Operating as a freelancer or self-employed worker is a popular option in Switzerland. A study conducted in 2015 showed that 25% of workers were freelancers. Remote and contractor work are standard practices in the country, which make knowing how to hire and pay contractors in Switzerland more important for expanding companies.
The country an ideal location for overseas companies wanting to hire skilled and professional workers. This article outlines how you can hire and pay contractors in Switzerland with speed and safety. We also explain the taxes independent contractors have to pay and the regulations around self-employment visas.
How to Find and Hire Remote Workers in Switzerland
Like in most countries, self-employed workers in Switzerland do not receive employment benefits like regular employees. They must pay their own social security contributions and income taxes.
One aspect that may be different from other countries is that freelance workers in with an independent contractor status receive the same childcare benefits as salaried employees in Switzerland through social insurance. Benefits like this allow them to enjoy a healthy work-life balance and have strong productivity rates.
One of the most commonly used freelance platforms is Switzerland-freelance.ch. This site gives you access to thousands of profiles across industries to find the perfect worker to fill the role you need.
Partnering with an Employer of Record (EOR) also allows you to access a large talent pool of workers in Switzerland. You could even have your payroll and HR needs taken care of, all via a single point of contact. Employer of Record services are a third-party provider solution that can save you time and money when hiring in a new country.
See our article here for more details about how an EOR serves as the legal employer for your employees or independent contractors to take care of independent contractor payroll and tax obligation to remove all administrative hassle.
Contractors in Switzerland: Payroll and Taxes
Hiring a contractor in Switzerland involves contract formation and payroll processes.
Contractors in Switzerland file their own income tax, social security contributions, and health insurance. Other payments that would otherwise be covered for employees but are not covered for self-employed workers include a pension plan, accident insurance, and unemployment insurance.
When it comes to income tax, independent contractors file an annual tax return and pay taxes on their net income. The tax rates vary depending on the canton (state) where they reside and the amount of income they earn.
In addition to income tax, independent contractors are also responsible for paying social security contributions. These contributions cover various benefits, such as health insurance, disability insurance, and pension funds.
To simplify the tax process, many independent contractors in Switzerland choose to register as a sole proprietorship or establish their own limited liability company (LLC). By doing so, they can benefit from certain tax advantages and separate their personal and business finances.
As the employer, you shouldn’t handle any aspect of the contractor’s taxes when you pay contractors in Switzerland. You do need to ensure that the contractor you have hired is registered correctly as a self-employed worker so you don’t make any classification errors.
Should a contractor be found to be operating under false self-employment, however, it’s the employer who is penalized. They will typically end up paying multiple years of social security contribution backpay and taxes. It’s essential to check a contractor’s status carefully before hiring to avoid these issues.
What are the Dangers of Independent Contractor Misclassification in Switzerland?
False self-employment, or misclassification can happen when an employer does not correctly understand the way to hire and pay contractors in Switzerland. Even large HR company’s can sometimes run into trouble when workers believe themselves to be misclassified. That’s why it’s essential to stay aware of your responsibilities when you hire and pay contractors in Switzerland.
In general, the biggest reason for misclassification is wrongful subordination.
Is the contractor using company equipment or space to perform their work? Does the company pay contractors in Switzerland using the same method as they use for employees? Is the employer withholding or managing taxes for the contractor? Is the freelancer beholden to the rules or schedule of the client and part of their management structure?
If the answer is yes to any of these questions, there is a risk of misclassification and the consequences can be severe.
Typically, the employer will be investigated, and if found to have willfully misclassified the worker, the authorities will force the company to pay all the employee benefits that the worker should have received.
Additionally, because misclassification often means the company avoids paying employment taxes, they may be investigated for tax evasion. They may also be fined CHF 30,000. If the company is foreign, they may be excluded from the Swiss market or prohibited from acting as an employer in the future.
To avoid these dangers, it is advisable for employers to seek professional advice and guidance when engaging independent contractors. Consulting with legal experts or tax advisors can help ensure compliance with the relevant regulations before you decide on how to pay contractors in Switzerland by minimizing the risk of misclassification.
The Self-Employment Visas
For EU and EFTA citizens, Switzerland offers a renewable five-year residence permit (B permit). This allows self-employed individuals to live and work in the country without applying for permanent residence.
The worker must show evidence of their business and show that they can financially support themselves. The permit will not be renewed if the worker cannot support themselves and must rely on welfare.
Non-EU/EFTA citizens must meet much stricter criteria to be eligible for a self-employment visa.
The Most Effective Ways to Pay Contractors in Switzerland in 2023
Independent contractors don’t fall under the same payroll as employees. You need to make sure you aren’t paying them a salary to steer clear of any misclassification risks. Self-employed workers should be paid the amount both parties have agreed to in the contract.
You can pay contractors in Switzerland on an hourly, weekly, or monthly payment basis. You could even agree to pay contractors in Switzerland with a lump sum once the project is complete.
There are several options for effective and fast payment solutions for contractors.
- Digital wallets and online transfers are a quick way of sending money and having it arrive immediately. However, the transfer fees associated with this method can be quite high.
- You can use a check or bank transfer to pay contractors in Switzerland if you have a company branch in the country. However, if you are located abroad, this method could cost you a lot in exchange rate fees.
- Global Employer of Record (EOR) services in Switzerland are another option that combines all your contractor payroll and hiring processes into one service. With a global EOR, you can have all the legal responsibilities taken care of quickly and professionally.
This type of agreement means you will always pay contractors in Switzerland accurately and compliantly, boosting confidence and ensuring long-term safety. See our article for more about global EOR works here.