Employment – Transient Workers
“Employers in Switzerland may risk creating a permanent establishment in the country of residence of the employee by allowing home office work for extended periods of time”
Are you seeing a shift in employee/workforce expectations in your jurisdiction, when it comes to flexibility, length of contract, remote working, hours of work, etc? How can clients both reflect this and protect their business interests in employment contracts?
There is a noticeable increase in the expectations for more flexible working conditions from employees, which include the possibility to work from home at least part-time. However, the mandatory labour law requirements, which – apart from a few exceptions – are applicable to all employees, set certain limitations.
Setting clear rules for flexible work conditions which set out employer expectations and establish clear boundaries is highly recommended. This could be done by establishing rules and regulations with the employees for flexible work, which become part of the employment agreement.
Switzerland’s labour laws are liberal, allowing employers to adapt terms and conditions as long as they observe certain procedural requirements. These are aligned with the Swiss rules on termination of employment contracts, which provide minimal protection for the employees. Most unilateral changes of terms and conditions are not possible.
What is the biggest benefit, and the biggest risk, to businesses facilitating a more transient workforce?
The biggest benefits for employees is having the possibility to create a better work-life balance and saving time, as well as reducing their environmental footprint due to less commuting. The benefit for employers is to have employees that are more likely to be satisfied with their working conditions. The downside of a more transient workforce is that where employers formerly benefited from directly managing employees on a daily basis, face-to-face, they now have to adapt to remote leadership with less personal interaction. This makes management more challenging and knowledge transfer between employees is more difficult.
How are you helping your clients to manage legislative and taxation issues around their transient workforce? For example, are there bi-lateral agreements with other jurisdictions or tax provisions to be aware of?
As Switzerland welcomes many cross-border workers, i.e. individuals resident in another country but working in Switzerland, it has entered into a number of bilateral agreements with the EU and with other countries regarding taxation as well as social security. For social security matters, there are over 40 agreements in place. The most important is the Agreement of the Free Movement of Persons with the EU (Annex II). These agreements wish to prevent loss of entitlements or double contributions for international employees. As a rule, social security contributions are payable in the country where the place of work is. Prior to the Covid-19 pandemic, home office work could lead to the social security regime in the country of residence of the employee to apply. However, due to the increase in home-office work as a result of the Covid-19 pandemic, the application of a number of these agreements has been deferred until after June 30, 2023. Negotiations are currently underway to prolong this exception. Most likely, after 1st July 2023 a general 25% limit for work conducted by the employee in their country of residence will apply prior to the social security regime changing.
For cross-border employees or foreign nationals resident in Switzerland (with certain exceptions) and working in Switzerland, tax at source will be deducted directly from their salary. The applicable tax rate varies from Canton to Canton. For double taxation purposes, the exceptions are not the same as for the social security agreements, so these must be taken into account as well. Employers in Switzerland may risk creating a permanent establishment in the country of residence of the employee by allowing home office work for extended periods of time (particularly where the employee has a senior position and takes decisions on behalf of the employer). This can inadvertently lead to the employer becoming taxable in the country of residence of the employee.
Additionally, Switzerland has implemented certain mandatory rules to counteract potential salary dumping and has therefore declared a number of collective bargaining agreements to be mandatory. Their scope of application is usually for a specific industry and region. They apply to employers from other countries deploying personnel in Switzerland.
Switzerland has recently issued more stringent laws regarding data protection, which will enter into force on 1st September 2023. Contrary to EU GDPR regulations, a breach of Swiss data protection laws can lead to personal criminal liability of members of the board of the company. Electronic supervision of the remote workforce needs to be compliant with said laws.
Preserving company culture and retaining staff in flexible working arrangements
- Speak to and listen to your employees. Employee representatives can be a helpful sounding board to help find solutions which address both employee and employer interests.
- Set clear guidelines. Employees should know what the rules (and risks) are. Create opportunities for unstructured interaction among employees. Ensure regular face-to-face exchanges between employees and management, both workrelated as well as activities outside the immediate work environment.
- Get feedback. Periodically ask your employees and management what is working and what needs to be adapted.
- Adjust the rules, if needed. If feedback suggests adaptions, recognise the input and either make changes, or explain why not.