Distinguishing between assignment of employees and secondments in today’s modern working environment.
Amid the increasing digitalization and flexibilization of the working environment, recent years have shown that companies increasingly deploy their employees within an extended group or matrix structure; consequently, the employees no longer operate at a purely local level and instead are increasingly active at a regional or even global level. Today, employees are sourced from the global jobs market according to their qualifications and deployed anywhere in the world in accordance with operational requirements – whether on site, or in a purely virtual fashion. The available expertise can then be called up whenever needed and used in multiple intragroup or external companies. Not least of all, this helps to satisfy the essential and continuous need for sharing experience and knowledge.
Having originally exempted intragroup secondments (“loan staffing” / Personalverleih) from many of the (sometimes restrictive) legal provisions over a 20-year period, the State Secretariat for Economic Affairs (SECO) has adopted an increasingly restrictive practice in recent years. This practice was formalized through a revised directive and has since been developed further.
The following article shows the extent to which legal and official principles have developed over the past four years; it also explains what needs to be considered in practice in the current context and looks at the leading solutions that have now become established in the market.
Legal and official principles
As well as external loan staffing, intragroup secondments within Switzerland and from Switzerland to abroad (outbound) now also require authorization as a matter of principle. Secondments from abroad to Switzerland (inbound), however, are prohibited. This new, restrictive practice on the part of the SECO continues to allow specific exemptions from the authorization requirements and therefore from the ban on cross-border secondments to Switzerland (e.g. purely occasional secondments/revenue threshold below CHF 100,000 p.a., as well as temporary assignments for the purpose of exchanging experience and knowledge). However, those familiar with the SECO’s strict interpretation will be aware that such cases actually remain the exception in practice and, aside from a few individual cases, hardly ever apply in the case of today’s cross-border work models.
Statistically speaking, the likelihood of an official inspection occurring remains minimal. However, experience does show that in an inbound secondment scenario the likelihood of an inspection is significantly increased as soon as Swiss immigration or tax authorities become involved. The immigration authorities in particular are trained in this regard and will closely scrutinize the relevant project and secondment contracts. In outbound cases, any secondment/transfer rules that exist abroad likewise need to be checked very carefully – even if the intragroup exemption now abandoned in Switzerland continues to be used in many European countries. In the event of a failure to observe legal and official principles, the persons responsible within the company, both in Switzerland and abroad, can expect to be hit with six-figure fines – even if the (supervisory) authorities have a degree of discretion in terms of the penalty.
Distinction between assignment and secondment
Not every assignment (Entsendung) or deployment of an employee automatically qualifies as a secondment or loan staffing arrangement (Personalverleih). Even so, distinguishing between an assignment and a secondment frequently remains difficult in practice. However, that makes it all the more important to do so and to assess the risk of subsequent classification as loan staffing (“loan staffing risk”) in advance, because even the supposedly simplest solution of applying for a permit to second an employee from Switzerland to abroad can prove incorrect. By the same token, a comparable assignment in the opposite direction – from abroad to Switzerland – would therefore be likely to be classed as loan staffing and consequently prohibited. The work and residence permits required for Switzerland would not be issued in the first instance, or would be withdrawn retrospectively. In addition, questions may arise regarding the applicability of the Collective Bargaining Agreement on Loan Staffing (GAV Personalverleih). In some circumstances, existing operating models and contract structures would need to be restructured and revised at a global level.
As before, the primary indicators for the existence of loan staffing are: (i) where the de-facto employer in the host country exercises dominant instruction and inspection rights over employees of the legal employer; (ii) where the employees are integrated into the host-country business in organizational terms and on a personal and time-limited basis; and (iii) where risks in relation to the performance of services by the employees are borne by the de-facto employer rather than the legal employer.
Practical examples and possible solutions
Since it is only possible to obtain an exemption from the authorization requirements in individual cases and even the application for a secondment permit isn’t always the right solution, the specific interpretation of the applicable criteria plays a significant role. In all cases, the circumstances of the individual case are key.
Determining the specific risk ultimately requires a comparison of all available indicators; in addition to the wording of the underlying contracts, the actual circumstances play an even more crucial role. Although a loan staffing risk can as a rule only be identified in the light of a specific case, a number of categories have emerged in practice that provide a degree of clarity. According to the wording of the SECO clarification, intra-group global rotation and training programmes for initial or continued staff training, as well as the transfer of know-how, should also be possible without approval on a cross-border basis, especially as this often applies only in selected and temporary individual circumstances. Equally, cases that can clearly be qualified as the mere provision of a service (rather than a staff transfer) are also generally not a problem. This applies in particular to intragroup or outsourced shared services in the areas of finance, HR, IT or other such business support areas. In each case these are clearly defined services that are usually provided centrally, with limited deployment on site in the host countries. This also applies in principle to management services, specifically group-wide or regional services that are ultimately netted internally again within the group under any applicable transfer pricing arrangements. By contrast, deployments at executive management level are problematic. Managing Directors of local Swiss companies should therefore be hired at a local level in all cases and never seconded on an intragroup basis, since they are integrated into the organization by law and are bound by the instructions of the company’s board of directors. Global employment companies (GECs), which supply their group companies around the world with their own employees, are often a sensitive area too. It is these companies that were ultimately the trigger for the far-reaching change of practice on the part of the SECO.
With the exception of such categorically defined cases, drawing a distinction is always difficult and depends on the circumstances of the individual case. Nevertheless, a degree of leeway often remains. This needs to be utilized as far as possible in order to avoid classification as loan staffing.
- Together with the digitalization and flexibilization of current work models, as well as increased (including cross-border) home-working activity, it is essential for a company to obtain clarity regarding the risk of classification as loan staffing.
- On the one hand, this requires meticulous examination of applicable business and secondment models while on the other hand creating awareness within the company of individual cases that may be problematic.
- Either an existing risk can be mitigated using the recommended course of action shown or else it may be excluded by means of exemptions; alternatively, other possible solutions may need to be sought. In addition to applying for a permit for the secondment, localization – and therefore an adjustment of business and contract structures – may need to be considered in some circumstances.
- To obtain a comprehensive picture and arrive at the best possible solution, consideration must always be given not only to aspects of employment law but also of social insurance and migration law as well as personal and corporate tax law.