As an employer, you are required to ensure that employment compensation is fully transparent to the employees so that income, deductions and supplements are visible, and the employee can check them. You also need to ensure that social security and tax requirements are properly handled.
In addition, you should be aware of the various implications when developing and implementing new work regulation following the COVID-19 period namely when the temporary social security and cross-border tax agreements concluded in 2020 will end. The year end is almost here and you only have a few weeks left to adapt your payroll systems to ensure compliance and to start smoothly into the new year.
Changes in payroll systems as of January 2022
As of 1 January 2022, the Federal Department of Finance (FDF) is increasing the monthly flat rate for the private use of a company car from 0.8% to 0.9% of the vehicle purchase price. The new flat rate will also include travel costs to the place of work. This means that owners of company cars no longer have to make the tedious income declaration in their tax return for the use of the company car to commute to work. The increase from 0.8% to 0.9% should also be considered for Swiss VAT reporting obligations if the employer applies the lump sum method to calculate the private use of company cars. Moreover, this new rule allows the employer to no longer declare the proportion of fieldwork in the comments section on the salary statement.
Implications of Swiss Tax at Source reform
A Swiss tax at source reform applicable on employment income received from 2021 onwards, will significantly impact the taxation of cross-border workers, namely those who claim extra deductions to reduce their Swiss tax liability and the need for them to file a Swiss tax return, assuming they qualify for the “quasi-resident” status (i.e., having 90% of the total income taxable in Switzerland).
Also, tax at source corrections for pension payments, alimony, childcare costs and training costs can no longer be requested by the taxpayer within the framework of the standard rectification as of 2022. An assessment of the “quasi-resident” status before proceeding to tax deductions and Swiss plus residency country tax calculations are highly recommended before you make a decision. Moreover, it could be interesting for you to anticipate this change and have an overview of your future tax liability.
In addition, in the exceptional health context of the Covid-19 epidemic, cross-border taxation agreements concluded in 2020 between Switzerland and his neighboring countries settling the question of the taxation of their respective cross-border commuters working from home will continue to apply as before and this at least until 31 March 2022. Particularly the agreement with France, it contains a taxation option in the residence country instead of the habitual work location. So, if a cross-border worker does not wish to be taxed in the state of the habitual place of business (namely Geneva canton) for the home office working days performed during the sanitary crisis, the worker can opt to be taxed in the state of residence (i.e., France).
For social security purposes, the frontier worker remains subject to the social security system of his usual country of work if the work in his country of residence does not exceed 25% of his total working time and/or remuneration. If it does exceed, social security charges are due in the residence country that when relating to France as an example can result in higher employer social security contributions up to 47% and employee contributions up to 24%. The current relaxation of the social security rules between Switzerland and its neighbouring countries is valid until 31 March 2022, allowing employees to work from home without impacting their social security status. If the agreement is not terminated by either part, it will auto-extend until 30 June 2022.
Are you ready for year end?
If you have not adapted your payroll system, you should consider such changes now and include any payments in the December payroll at the latest, especially if such changes lead to higher social and/or tax deductions for employees. You should already anticipate changes in the parameters of your payroll software or connect with your payroll provider to be fully prepared. You may also want to consult a payroll advisor to perform a payroll review and help you anticipate the adaptations to be undertaken.
If additional and/or unexpected payments cannot be processed through your December payroll, you should already be thinking of a process to calculate relevant contributions and declare them using an approved complementary declaration for the current year. Furthermore, do not forget to update the mapping in your payroll system for the salary certificate. If you have created new wage types, they might have to be reclassified. Note that if you forget it – the social insurances auditors will not and will calculate interest and charge penalties! Moreover, the salary certificate is the key document in payroll accounting and serves as the basis for assessing employees’ tax liability. Therefore, it is crucial that you get it right with all the mandatory compensation information.
Final recommendations
Cross-border workers: Depending on factors such as your family or professional situation (international activity), full or partial period subject to taxation and level of income, a comparative tax calculation showing expected tax liabilities in both States is recommended so you can choose the most favourable taxation.
Employers: Be prepared as of now to anticipate the future set-up of your payroll, your costs and whether you need support in Switzerland and / or abroad to meet your obligations in terms of social security and tax.
