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Accounting
David Merz | Founding Partner
Zurich, October 1, 2024
Calculating employment costs in Switzerland involves much more than just considering the gross wages paid to employees. In addition to salaries, employers must account for various non-wage labor costs, such as mandatory social security contributions, employee benefits, and operational expenses. We’ll break down these costs, explain their significance, and provide insights into how businesses can effectively manage and plan for both direct and indirect employment costs.
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When calculating the cost of employing someone, it’s easy to focus solely on the salary or hourly wage. However, this is merely just the tip of the iceberg. The full cost of employment includes a variety of additional expenses that businesses need to factor into their calculations. These “non-wage labor costs” can significantly increase the total financial burden of hiring and retaining employees, and thus shouldn’t be overlooked.
Non-wage labor costs are particularly significant in a country like Switzerland, which has a robust social security system and numerous legal obligations for employers to meet. Businesses must consider all costs involved in hiring someone, from mandatory social security contributions and employee benefits to physical office space and the need to meet workplace safety regulations. When all is factored in, the true price of employment can often surprise even experienced business owners.
Here you can easily calculate the costs of your accounting.
Non-wage labor costs, also known as indirect personnel costs, refer to all the employment-related expenses incurred by an employer that go beyond the direct wage and salary compensation paid to employees.
In other words, non-wage labor costs encompass all the additional financial obligations that come with having employees. These costs can vary significantly depending on the industry, the size of the company, and the specific needs of the workforce. They can include contributions to social security funds, pension contributions, training and development expenses, travel allowances, recruitment costs, and the provision of workplace equipment and amenities.
It’s vital for Swiss employers to consider these costs as they can constitute a significant portion of the total cost of employing workers. This can ensure businesses are not caught off guard by unexpected expenses and can make more insightful decisions about hiring full-time employees by weighing up the expected benefits against the total cost of employment.
Non-wage labor costs encompass a wide range of expenses related to the overall cost of employment. Below, we outline the main types, separated into different categories:
In Switzerland, employers are required to make several social security contributions on behalf of their employees. In ordinary circumstances, the employer and employee split these contributions equally (both pay 50%). They are typically the most significant component of non-wage labor costs and include:
Contributions to an occupational pension scheme (BVG) are mandatory for employees earning more than CHF 22,050 per year. These are typically private pension funds chosen freely by the employer, meaning the contributions don’t go to the state, but employers are still obligated to match the contributions made by employees.
The BVG ensures that employees have sufficient income upon retirement. The contribution rate depends on the employee’s age and income, but it can be a significant addition to non-wage labor costs for employers, especially for older employees.
In Switzerland, daily sickness allowance insurance is not mandatory for employers, but it is widely used and considered beneficial. This insurance covers the employee’s salary during extended periods of illness, typically replacing 80% of the salary after a waiting period of several days. Employers are required to cover at least 50% of the premiums.
Especially in industries with strong competition for qualified talent, many companies use daily sickness allowance insurance as an additional incentive to attract and retain employees in the long term. It helps secure the legal obligation to continue paying wages during illness and provides financial protection for both employers and employees in the event of extended illness-related absences. Learn more about this topic here.
Aside from compulsory contributions, many employers in Switzerland offer additional benefits to attract and retain their talented workers. These can include:
To learn more about employee benefits and their associated cost, read our article: Employee Gifts and Benefits in Kind: What to Consider from a Tax Perspective
Employing staff also results in various operational costs that are not directly related to salaries but should be considered in the total cost of employment. These include:
Switzerland has a comprehensive set of labor laws designed to protect employees. Complying with these regulations can incur costs, such as:
Dispute resolution: Potential costs related to resolving employment disputes, whether through mediation, legal fees, or settlements.
Legal compliance: Costs associated with ensuring that employment contracts, workplace policies, and procedures are in line with Swiss labor law.
Calculating the total employment cost involves summing up both the direct wages and the indirect non-wage labor costs. This provides a complete picture of what an employee actually costs your business.
Apportioning non-wage labor costs can be complex, especially when some costs are shared among multiple employees or departments. Here are some possible approaches for allocating these costs:
Non-wage labor costs can account for a significant percentage of the total cost of employment, but it is difficult to put an estimate on the exact figure. These indirect costs can vary widely based on the industry, the individual employer and employee, and the specific employee benefits provided.According to some sources, non-wage labor costs can constitute close to 50% of total employment cost, which would mean you can expect the total cost of an employee to be almost double their gross salary alone. This just shows how critical it is for businesses to fully consider these costs when taking on new employees and maintaining existing ones.
Understanding the full cost of employment enables effective budgeting, cost management, and strategic decision-making. By accounting for both direct and indirect personnel costs, you can avoid unexpected financial strain and improve resource allocation.
Better understanding the total cost of employment can aid in:
With so many factors to consider, effectively managing your company’s personnel costs can be challenging. As an expert accounting and fiduciary partner to Swiss SMEs and startups, Nexova provides comprehensive personnel cost management solutions.
We assist you with everything from calculating your total employment costs and managing non-wage labor expenses to ensuring compliance with Swiss labor laws, and everything in between. With Nexova by your side, you can focus on growing your business while we handle the challenges of personnel cost management.
Contact us today to discover more about how we can help you optimize your labor costs and support your company’s sustainable expansion.
Answers at a click
In Switzerland, the main non-wage labor costs include social security contributions (such as AHV/IV/EO and ALV), pension fund contributions (BVG), accident insurance, employee benefits like transport allowances and childcare support, and operational costs related to providing workspaces, equipment and other facilities.
To calculate the total employment cost, you need to add the direct wages or salary to all indirect non-wage labor costs. These indirect costs can be estimated by various methods, such as apportioning costs among employees based on individual or departmental usage. The amount that these costs contribute to total employment costs varies significantly by industry and across individual employees.
Non-wage labor costs can vary due to factors such as the employee’s age (which affects pension contributions), their role (which may determine eligibility for certain benefits), and their usage of shared resources (such as office space or equipment).
To manage and reduce non-wage labor costs, consider optimizing your benefits package, negotiating with insurance providers, and ensuring efficient use of shared resources. Additionally, accurate tracking and allocation of costs can help identify areas where savings are possible.
Failing to account for all employment costs can lead to budget overruns, financial strain, and legal penalties. It’s essential to include both direct and indirect personnel costs in your financial planning to ensure that your business remains compliant and financially stable.
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