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How do SMEs & Startups set up their own payroll? Without Accountant.

March 9, 2021
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5 min read

Setting up your own payroll as an SME or Startup can be quite tricky without help from an accountant. You will need to translate insurance policies to add the right rates into your payroll software or identify the right wage types for each employee. Don't know what a wage type is? We will cover these in another article called "Am I selecting the right wage type for payroll?".

Below is a basic breakdown of what is needed for those SMEs courageous enough to set up their own payroll and manage it monthly.

  1. Company Information (UID, Legal formation, Address, etc)
  2. Accident Insurance Policies
  3. Daily Sickness Insurance Policies
  4. Additional Insurance Policy (Optional)
  5. Pension Policy
  6. Employee Information for each Employee
  7. Company Policies (Working hours, vacation, etc)

Company Information

This is a relatively easy part when setting up payroll. It's the basic company details that an SME has at their finger tips. Simple stuff like address, IBAN number & company UID. Below is a screenshot of the basic details Earny asks for when setting up a company.

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Accident Insurance

In Switzerland, each company has to take out accident insurance in two forms.

  • Occupational Accident Insurance
  • Non Occupational Accident Insurance

Occupational accident insurance covers 80%-100% of an employee's salary in case the employee is injured while working. Non occupational accident insurance also covers 80%-100% of an employee's salary if they get injured away from work.

SMEs can get this kind of insurance from Axa, Zurich or any insurance provider in Switzerland. Insurance companies will typically provide these rates on a per mille basis otherwise known by the acronym "o/oo". Below is an example, in French, that outlines how accident rates are typically given via insurance contracts.

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In the above example, the SME may think the occupational rate is 0.81% and the non occupational rate is 11.68% but actually the rates are given in per mille meaning they need to be divided by 10 for conversion into %. Therefore the occupational rate is 0.081% and the non occupational rate is 1.168%. This is important as this is the rate you'll need to enter into your payroll software.

In Switzerland, The occupational accident rate (0.081%) is paid fully by the employee. An SME can choose to cover a portion or all of the non occupational accident rate (1.168%). An example would be an SME choosing to cover 50% of the non occupational rate (1.168%) resulting in an SME entering 0.584% (1.168% / 2) for its accident insurance in the payroll software and entering 0.665% (0.584% + 0.081%) for the employee.

There is also a maximum coverage. Accident insurance will typically cover a maximum yearly salary up to 148,200 CHF. This also need to be added into an SME's payroll software as the insurance company will not cover a salary above 148,200 CHF.

Daily Sickness Insurance

Daily sickness insurance covers 80% of an employee's salary should the employee get sick so the SME doesn't have to cover salary without the employee working. The insurance company will only pay 80% of the employee's salary after the agreed upon waiting period which can be anywhere between 14-180 days. Daily sickness insurance will start paying on the 3rd day of the employee's sickness and may continue to pay for a maximum of 720 days of illness (usually 730 days, or two full years, in practice).

For daily sickness insurance, the insurance company will typically give contracts with rates in % and not per mille. The SME can only assign up to 50% of the rate to the employee. So if the insurance rate is 2%, the SME cannot assign 1.5% on the employee and take 0.5% for themselves. They can only assign a maximum of 1% to the employee and the SME will pay the remaining 1%.

For daily sickness insurance, women typically have a higher maximum coverage then men. For example, women may have a max coverage of 400,000 CHF meanwhile men could have 280,000 CHF. When entering this daily sickness insurance into your payroll software, it's important to separate the rates and max coverage based on men and women.

The above are examples of standard cases however each SME may negotiate different terms with their insurance company to get a package that fits for their business and their employees.

Additional Insurance

Additional insurance is procured if the SME wants additional coverage beyond the daily sickness and accident insurance maximums. For example, under accident insurance, the maximum coverage is 148,200 CHF. Should an SME want their insurance company to pay more than 148'200 CHF, they can take out additional insurance.

For additional insurance, the SME can choose to make their employees pay apart or even the entire insurance rate. So if the rate is 2%, the SME can assign 1.5% or even 2% on the employee and take 0.5% or 0% for themselves. There is no cap on how much an SME can assign to its employee. The maximum coverages are also different for men and women similar to the daily sickness scenario.

Pension

An SME has to provide pension for each employee and to do so they choose a pension provider and a pension fund. The pension contracts are not given in % but rather in a fixed monthly amount that is deducted from the employee's salary.

For example, a pension provider like SwissLife would issue a contract to an SME requesting each employee to allocate a specific yearly amount of their salary into a pension fund. Let's say the contract requested employee John Smith to provide 5,000 CHF of their yearly salary to the pension fund. An SME will need to divide 5,000 CHF by 12 (number of months in a year) to insert 416.67 CHF into the payroll software under John Smith so this amount is deducted monthly from his salary. They would repeat this calculation and exercise for all their employees listed on the SwissLife contract.

An employee's pension contribution can change every year if the employee enters an older age group or he/she gets a salary increase. This is revised and reviewed every year by the pension provider so you could end up paying more without even knowing it.

Employee Information

To run payroll for your employees, an SME will need to collect some pretty personal information. Personal information includes but is not limited to:

  • AHV Number
  • Living Address
  • Maritial situation
  • Kids Information
  • IBAN Number (to get paid)
  • Immigration status
  • And the list keeps going.....

The above is used to calculate your Cantonal and Local tax rates. Important to keep in mind that for Swiss Citizens and C permit holders, this is paid at the end of the year when they file their tax declaration. For foreigners however who have L or B permit , they have to pay Cantonal and Local taxes up front each month on their monthly salary. For more information on employee salary deductions please "How to read a Swiss Payslip?"

Company Policies

An SME should establish a fixed set of policies that applies across all their employees. The earlier they do this, the easier it will be to set up payroll for incoming employees. Great examples include the below:

  • Number of vacation days - An SME has to provide a minimum of 20 days vacations to its salary employees. For hourly employees, they pay them a little extra on their hourly rate.
  • 13th Month Salary - A 13th month salary is commonly provided to employees. This salary can be paid out across multiple months or paid out in full in 1 month.

These are just some of the more basic policies that Earny suggests each SME establish in order to ensure a standard for those future employees.

To Close

Choosing to run payroll yourself is a courageous endeavor and can be a daunting task however it is completely possible with the right mindset and tools. Earny provides SMEs a simplified onboarding process where we walk you through each step and do those hard calculations for you.

The future of payroll is bright. For those interested, follow us on LinkedIn or reach out to be apart of the revolution.

Bassil Eid
Earny CEO

CEO of Earny and long time CFO working with Startups.