Hiring employees - What to consider

If business is good and you want your company to grow, there is often no way around hiring your first employees. If you are planning to take this step, it is important that you are aware in advance of what needs to be considered in this context. This article provides you with an overview and shows you who you can contact with specific questions.

1. drafting of the employment contract

As soon as employees are to be employed, an employment contract is usually drafted first. By means of an employment contract, employees undertake to perform work in the service of the employer for a definite (fixed-term employment relationships) or indefinite (permanent employment relationships) period of time. The employer, for its part, undertakes to pay a wage for the work performed.

In principle, employment contracts can be concluded orally, tacitly (i.e. by actual action) as well as in writing. However, there are legal provisions in Swiss employment law that can only be deviated from in a written agreement (e.g. if a non-competition clause is to apply), or even certain employment contracts that must be concluded in writing (e.g. apprenticeship contracts). Against this background and also for reasons of evidence, it is therefore recommended in any case to provide for the written form for the employment contract.

It is also important to note that Swiss labor law contains dispositive, relatively mandatory and absolutely mandatory provisions. Employers and employees can contractually deviate from the dispositive provisions without any problems. However, they may only deviate from the relatively mandatory provisions in favor of the employee and not at all from the absolutely mandatory provisions.

If you wish to draft the employment contract yourself without having any legal knowledge of employment law, we recommend that you have the employment contract reviewed by a specialist before the employment relationship comes into effect. The costs of such a contract review are small compared to those of a possible legal dispute due to problematic or unclear contractual provisions.

2. registration and authorization requirements for employees from abroad

Depending on the nationality of the employee, there may be reporting or authorization requirements under immigration law. For example, employees from EU/EFTA countries must be registered and their activities must be authorized if the duration of the work exceeds 90 days per year. For employees from third countries, there is an obligation to register and obtain a permit under immigration law, irrespective of the duration of the work. Permits are issued by the competent cantonal migration and labor market authorities after notification by the employer (see list of cantonal migration and labor market authorities). It is also important for you to know that foreign employees with a permanent residence permit (C permit) are treated in the same way as Swiss employees; they do not have to file an immigration report or obtain a permit.

3. withholding taxes

If foreign employees (with the exception of persons with a permanent residence permit (Permit C)) or persons residing abroad are employed by Swiss employers, the tax is not paid by the employee but deducted directly from the salary. For this purpose, the employer must report the foreign employee's employment to the competent cantonal tax authority within 8 days of the date on which the employee took up employment (see list of links to the cantonal tax authorities).

4. reporting obligations for all employees

Irrespective of nationality, employees who are resident in Switzerland or who are engaged in gainful employment in Switzerland that is subject to registration must be insured against various risks.

A reportable gainful activity exists if an activity is performed for the purpose of earning a salary. The wage can be paid in cash or in kind or as a service. It does not matter whether the wage is at the market rate or lower, as long as the intention is to generate an income. On the other hand, no reportable gainful employment exists in principle in the case of support within the family or in the case of friendship services. Thus, an activity is not considered gainful employment as long as it does not exceed the usual level of family support, and in the case of friendship service, as long as the acquisition of an income is not the main focus, e.g. if no or only a token consideration is agreed.

As soon as a gainful employment subject to registration exists, the employee or the activity must be registered with the following offices:

a. Cantonal AHV compensation fund

As a general rule, AHV/IV/EO contributions must be deducted from salary payments. These contributions are levied on employees from January 1 after their 17th birthday if their income exceeds CHF 2,300 per calendar year. Regardless of whether the income limit is reached, contributions are due, for example, for persons employed in private households (e.g. domestic help). The contributions are financed in equal parts by the employer and the employee, whereby the employee's part is deducted directly from their salary. Employers are responsible for registering their employees with the relevant cantonal OASI compensation fund for the purpose of calculating contributions(list of cantonal compensation funds). If the employers do not belong to a founding association, the cantonal compensation office of the canton in which the employers have their registered office or place of residence is responsible.

b. Registered pension plan

Employees who are liable to pay contributions to the OASI must in principle also be registered with a registered pension fund. However, there is no insurance obligation, for example, if employees have temporary employment contracts of no more than three months, if they work part-time and are already insured for a full-time occupation or if they earn an annual salary of less than CHF 22,050. Pension funds that participate in the implementation of mandatory insurance must register with the supervisory authority (known as the BVG and foundation supervisory authority) to which they are subject in the register for occupational pension plans. Consequently, each supervisory authority keeps a register of institutions with the registered pension institutions for occupational benefits(list of supervisory authorities).

c. Cantonal unemployment insurance (ALV)

In principle, employees who are required to pay AHV contributions must also pay contributions to the cantonal ALV. The ALV contributions are also financed in equal parts by the employer and the employee, whereby the employee's part is deducted directly from their salary. Registration is also made with the competent compensation office (cf. section 4.a.; list of cantonal compensation offices).

d. Family Compensation Fund

Employees, self-employed persons as well as non-employed persons with children and unemployed mothers who receive maternity benefits are entitled to family allowances. All employers are required to join a family compensation fund, regardless of whether employees with or without children are employed. Registration must be made with the family compensation fund of the canton in which the employer has its registered office or place of residence(list of family compensation funds approved in Switzerland).

e. Registered accident insurers

Employees must be insured against accidents in Switzerland. In the employment relationship, employers are generally obliged to register employees with an accident insurance company.

However, employers who only employ people with an annual income of CHF 2,300 or less are exempt from the obligation to register and pay contributions. If employees are not registered, employers must pay a substitute premium in the event of an accident. Employers may also voluntarily register their employees with the accident insurance in order to avoid paying a substitute premium.

Employees who work in a private household (e.g. domestic help), for example, must be registered irrespective of their annual remuneration.

If employees are to be insured against accidents, they are only to be insured against accidents at work or on the way to work (so-called occupational accidents) if they work less than 8 hours per week. If they work more than 8 hours per week, they must also be insured against accidents that occur during their free time (so-called non-occupational accidents) (list of accident insurers).

Vivien Keiser will be happy to help you if you need assistance with drawing up or checking employment contracts or with the necessary notifications and applications for permits.