A Q&A guide to employment and employee benefits law in Switzerland.
The Q&A gives a high level overview of the key practical issues including: permissions to work; contractual and implied terms of employment; minimum wages; restrictions on working time; illness and injury; rights of parents and carers; data protection; discrimination and harassment; dismissals; redundancies; taxation; employer and parent company liability; employee representation and consultation; consequence of business transfers; pensions; intellectual property; restraint of trade agreements and proposals for reform.
To compare answers across multiple jurisdictions, visit the Employment and Employee Benefits Country Q&A tool.
The Q&A is part of the PLC multi-jurisdictional guide to employment and employee benefits. For a full list of jurisdictional Q&As visit www.practicallaw.com/employment-mjg.
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
The conflict of law rules of the Federal Statute on International Private Law (PILA) apply. The law of the country in which the employee mainly works applies (irrespective of their nationality) (Article 121, PILA). If this cannot be established, the law of the state where the employer has a branch office or, if there is no such branch office, where the employer has its seat, applies.
Contractual choice of law clauses apply, provided the law of the employee's usual residence or the law of the branch office or seat of the employer is selected.
If Article 121 of the PILA applies foreign law to an employee who is working for a Swiss employer, Article 18 of the PILA states that important mandatory provisions of Swiss law always apply. This reservation mainly applies if collective bargaining agreements (Gesamtarbeitsverträge) or normal employment contracts (Normalarbeitsverträge) have been declared to apply uniformly by the Federal Government. Mandatory Swiss public employee protection law always applies to a person working in Switzerland. Special legal provisions exist relating to social security (see Question 26, Social security contributions).
See above, Laws applicable to foreign nationals. Article 19 of the PILA allows for the application of mandatory foreign law (even if Swiss law otherwise applies to the contract) in exceptional circumstances, if this seems necessary to protect the employee.
No specific age restrictions apply, except for the general maturity age of 18 years (Article 14, Civil Code). This means that managers of Swiss companies must be at least 18 years old.
There are no nationality restrictions on managers. However, foreign nationals need to obtain the necessary work permits (see Question 4, Permission to work). There are no nationality restrictions on members of the board of directors of Swiss companies. At least one person authorised to represent the company must reside in Switzerland.
Only physical persons (and no legal entity) can be members of the board of directors of a Swiss company. Moreover, due to conflicts of interest, specific public law statutes can prohibit a person's membership on a board of directors.
There are no grants or incentives available for employing people.
Filings must be made to affiliate the employee to the necessary social security schemes. In addition, certain applications/registrations may need to be filed when the employee is not a Swiss national (see Question 4, Permission to work).
Nationals of EU/EEA countries do not require a visa. The Federal Office for Migration maintains a list of third countries the nationals of which must obtain a visa to enter Switzerland (see www.bfm.admin.ch/content/bfm/en/home/themen/arbeit.html and www.bfm.admin.ch/content/bfm/de/home/dokumentation/rechtsgrundlagen/weisungen_und_kreisschreiben/visa.html). These persons must obtain a visa in addition to a work permit (see below, Permits).
Procedure for obtaining approval. The visa is issued by the Swiss diplomatic representation abroad upon approval of the cantonal migration authority. A work permit must first be obtained (see below, Permits).
Cost. A visa currently costs CHF90 (as at 1 August 2012, US$1 was about CHF0.97). Additional costs must be added for the issuance of documents on arrival.
Time frame. The length of the process depends on the citizenship of the foreign national and the canton where the application is filed. It usually takes from four to eight weeks.
There is a dual system for granting foreign nationals access to the Swiss labour market. EU and European Free Trade Area (EFTA) nationals are admitted to the Swiss labour market under the agreement on the free movement of persons between the EU and Switzerland. All other nationals are only admitted in limited numbers, if they are well qualified and fulfil other requirements.
EU/EFTA nationals. Full free movement of persons has applied since 1 June 2007 to citizens of Germany, France, Austria, Italy, Spain, Portugal, UK, Ireland, Denmark, Sweden, Finland, Belgium, The Netherlands, Luxembourg, Greece, Cyprus, Malta, Norway, Iceland and Liechtenstein (EU-17/EFTA).
Full freedom of movement has applied to citizens of Poland, the Czech Republic, Slovakia, Hungary, Estonia, Latvia, Lithuania and Slovenia (EU-8) since 1 May 2011. However, Switzerland has reintroduced a quota for nationals from EU-8 countries. The quota is applicable from 1 May 2012 to 30 April 2013 and concern nationals of the EU-8 countries with an employment contract valid for more than one year or wishing to take up employment indefinitely in Switzerland.
Full freedom of movement will apply to citizens of Bulgaria and Romania (EU-2) as of 1 June 2016 at the latest. Currently, the domestic workforce can be given precedence over Romanian and Bulgarian citizens, and salary and work conditions can be checked by the authorities.
EU-17/EFTA and EU-8 nationals can work or provide services in Switzerland without a work permit for up to 90 days in a calendar year. However, the employer must register them in advance with the authorities through an online notification procedure.
EU-17/EFTA and EU-8 nationals who will work for more than 90 days a year in Switzerland simply have to register with the communal authorities and apply for a work permit. A quota applies for EU-8 nationals (see above).
EU-2 nationals can provide services in Switzerland if they work in the general sectors and their service does not last longer than 90 days. However, they must be registered with the authorities through the online notification procedure.
EU-2 nationals who work for more than 90 days per year in Switzerland or who cannot benefit from the online procedure require a work permit. The employer files the application with the cantonal labour market authority at the place of work. The employer has to prove both that:
It has not found a Swiss employee or an integrated foreign employee.
The wage and working conditions are equal to the domestic ones.
If these requirements are fulfilled, a work permit will be granted if a quota is available.
Other foreign nationals. Persons from non-EU/EFTA countries are only admitted if:
They are well qualified (degree from a university or other higher education institution and several years of professional experience).
No person for the job can be recruited from the Swiss labour market or an EU/EFTA member state.
Exceptions can be granted, among others, for:
Temporary duties as part of large projects for companies with headquarters in Switzerland (international assignment).
Execution of special mandates and projects.
Intra-company transfers of managers and specialists.
Further:
The salary, social security contributions and employment terms must be in accordance with conditions customary to the region and the particular sector.
A quota must be available.
Procedure for obtaining approval. The procedure for obtaining approval depends on whether the applicant is an EU/EFTA national, or another foreign national:
EU/EFTA nationals. EU-17/EFTA and EU-8 nationals who want to work for more than 90 days per year in Switzerland must register with the communal authorities and apply for a work permit before taking up work.
For EU-2 nationals, the employer must file a work permit application with the cantonal labour market authority at the place of work.
Other foreign nationals. The employer must submit the application to the cantonal labour authority, which makes a preliminary decision. It then submits the file to the federal office for migration, which issues the federal decision.
If the federal office for migration approves the application, the cantonal migration authority authorises the Swiss diplomatic representation abroad to issue the visa (see above, Visa). The foreign national can then collect the visa at the Swiss representation abroad.
Cost. The cost depends on the type of work permit and the nationality of the employee. For example, in the Canton of Zurich, costs range between CHF100 and CHF400 (plus additional costs for the issue of visa authorisation by the migration authority). The Zurich authorities may also charge an additional fee of up to 50% of the original fee for additional work.
Time frame. The length of process depends on the citizenship of the foreign national and the canton where the application is filed. It can take from a few days to up to four months.
No written employment agreement is required. If it is agreed orally or implicitly that a person will provide services to another for a limited or unlimited period of time, and the other party will pay a salary, an employment contract legally exists. In certain instances it may be unclear whether an employment contract or a mandate agreement exists. The decisive element for distinguishing the two contract types is whether a person providing services to another person is integrated in the latter's business organisation.
An employment contract can include implied terms to the extent the parties actually act in a certain manner.
If the contract includes neither express nor implied terms, the relevant statutory provisions apply (mainly Articles 319 et seq of the Code of Obligations of 30 March 1911, as amended). The Code of Obligations addresses all issues that are relevant to an employment relationship. Many provisions are mandatory, that is, they cannot be contractually changed or can only be changed in the employee's favour.
Numerous public law provisions aim to protect certain categories of employees, such as females, youths, or people working at night.
Collective agreements (Gesamtarbeitsverträge) apply to certain sectors, for example, the machine industry and the chemical and pharmaceutical industry. They can be widely negotiated between trade unions and industry associations, or between trade unions and certain (usually large) companies.
In addition, the Federal Government can enact mandatory standard employment terms for certain industries or certain types of workers (Normalarbeitsvertrag).
The employer and the employee can agree in the employment agreement on the employer's right to unilaterally change specific terms and conditions of employment, provided that clause is not abusive (which could be the case with respect to the main aspects of the contract, such as salary, holidays, and so on). If the parties have not agreed this point, the employer cannot unilaterally change the terms and conditions of employment.
If the terms in question fall under the employer's authority to issue directives, the employer can unilaterally change these directives, again provided that change is not considered abusive.
The employer can issue a "modification-termination" (Änderungskündigung) by suggesting changes in the terms and conditions of employment, and terminating the employment at the same time in the event that the employee does not accept the changes. However, the applicable notice period must be observed (see Question 17, Notice periods).
There is no statutory minimum wage. However, collective bargaining agreements and mandatory standard employment contracts can include minimum wages for certain categories of employees.
The Federal Statute on Employment (Arbeitsgesetz) of 13 March 1964, as amended, and its regulations contain rules about working hours and rest breaks. These provisions do not apply to members of top management.
Under the Federal Statute on Employment, a person is not allowed to work more than 45 to 50 hours per week, depending on the employment field. Below this maximum, the parties can contractually agree working hours. Most employees work between 40 and 42 working hours per week.
Work must be discontinued with a rest break of:
15 minutes for a working time of more than five and a half hours.
30 minutes for a working time of more than seven hours.
One hour for a working time of more than nine hours.
A daily rest time of at least 11 consecutive hours must be granted. For adults, the daily rest time may be reduced to eight hours once a week, provided an average of 11 hours is maintained over two weeks.
One day off every week must be granted, in principle on a Sunday.
The Federal Statute on Employment and its regulations also contain provisions on shift workers, mainly providing for a periodical change of shift hours, a balance between day and night shifts, maximum working time and rest days. Specific rules also apply with respect to resting days for companies with continuous working (24/7). In particular, employees must be granted at least 61 weekly resting days of at least 35 consecutive hours (including the daily rest time). Out of these, 26 resting days must in principle fall on a Sunday.
The minimum holiday entitlement is four weeks per year (Article 329a, Code of Obligations). For employees under the age of 20, the minimum is five weeks. It is possible for the parties to contractually agree on a longer holiday entitlement.
Public holidays are in addition to the minimum holiday entitlement. They include, among others, the Swiss National Day (on 1 August), cantonal public holidays and local holidays. The only federal public holiday is 1 August: other public holidays vary, depending on the canton.
An employee is excused from working during illness.
Employees who are ill also enjoy statutory protection from dismissal. The extent of this period of protected sick leave depends on the length of service:
In the first year of employment: 30 days' statutory protection.
Between the second and the fifth year: 90 days' statutory protection.
From the sixth year: 180 days' statutory protection.
A notice of termination issued during the protected period is void. Further, if a notice of termination was previously issued, but the employee then becomes ill during the termination notice period, that notice period is extended for the duration of the illness (up to a maximum of the relevant statutory protection period that applies).
The employer must continue to pay the employee's salary and other contractually agreed compensation for a limited time period, provided the employment has had a duration of more than three months or has been entered into for a period of more than three months (Article 324a, Code of Obligations).
Courts have interpreted this statutory provision somewhat differently in relation to the limited time period. Generally, the duty to continue salary payments depends on the duration of services the employee has actually rendered:
In the first year of employment, salary payments must be made for three weeks.
In the second year, between one and two months.
In the third year, between eight and nine weeks.
The duty to continue salary payments further increases with years of service, with a maximum limit of between six months to one year.
The employer and the employee may agree on an alternative solution (such as payment of salary by an insurance during a certain period of time), provided that such alternative solution is at least equally beneficial for the employee. The agreement must be in writing.
The employer cannot recover salary payments paid as sick pay from the state. However, most employers take out insurance to protect against the risk of prolonged salary payments to employees who are ill.
Parents (including maternity, paternity, surrogacy, adoption and parental rights, where applicable)?
Carers (including those of disabled children and adult dependants)?
Under mandatory public laws, women are not allowed to work (and employers cannot employ women at this time) for a period of eight weeks after they have given birth. Moreover, they have a right to a total of 14 weeks of maternity leave after they have given birth. If a woman chooses to take her maternity leave, the state pays her a compensation amounting to 80% of her average last salary during a 98-day time period from the date of birth. The compensation is currently capped at CHF196 per day. Whether the employer must make top-up payments is unclear.
There are additional statutory rules protecting women during pregnancy and following birth. In particular, a pregnant woman is protected against dismissal during the whole pregnancy and for 16 weeks following birth.
There are no specific statutory paternity rights. However, many employers have issued internal regulations granting fathers some limited time off in the case of childbirth.
Surrogacy is prohibited in Switzerland.
Statute does not provide special rights in the case of adoption.
Employees with family duties have a statutory right to stay away from work for up to three days to take care of sick children. Statute does not provide other special rights for parents or carers. In practice, many employers have internal regulations that allow parents or carers to have some flexibility in unusual family situations.
See above, Parental rights.
Statute and court decisions create various benefits for continued employment. This applies to, for example:
Severance payments (Article 339b, Code of Obligations) (see Question 17, Severance payments).
Statutory termination notice periods (Articles 335c and 336c, Code of Obligations) (see Question 17, Notice periods).
Duration of salary payments and termination protection in the case of illness (Article 324a, Code of Obligations) (see Question 10, Illness and injury of employees).
In a transfer of an employment contract in connection with the sale of a business (or part of it), all rights, including those acquired before the transfer, remain with the employee (Article 333 et seq, Code of Obligations).
The general rules of employment law (Article 319 et seq, Code of Obligations) also apply to temporary workers. Certain specific issues arising in relation to these workers (for example, holiday entitlements and surcharges to the hourly salary to compensate for holidays) have been dealt with by the courts within the existing statutory framework.
There is no limit to the duration of a fixed term contract. However, if the same parties enter into successive employment contracts without an objective reason to do so, a court may consider that the parties have in fact entered into an employment agreement for an unlimited period. In this case, provisions governing employment agreements of unlimited period (such as notice periods in the case of dismissal) will apply.
A fixed term contract terminates on the last day of its validity. It is not necessary to issue a notice of termination. Since there is not any notice period, provisions extending the notice period in the case of illness do not apply. However, under Swiss law, a fixed term contract cannot be terminated prematurely by the employer by way of paying the employee a severance in lieu of notice, as is the case in other countries, unless the employee agrees to terminate the contract. Therefore, employment agreements for longer fixed terms are usually not recommended.
A special statute regulates agency work (Bundesgesetz über die Arbeitsvermittlung und den Personalverleih of 6 October 1989, as amended). The statute imposes a permit requirement on companies in the agency business. The agency worker enters into an employment contract with the agency company that provides, among other things, that the employee will perform their work for a variety of other companies. The statute sets certain minimum standards for employment contracts of this nature, for example, shorter notice periods.
The employer can only deal with and preserve data that has a direct connection with the employment relationship, that is, with a person's ability to perform a certain job or with the performance by an employee of their contract.
The Federal Data Protection Act of 19 June 1992, as amended, governs how an employer can use this data. Generally, the employer cannot:
Violate an employee's personal rights.
Make use of the data in bad faith.
Use the data disproportionally.
Transfers of personal data abroad without the employee's consent can cause substantial difficulties, primarily where the receiving country does not provide data protection equivalent to Switzerland. Usually it is advisable to obtain detailed legal advice on this issue.
There is broad protection of the employee's personal rights (Article 328, Code of Obligations). Discrimination can be claimed based on:
Race.
Religion.
Ethnic background.
Sexual orientation.
An employee affected by discriminatory behaviour has a variety of legal measures available, for example:
Temporary refusal to work.
Rejecting instructions.
Claims for damages and/or tort.
Immediate termination for cause.
Discrimination due to gender is subject to special provisions and sanctions in the Federal Law on Equal Treatment of 24 March 1995, as amended.
Sexual harassment is subject to the provisions and sanctions in the Federal Law on Equal Treatment. The employer must put in place reasonable measures (in particular, clear written guidelines) to prevent cases of sexual harassment.
Statutory protection of whistleblowers is weak. Court cases have held that the dismissal of an employee due to whistleblowing is deemed to be abusive. A Bill is being discussed in the Federal Parliament to improve whistleblower protection.
Usually notice periods for employment contracts with an unlimited duration are specifically agreed in the contract. Notice periods must always have the same duration for employers and employees.
Notice periods cannot be lower than one month, except if otherwise agreed in a collective bargaining agreement, and even then only for the first year of employment (Article 335c, Code of Obligations).
If the employment contract does not address notice periods, the statutory notice periods are:
During the first year of employment, one month following the end of the calendar month.
Between the second and ninth year of employment, two months.
After then, three months.
The first month of employment is deemed a trial period, which can be extended by written contract to three months. During the trial period, notice of seven days can be given at any time.
In certain situations, dismissal notices are void by law, for example dismissal during illness, pregnancy or absence from work due to childbirth.
Under the Code of Obligations (Articles 339b et seq), severance payments must only be paid if the employee affected is over the age of 50 and has worked for more than 20 years for the same employer.
In that case, the statutory minimum severance payment is equal to two months' salary. If the employee receives, or will receive, payments from a social security scheme that has totally or partly been funded by the employer, there is no obligation to make severance payments.
It is not uncommon in employment contracts for members of the top management to specifically agree severance payments in the case of early termination or dismissals following takeovers (golden parachutes). There is increasing public discussion about whether, and to what extent, these agreements are admissible, or should at least be disclosed to the shareholders. In addition, golden parachute promises made to the top management to make takeover bids more difficult have been held unlawful by the relevant authorities.
The Code of Obligations does not require notice to be in any specific form. However, for the purpose of proof it is advisable to serve notice in writing. In practice, most employment contracts provide that notice must be in writing.
Under Swiss law, a notice only becomes effective at the time of receipt by the affected person. It is advisable to hand over written notices in person and to receive written confirmation of receipt. If that is not feasible, notice can also be served by registered mail, but appropriate lead time should be allocated to protect against difficulties in serving notice on the employee.
Dismissals do not need to be reasoned or justified, that is, a reason does not have to be provided. Only on the specific request by the employee must the employer state the reasons in writing. It is usually highly advisable to seek legal advice in connection with dismissals, particularly where the dismissal could be regarded as unfair (see Question 18, Protection against dismissal).
Except in the case of a mass dismissal (see Question 19), there is no specific filing required. However, the relevant social security authorities must be informed.
In principle, employment agreements can be terminated freely by either party, provided the applicable notice period is observed. A specific ground for terminating the contract is not required. However, employees are protected in certain circumstances.
Employees are protected against unfair dismissal (Article 336, Code of Obligations). The provision includes a list of situations under which dismissal is deemed to be abusive. Generally, a dismissal is only abusive if it either:
Violates personal or constitutional rights (for example, dismissal due to race or gender).
Is made to prevent an employee from making contractual claims (for example, receive a contractually agreed severance payment).
Abusiveness does not render a dismissal invalid. The only consequence of a violation of Article 336 of the Code of Obligations is the payment of compensation of up to six months' salary at the discretion of the judge.
Employees who are members of trade unions and/or fulfil certain functions in the company's employee representation bodies are specifically protected (Article 336, Code of Obligations).
No final decisions can be taken on mass dismissals before the completion of the consultation process (see Question 19).
After expiration of the probationary period (which can last up to three months), temporary protection against dismissal also exists under Article 336c of the Code of Obligations in the case of illness (see Question 10, Illness and injury of employees), pregnancy and mandatory military service. Dismissal notices issued during the protection period are deemed void.
Swiss employment law includes rules on mass dismissals (Articles 335d to 335g, Code of Obligations). There are certain threshold numbers of redundancies that trigger the mass dismissal regulations, depending on the overall number of employees.
If an employer intends a mass dismissal it must inform the employees (or any employee representation body) about the intended measures and the reason for those measures. There is also a consultation requirement. Employees must have an opportunity to provide their own counter proposals, showing how the dismissals can be fully or partially avoided or how their negative consequences can be reduced. While the employer does not need to prove the reasons for the mass dismissal, it must provide sufficient information for the employees to be able to make proposals.
After completion of the consultation process, the employer must notify the competent public authority, which can then intervene on its own and make certain proposals aimed at protecting the employees who become redundant.
If the employer does not duly consult the employees before taking the decision to dismiss, the dismissals are deemed abusive and the employees can claim compensation of up to two months' salary at the judge's discretion.
There is no statutory obligation to establish a social plan under Swiss law. However, this obligation can arise under a collective bargaining agreement. Moreover, it has become customary for employers to set up a social plan in cases of mass redundancies. This provides for certain benefits in favour of employees, such as:
Additional severance payments.
Additional contributions to their pension schemes.
Assistance in finding new jobs.
Financing transition arrangements (for example, schooling).
Swiss statutory law does not provide for employee representation in the management.
The Federal Statute on Participation Rights of Employees (Mitwirkungsgesetz) of 17 December 1993, as amended, provides for certain information and consultation requirements with employee representation bodies or the employees. Consultation rights exist relating to:
Employment safety matters.
Transfers of business.
Mass redundancies.
Accession to pension fund organisations.
There are consultation and information requirements if individual employment relationships are transferred to another legal entity in connection with a corporate transaction (Article 333a, Code of Obligations). Likewise, these requirements must be observed when all employment relationships are automatically transferred by operation of law in a merger (Universalsukzession). These requirements do not apply if the transaction only involves the sale of shares.
If companies violate the statutory information and consultation requirements for a transaction under the Federal Merger Act (Fusionsgesetz) of 3 October 2003, as amended, employees have a right to block the transaction by obtaining temporary restraining orders. However, Articles 333 et seq of the Code of Obligations do not provide for specific sanctions. Generally, an individual employee has a claim for specific performance or for damages, to the extent damage can be shown.
See above, Remedies.
In a transfer of a business or part of the business, the employment agreements for all employees engaged in the business are automatically transferred by operation of law (Article 333 et seq, Code of Obligations). Issues can arise for people working for different business units, where case-by-case solutions must be negotiated.
There is no general protection against dismissals, that is, employees can be dismissed before the transfer by the former employer, or after the transfer by the new employer, by observing the contractual notice periods. However, the dismissal must not have the aim of avoiding the automatic transfer of the employees to the new employer. Depending on the actual reason for the dismissals (as can be established in court), an attempt to circumvent the law could be assumed, for example, if a large number of employees are dismissed within a few days after the transfer of the enterprise, or if the dismissed employees are shortly replaced by new employees.
Where applicable, the legal requirements on mass dismissals must be observed (see Question 19).
Employees have a right to decline the transfer, by filing an objection which will lead to the termination of the employment contract within the statutory notice period.
Harmonisation of employment terms after the transfer is only possible with the consent of each individual employee. If certain employees do not accept the proposed changes, the only option is dismissal.
An employer can be liable for the acts of its employees?
A parent company can be liable for the acts of a subsidiary company's employees?
The employer is liable for damage to third parties for the acts and omissions of employees in performing their professional activities, except if it is proved that the employer used all reasonable care to prevent damage of this type, or the damage would have occurred irrespective of this care (Article 55, Code of Obligations).
The employer can take recourse against the responsible employee.
A similar liability exists if the employer uses auxiliary persons such as employees in performing contractual obligations, even if the employee is not personally guilty for having caused the damage. It is possible for the employer to completely exclude liability for damages caused by auxiliary persons in the third-party contract.
Parent company liability only exists, if at all, in very narrow circumstances, mainly if a parent company, through its behaviour, creates a reasonable expectation that it would assume liability for its subsidiary.
There are numerous public mandatory laws dealing with health and safety matters, for example, regulations on night and shift work, accident protection, maximum employment time, protection of juvenile workers under age 18 and so on. The most important statute is the Federal Statute on Employment (Arbeitsgesetz) of 13 March 1964, as amended, together with several regulations (Verordnungen) based on it.
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
Swiss tax law distinguishes between foreign nationals working in Switzerland who are subject to unlimited taxation and to limited taxation.
Unlimited taxation. A foreign national is subject to unlimited taxation in Switzerland if they either:
Effectively establish their home in Switzerland.
Remain in Switzerland without any significant interruption for at least 30 days with employment activity (or for at least 90 days without employment activity).
In these instances, the foreign national is a Swiss tax resident subject to Swiss federal, cantonal and communal income tax on their worldwide income, regardless of source. This includes income from gainful activities performed in Switzerland (except for income from enterprises, permanent establishments or real estate situated outside Switzerland). An exception applies to foreign nationals domiciled in a country with a double taxation treaty with Switzerland. Subject to the conditions in the applicable treaty, the foreign national who remains in Switzerland without any significant interruption for at least 30 days with employment activity (or for at least 90 days without employment activity) is subject to limited taxation only (see below).
Unless the foreign national is married to a Swiss national or a holder of residency permit C, or has been granted a residency permit C, the foreign national is subject to tax on employment income at source. If the annual total income (from employment subject to taxation at source) exceeds CHF120,000 per year, the foreign national must file a tax return. Income tax at source is credited against tax on income declared in the tax return.
Limited taxation. Non-Swiss tax resident foreign nationals are only subject to tax on income from performing a gainful activity in Switzerland (and certain other types of Swiss source income, for example, directors' fees). Non-resident foreign national workers are subject to income tax at source. Income tax at source is a final tax.
An exception applies to foreign nationals domiciled in a country with a double taxation treaty with Switzerland who is assigned to Switzerland for no more than 183 days by an employer. Subject to the conditions in the applicable treaty, the employee's state of residence can continue to levy income taxes on dependent personal services rendered by the employee in Switzerland. In this case, Switzerland cannot impose income tax on the employment income.
Swiss nationals working abroad who are not Swiss tax residents are not subject to Swiss income tax on employment income.
Swiss nationals working abroad who are Swiss tax residents working in a country with a double taxation treaty with Switzerland are, subject to the progression provision (progression provisio), usually exempt from income tax in Switzerland by the treaty. An exception applies if the Swiss national is assigned by their employer to a treaty country for no more than 183 days. Subject to treaty conditions, Switzerland can continue to levy income tax on income earned abroad. Under the progression provision, Switzerland applies progressive income tax rates, which are calculated on income earned worldwide by individuals who are Swiss residents, regardless of whether this income is in fact taxed in Switzerland or not.
The taxation of Swiss and foreign frontier workers is governed by international tax treaties and other special agreements. There are international treaties with provisions on frontier workers between Switzerland and neighbouring countries Germany, Italy and France (but not with Austria and Liechtenstein). Frontier workers are employees who, as a rule, commute daily between their place of residence in one state and their place of employment in another state. The international treaties often contain a more specific definition of frontier workers.
Income tax is imposed by the Swiss federation and the Swiss cantons and communes. The income tax rates vary from canton to canton, and within the canton from commune to commune. They are generally at progressive tax rates. For example:
Employees earning a gross annual income of CHF150,000 are subject to combined federal, cantonal and communal income taxes of between about 9.6% and a maximum of about 23.5% (depending, among other things, on domicile).
For gross annual income of CHF500,000, the income tax rate varies between about 15% and 33% (depending, among other things, on domicile).
These tax rates apply to a single taxpayer for the tax year 2012. The tax rates are subject to change.
Switzerland does not impose any other tax on employment income.
Subject to social security agreements, respectively the bilateral agreements between Switzerland and the EU on the freedom of movement, remuneration an employee receives for performing work in Switzerland is generally subject to Swiss social security contributions. Social security liabilities arise at the same time as income tax liabilities. The following social security rates apply in 2012:
AHV (first pillar coverage of old age and survivorship): 8.4%.
IV (first pillar coverage of disability): 1.4%.
EO (coverage of salary payment in the case of military service and motherhood): 0.5%.
The total rate of 10.3% is shared by the employer and the employee (5.15% each).
Contributions to the second pillar (mandatory and non-mandatory coverage of old age, survivorship and disability (BVG)) may be due depending on the relevant insurance contract and regulations.
Wages up to CHF126,000 are also subject to:
Contributions for ALV (coverage of unemployment): 2.2%, shared equally by the employer and employee. Wages between CHF126,000 and CHF315,000 are subject to contributions at a rate of 1.0%. These contributions are also shared equally between the employer and the employee.
Mandatory accident insurance.
Social security contributions including pension contributions are usually payable (see Question 26, Social security contributions).
Contributions to the social security scheme are, as a rule, deductible from taxable income. No cap applies to the first pillar scheme (AHV, IV and EO).
The maximum insured salary income payable under the:
Mandatory second pillar scheme in 2012 is CHF59,160.
Non-mandatory second pillar scheme is CHF835,200.
Contributions to the mandatory and non-mandatory second pillar scheme are deductible from employment income (and other income). These amounts are subject to review and may change in future.
The monthly amount of the state pension depends on the:
Civil status of the recipient of the state pension.
Total years during which the employee has contributed to the pension scheme.
Total amount of contributions made to the system.
In 2012, AHV and IV pensions vary between CHF1,160 and CHF2,320 for a single person or a married person where only one of the partners has reached retirement age. The pension is 150% (or CHF3,480) of the maximum monthly amount for a single person for a married couple where both partners have reached retirement age.
The monthly amount of pensions from the second pillar scheme depends on the particular insurance scheme. In any event, the pension is at least 6.8% of the total capital accumulated during the contribution years.
Payments from other social institutions depend on the individual case.
Is linked to the employee's salary?
Is linked to employer and/or employee contributions and investment return on those contributions?
It is quite common for Swiss companies to establish pension schemes that exceed the statutory minimum requirements for its middle and top level management.
See below,Linked to employer and/or employee contributions.
It is possible to set up schemes that provide pensions, the value of which is pre-determined by the scheme. In practice, it is more common that the schemes provide for pensions where the value of the pension is linked to the employer and employee contributions. The contributions are levied as a percentage of the employee's insured salary.
Supplementary pension schemes are usually operated by insurance carriers. Insurance is a regulated industry which is supervised by a specialised federal agency (Eidgenössische Finanzmarktaufsicht).
A number of provisions from the statute on mandatory pension schemes (Bundesgesetz über die berufliche Alters-, Hinterlassenen- und Invalidenversicherung of 25 June 1982, as amended) also apply to supplementary pension schemes. Additionally, provisions of the statute on the supervision of insurance (Versicherungsaufsichtsgesetz of 17 December 2004, as amended) apply.
The employer's contributions are part of allowable social labour costs and therefore are tax deductible.
Contributions to the mandatory part of occupational retirement schemes (second pillar) and the non-mandatory part are deductible from an employee's income (see Question 27, Taxation of contributions).
The employee's position cannot be adversely affected by the transfer, that is, their own and the employer's contributions, plus an adequate portion of the pension schemes' reserves, are transferred to the pension scheme of the new employer.
There are no other protective provisions applicable.
Employees who are working abroad?
Employees of a foreign subsidiary company?
If employees of a Swiss firm are transferred to a foreign subsidiary, the employee can stay with the Swiss mandatory pension scheme for a limited time, depending on the country and whether Switzerland has a treaty (for example, the agreement on the free movement of persons between the EU and Switzerland or a treaty containing similar provisions) with it (for EU/EFTA countries: one year). If there is no treaty, the employee can elect to stay in the Swiss scheme, provided the employer agrees. However, in these cases the double charging of contributions can occur.
If the employee works abroad temporarily they can continue in the Swiss employer's pension scheme.
Based on treaties between Switzerland and EU/EFTA countries, foreign nationals transferred to a Swiss parent company remain insured with the pre-existing pension scheme in their home country.
If the transferred employee is from a country with which Switzerland has no treaty, the employee transfers to the pension scheme of the Swiss parent, unless they can show that a sufficient pension scheme exists in their home country. In this situation, the employee must file a release request with the competent Swiss labour authority.
Employees have pension rights against the pension fund, which is an independent legal entity. The employer's insolvency does not affect these rights. Employees' rights are, in any case, guaranteed by the state run substitute institution (Auffangseinrichtung).
It is quite common for Swiss companies to pay variable compensations or bonuses that can be contractually owed or fully discretionary. Case law has evolved about the circumstances under which an intended discretionary bonus qualifies as fixed compensation which is contractually owed. It is not easy to define clear guidelines. Court decisions tend to look at the specific situation in each case and sometimes appear inconsistent.
Payment of discretionary bonuses over a period of time (usually in excess of three years) without explicit reservation confers on the employee a legal right to claim payment of a bonus. In addition, if a discretionary bonus makes up a substantial part of an employee's overall compensation, courts tend to hold that at least a portion of the bonus is contractually owed.
Currently there is a lot of political activity relating to excessive bonuses, paid mainly in the financial industry, aimed at imposing limits on bonus amounts or making them unattractive through increased taxation.
The Swiss Financial Market Supervisory Authority (FINMA) has issued a circular on the remuneration of employees of financial institutions. The circular contains a series of principles which must be observed for remuneration plans (deferred payment, vesting periods, clawback provision, and so on). The principles set out in the circular are mandatory for all employees of financial institutions with an equity capital over CHF2 billion.
Under the new Article 10a of the Statute on Banks (Bankengesetz), system-relevant banks must include provisions in employment agreements and/or benefit plans under which the legal right to variable remuneration and/or gratification could be curtailed in the case of state support being given to the bank. The new legal provision entered into force in March 2012.
If the IP right has been created in the performance of the employee's duties, the IP right belongs to the employer by operation of law.
For IP rights created by an employee by coincidence, that is, not in performance of contractual duties, the employer has an option to acquire the IP right against payment of adequate compensation, where that is specifically agreed in the employment contract.
During the existence of an employment contract, the employee is prohibited from engaging in any competitive activity by operation of law.
Swiss employment law (Articles 340, et seq, Code of Obligations) allows the employer and employee to contractually agree on post-employment non-compete clauses.
However, there are restrictions, for example in terms of duration (maximum of three years) and geographical scope. In addition, these clauses are only valid if the employee has acquired knowledge of the employer's clientele and other confidential business information. Finally, in principle, the prohibition lapses if the employer terminates the employment relationship (though a restrictive covenant can be included in a termination agreement).
Non-competition clauses always require careful drafting, to ensure adequate enforceability and monetary compensation in case of breach.
The only planned major reform proposals are a Bill to improve protection afforded to whistleblowing, which is pending in the Federal Parliament, and various proposals aimed at limiting the amount of bonuses, which should be submitted to a popular vote at the end of 2012 or the beginning of 2013.
W www.admin.ch/ch/d/sr/sr.html
Description. Official website of the Swiss Confederation providing for all up-to-date statutes of Swiss law in German, French and Italian. A selection of statutes (including the Swiss Code of Obligations) is also provided in English, for guidance only (please click the "English" tab on the upper right hand corner).
Description. Official website of the Swiss Federal Tax Authority providing information on federal taxes in German, French and Italian.
T +41 43 222 10 00
F +41 43 222 15 00
E thomas.mueller@homburger.ch
W www.homburger.ch
Qualified. Switzerland, 1976
Areas of practice. Employment law; litigation and arbitration.
Recent transactions
T +41 43 222 10 00
F +41 43 222 15 00
E peter.mueller@homburger.ch
W www.homburger.ch
Qualified. Switzerland, 1999
Areas of practice. National and international tax law; social security law.
Recent transactions
T +41 43 222 10 00
F +41 43 222 15 00
E nina.rabaeus@homburger.ch
W www.homburger.ch
Qualified. Switzerland, 2007; New York, US, 2010
Areas of practice. Employment law; litigation and arbitration.
Recent transactions
