Are you interested in becoming your own boss? More than 12% of working adults in Switzerland are self-employed according to the Federal Statistical Office. But if you are used to the cushy lifestyle entitlements guaranteed to Swiss employees, it is important that you understand that many of those entitlements fall away when you become self-employed.
Carefully review these key points to find out how becoming self-employed in Switzerland affects basic building blocks of your financial life.
1. Accident insurance
Unlike employees, self-employed individuals are not required to participate in occupational accident insurance schemes. However, you can take out occupational accident insurance on a voluntary basis. A number of insurers provide accident insurance policies specifically designed for self-employed individuals.
You can also get accident insurance with your compulsory health insurance policy. This coverage is normally put on hold when you are employed and have occupational accident insurance, but it can be activated upon request when you become self-employed. If you do not take out voluntary accident insurance, getting insured by your health insurance provider is compulsory.
Adding accident insurance to your compulsory health insurance policy is generally cheaper than taking out voluntary accident insurance. But unlike occupational accident insurance, it does not provide loss-of-income insurance and your health insurance deductible and coinsurance apply to claims.
2. Retirement savings
Self-employed individuals are not required to join an occupational pension fund under the Swiss 2a category of retirement savings. Note: This does not apply to those who open a GmbH or AG, as they become employees of their company and must join a pension fund.
If your business has employees, the pension fund which covers your employees may allow you to join as well. Whether or not you can do this depends on the regulations of each individual pension fund.
If you are not able to join a 2a pension fund, you may be able to join a voluntary pension fund (2b) such as that offered by the Substitute Occupational Benefit Institution, although choices are limited and conditions are generally poorer than those used by regular pension funds.
A number of industry association run voluntary pension funds for their members, and if you are a member of an industry association – or are willing to join one – these can provide a good solution for remaining part of a pension fund after becoming self-employed.
The 3a category of retirement savings provides a supplement or alternative to pension funds. It allows you as a self-employed person to contribute up to 20% of your income to a 3a bank account or 3a insurance policy if you do not participate in an occupational pension fund.
3. Loss of income insurance
As a self-employed person, you forgo the paid sick leave entitlements which employees count on to cover expenses when they are too ill to work. The basic accident insurance which comes as a rider on your compulsory health insurance policy does not cover loss of income like the accident insurance which employees get through their employers.
Special loss of income insurance is offered by a number of Swiss health insurance providers. This compensates for earnings you miss out on while you are ill. The downside is that, because this is not a compulsory insurance, your application may be rejected if insurers feel that your health condition, occupation or lifestyle make you a high risk. You should also be prepared to pay relatively high insurance premiums.
A loss-of-earnings rider can be added to your compulsory Swiss health insurance policy and insurers cannot deny you this coverage. However, the benefits paid out are extremely low and will not likely compensate for lost earnings.
4. Social security
When you are employed, your employer covers part of the cost of old-age insurance, disability insurance, unemployment insurance, maternity leave insurance and accident insurance premiums. In most cantons your employer covers child benefit scheme contributions as well.
As a self-employed person, you cover the full cost of social security contributions yourself. Depending on your income, your social security premiums equal between 5.196% and 9.65% of your income. You also pay an administrative fee for self-employed individuals equal to up to 5% of your social security contributions.
5. Child benefits
As a self-employed person in Switzerland, you can receive the same child benefits that employees do. You must cover the contributions to your canton’s child benefits schemes yourself. These vary between cantons and are levied as a percentage of your income.
7. 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 if your business goes under.
8. Maternity leave
Paid maternity leave is a benefit available to most employed women in Switzerland. If you choose to take the self-employed route, you can still benefit from paid maternity leave based on your income.
But while being self-employed does not impact paid maternity leave benefits, it does impact the premiums you pay for maternity leave insurance. While employees only cover half the cost of premiums (their employer pays the other half), self-employed individuals pay the full premiums themselves.
9. Liability insurance
When you work for an employer, they bear liability for your professional actions. As a self-employed person, all liability falls on you. Unlike the owners or managers of corporations or limited liability companies, you cannot pass on liability to your company because you are the company.
Being your own boss is rewarding in its own way, but a lot of responsibility comes with the perks. Unless going without coverage is an option for you, be ready to pay good money for benefits which you paid little or nothing for as an employee.