tasks in one place. How does an EOR work?

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What about independent contractors?

In Switzerland, independent contractors are classified differently to employees. As a result, they (in most cases) are responsible for calculating, managing, and paying their own taxes.

However, it’s crucial to understand the difference between contractors and employees, as you may inadvertently create misclassification risk. This can result in severe fines and penalties for your business. Learn more about hiring contractors in Switzerland.

How can Remote help?

Knowing which payroll taxes you need to calculate, withhold, and contribute to requires local expertise, especially as these rules can — and do — change. And if you make a mistake or fail to comply, the financial consequences can be significant.

Whether you have your own entity in Switzerland or not, Remote ensures that you are withholding and contributing the correct amounts, and that you are fully compliant at all times with local tax and employment laws. We also provide 24/7 support for any guidance you may need.

To see how we can help — and to learn which approach is the most suitable for your business — speak to one of our friendly payroll experts today.

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