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Swiss Payroll & Social Security (AHV/ALV/BVG) Swiss Payroll & Social Security (AHV/ALV/BVG)

Swiss Payroll & Social Security (AHV/ALV/BVG)

Swiss Payroll & Social Security (AHV / ALV / BVG)

Swiss Payroll & Social Security (AHV / ALV / BVG)

Switzerland has a well-structured but complex system of payroll-related social security contributions. Employers and employees must contribute to the state social security system (AHV/IV/EO), unemployment insurance (ALV) and – in most cases – an occupational pension fund (BVG). This guide explains how the main elements work, who pays what, and what you should consider when running Swiss payroll.

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1. Overview of Swiss Payroll & Social Security

The Swiss social security system is built on three pillars:

  • First pillar: State social security (AHV/IV/EO) – basic coverage for old age, survivors and disability.
  • Second pillar: Occupational pension (BVG) – mandatory for most employees, financed jointly by employer and employee.
  • Third pillar: Voluntary private pension savings – individual, tax-favoured retirement savings.

For payroll purposes, the most relevant elements are:

  • Old-age, survivors and disability insurance (AHV/IV)
  • Income compensation scheme (EO, e.g. military, maternity/paternity leave)
  • Unemployment insurance (ALV)
  • Occupational pension plan (BVG)
  • Accident and other insurances (depending on employer policy)

These contributions are calculated as a percentage of the employee’s gross salary and split between employer and employee. The employer is responsible for withholding the employee’s share and paying the total amount to the relevant social security institutions.

2. First Pillar – State Social Security (AHV / IV / EO)

Die first pillar provides basic financial protection for residents and workers in Switzerland:

  • AHV (Alters- und Hinterlassenenversicherung) – old-age and survivors’ insurance.
  • IV (Invalidenversicherung) – disability insurance.
  • EO (Erwerbsersatzordnung) – income compensation scheme (e.g. for military service, maternity/paternity leave).

Contributions are mandatory for almost all persons who live or work in Switzerland:

  • Employees normally start paying with their first salary from 1 January after they turn 17.
  • Self-employed and non-employed persons also pay contributions, but their rules and rates differ.

Key characteristics of AHV/IV/EO in payroll:

  • Calculated as a percentage of gross salary.
  • Shared equally between employer and employee (50/50 split in most situations).
  • No upper cap on salary for AHV/IV/EO contributions.
  • Contributions entitle employees to future state benefits (old-age pension, disability pension, survivors’ benefits).

From an employer’s perspective, AHV/IV/EO contributions are a core cost element of Swiss payroll and must be settled regularly via the relevant compensation fund (Ausgleichskasse).

3. Unemployment Insurance (ALV)

ALV (Arbeitslosenversicherung) provides financial support if an employee becomes unemployed. Like AHV, contributions are normally mandatory for employees working in Switzerland.

Important points for payroll:

  • Contributions are calculated as a percentage of insured salary.
  • Employer and employee typically pay equal shares (50/50).
  • Only salary up to a legally defined annual cap is subject to standard ALV contributions.
  • Above this cap, either no ALV or (depending on the law in force) a separate “solidarity” contribution may apply.

The right to unemployment benefits depends on:

  • Having paid sufficient ALV contributions within the qualification period.
  • Being involuntarily unemployed and registered with the regional employment office.
  • Being available for work and actively seeking a new job.

4. Occupational Pension – Second Pillar (BVG)

Die second pillar is the occupational pension scheme governed by the Swiss Occupational Pensions Act (BVG/LPP). It is designed to maintain an appropriate standard of living in retirement in combination with the first pillar.

In practice:

  • Employees with income above a legally defined threshold must be insured in a pension fund.
  • Die insured salary is usually the annual salary minus a fixed coordination deduction.
  • Contribution rates increase with age (for example, younger employees pay lower percentages than older employees).
  • The employer must contribute at least as much as the employee – many employers voluntarily pay more.

BVG contributions finance:

  • Retirement benefits (old-age pension or retirement capital).
  • Disability benefits (in case of long-term incapacity to work).
  • Survivors’ benefits for spouse/partner and children.

Pension funds may offer only the legally required minimum benefits or more generous “extra-mandatory” plans. The exact contribution rates, risk benefits and retirement options are set out in each pension fund’s regulations.

5. Other Typical Payroll Deductions in Switzerland

In addition to AHV/IV/EO, ALV and BVG, a Swiss payslip often includes several other insurance contributions, depending on the employer and canton:

  • Accident insurance (UVG): Workplace accident premiums are paid by the employer; non-work accident premiums are often deducted from the employee’s salary.
  • Daily sickness allowance insurance: Not mandatory by law, but common. Premiums are usually shared between employer and employee.
  • Family allowances: Financed by employers via cantonal family allowance funds (not deducted from employee salaries).
  • Source tax (withholding tax): For certain foreign employees, income tax is withheld directly from salary and paid to the tax authorities.

The exact mix of deductions and contributions will depend on the employer’s policies, insurance providers and applicable collective labour agreements.

6. Who Pays What? (Employer vs Employee)

In Swiss payroll, social security costs are generally shared between employer and employee. In simplified form:

  • AHV/IV/EO: Employer pays half; employee pays half.
  • ALV: Employer pays half; employee pays half (up to the ALV salary cap).
  • BVG: Employer pays at least 50% of the total pension contributions; many employers pay more.
  • UVG and other insurances: Cost split depends on type of insurance and company policy.

For employees, these contributions appear as deductions on the payslip and reduce net pay. For employers, they represent an additional cost on top of gross salaries and must be carefully budgeted during hiring and workforce planning.

7. Special Cases (Expatriates, Low Salaries, Self-Employed)

Expatriates and International Assignments

Expatriates working in Switzerland are generally subject to Swiss social security if they are employed by a Swiss entity or assigned to Switzerland for a longer period. However, international agreements (e.g. with EU/EFTA states or under bilateral social security treaties) may allow continued coverage in the home system for temporary assignments (A1 certificates, certificate of coverage).

Employees with Low or Irregular Income

For very low salaries or occasional domestic work (such as cleaning staff in private households), special rules and simplified settlement procedures may apply. In such cases, employers may use simplified systems offered by the cantonal compensation funds to declare wages and pay contributions.

Self-Employed Persons

Self-employed persons in Switzerland:

  • Pay AHV/IV/EO contributions directly to the compensation fund, usually on a progressive scale based on net income.
  • Are not covered by mandatory ALV (unemployment insurance).
  • Are not automatically insured in a BVG pension fund but can join a scheme voluntarily or save via the third pillar.

Correct classification as employee vs self-employed is important, because it determines whether the employer must pay social security contributions and register the person with the compensation funds.

8. Practical Tips for Employers & HR

  • Register early: Register the company with a Swiss compensation fund and pension provider before hiring employees.
  • Use up-to-date contribution rates: Social security and ALV rates, thresholds and caps can change; always check the latest official information.
  • Check BVG eligibility: Monitor salaries and employment levels to ensure all eligible employees are enrolled in the pension fund.
  • Document employment status: Keep clear documentation to distinguish employees from self-employed contractors.
  • Review payslips: Regularly review payslips and contribution statements to ensure correct calculations and timely payments.

Professional advice is strongly recommended when setting up Swiss payroll for the first time, when hiring expatriates, or when dealing with complex cross-border situations.

9. FAQ – Swiss Payroll & Social Security (AHV / ALV / BVG)

Q1: Who must pay AHV/IV/EO contributions in Switzerland?
All employees working in Switzerland must pay AHV/IV/EO contributions as soon as they earn a salary. Self-employed and non-employed residents also pay contributions, although their calculation basis and procedures differ.
Q2: How are Swiss social security contributions split between employer and employee?
For the main social security insurances (AHV/IV/EO and ALV), the contributions are normally split 50/50: the employer pays half and the employee pays half. For occupational pension plans (BVG), the employer must pay at least half of the total contributions and may choose to pay more.
Q3: Is there a salary cap for unemployment insurance (ALV)?
Yes. Standard ALV contributions apply only up to an annual salary cap defined by law. Above this threshold, either no ALV contributions or (depending on the current rules) separate solidarity contributions may be due.
Q4: Do all employees have to be insured in a BVG pension fund?
Employees whose annual salary exceeds a minimum threshold and who meet other legal criteria (such as age) must be insured in a BVG pension fund. Employees with very low or short-term employment may fall below the threshold and may not require mandatory BVG coverage.
Q5: Are self-employed individuals covered by ALV and BVG?
Self-employed individuals are generally not insured under ALV (unemployment insurance) and are not automatically included in a BVG pension fund. They must arrange their own old-age provision via voluntary pension schemes (e.g. third pillar or voluntary BVG coverage) and remain responsible for paying AHV/IV/EO contributions.
Q6: Do expatriates have to pay Swiss social security?
In many cases, yes. Expatriates working in Switzerland are usually subject to Swiss social security. However, under international agreements, temporary assignments may remain covered by the home-country system if specific conditions are met and the appropriate certificates are obtained.