How does becoming self-employed in Switzerland affect social security, retirement planning, and liability? This moneyland.ch guide answers the most important questions.
In Switzerland, the term self-employment denotes a self-organized, for-profit activity which you engage in at your own risk. For social security purposes, you are considered self-employed if you are registered as such with a Swiss social security office. This is generally the case when you own a sole proprietorship or a simple partnership. The directors of corporations (AG) and limited liability companies (GmbH), on the other hand, are technically employees of their own companies.
If you are interested in becoming your own boss, take a moment to review these key points to find out how becoming self-employed in Switzerland affects your financial life.
1. Accident insurance
When you are employed, your employer has to get you occupational accident insurance (UVG) with loss-of-income benefits. But when you become self-employed, you have to get your own accident insurance.
If you only want to insure medical expenses, you can activate the accident insurance cover which comes with mandatory health insurance. But this does not include loss-of-income insurance.
But if you also want the loss-of-income insurance, survivor’s pensions, and disability pension which come with occupational accident insurance, you have to voluntarily take out private accident insurance. Many Swiss insurance companies offer UVG-equivalent insurance for self-employed individuals. The downside: Depending on your job description and lifestyle, private accident insurance can be very expensive. It can be worth getting several insurance quotes and comparing the insurance premiums.
2. Pension funds and retirement saving
As a self-employed person you are not required to join an occupational pension fund. If you want to continue using occupational pension funds to build your pension benefits and claim tax deductions, you have a number of options:
Many Swiss industry associations run voluntary occupational pension funds for their self-employed members. Two examples are the pension fund offered by the Swiss Bar Association (SAV/FSA), and the Pensionskasse Musik und Bildung, which partners with many associations for private tutors.
You can use a pension fund plan from the Substitute Occupational Benefit Institution.
If your business has employees, the pension fund which covers your employees may allow you to enroll as well. Each pension fund has its own rules governing whether or not company owners can participate.
Alternatively, you can make use of the pillar 3a to save for retirement on a tax-deductible basis. If you are self-employed but do not have an occupational pension fund, you can contribute as much as 20 percent of your income to the pillar 3a (up to an annual limit). If you have a pension fund, you can still make tax-deductible contributions up to the lower limit applicable to employees. Available pillar 3a solutions include retirement savings accounts, retirement funds, and retirement asset management services.
Important: Many insurance companies offer permanent life insurance as a retirement saving solution for self-employed people. Using life insurance for saving or investing is inflexible, and is often unfavorable compared to other retirement saving solutions. Instead, use the best available pure insurance products without cash value (term life insurance, for example), and the most favorable stand-alone savings accounts or solutions for investing and retirement planning.
3. Social security
When you become self-employed, you have to register as such at a social security compensation office. In order to do this, you have to show that you are working at your own risk and for your own gain. You also normally need to have several customers, as working for just one or even two companies could be construed as employment.
As a self-employed person, you pay your full social security bill yourself.
Tip: In addition to cantonal social security offices, there are many other social security compensation offices. Most offer their services to members of specific Swiss industry associations. It is worth checking whether you are eligible to use other social security offices. If you are, it is worth comparing their administration fees to those charged by the canton, as the administrative fees charged by private offices are typically lower.
4. Disability insurance
If you are able to join a pension fund which has good disability insurance, then you may be adequately protected from income-loss if you become disabled due to illness. If not, then private disability insurance from Swiss insurance companies can be used to close gaps in disability insurance coverage. But, like private accident insurance, the premiums you pay can be very high if your work carries high occupational risks.
5. Unemployment insurance
Being able to rely on getting an income if you become unemployed provides a lot of peace of mind. Unfortunately, you do not benefit from unemployment insurance as a self-employed individual. That means you will want to keep enough savings aside to cover your living expenses for a time in case your business goes under.
6. Paid sick leave
Unlike employees, who are entitled to paid sick leave, self-employed individuals have to prepare themselves for the possibility of not being able to earn income due to illness.
Very long-term illness (invalidity) is covered by the mandatory DI, and by your occupational pension fund and/or private disability insurance, if you have those. But having a fund to cover loss of income during shorter-term illnesses is recommended.
7. Parental and military leave
As a self-employed person, you have to contribute to the employment leave scheme (EO). You pay contributions as part of your social security bill. If you have a baby, you can claim maternity or paternity leave benefits based on your annual income. You can also get benefits to replace your income if you have to perform mandatory military service.
8. Liability
When you work for an employer, they bear liability for your professional actions as long as you perform due diligence with regards to your work. As a self-employed person, all liability falls on you.
In terms of company types, self-employment encompasses sole-proprietorships, simple partnerships which have a profit-driven business, general partnerships, and limited partnerships. With all of these, the founder or primary partner is personally liable for the company’s financial obligations.
Tip: Depending on the scale of your business, founding a GmbH or AG can be advantageous because your personal liability for the business is limited compared to other kinds of companies.
Getting commercial general liability insurance for your business helps protect you from the financial consequences of injury or loss to third parties (customers, for example).
Getting professional liability insurance may be obligatory for certain professions. For example, medical professionals are required to have occupational liability insurance in order to practice in Switzerland. Cantons may have their own requirements for insuring liability in specific occupations.
Special case: Employed by a foreign employer
Many people live in Switzerland but are employed by a foreign employer (working remotely using the Internet, for example). This is not the same thing as being self-employed.
If you work for an employer in a country with which Switzerland has a relevant social security agreement, the amount of work done from Switzerland determines whether you are subject to social security in Switzerland or your employer’s country.
If your employer is in a country which does not have a social security treaty which covers employees in Switzerland, then you will be given the ANobAG designation by the Swiss social security office.
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