The Swiss pay slip explained
From your home, you're looking at job offers in Switzerland and you find one that matches your profile. It promises a monthly salary of CHF 5'000.-, which nowadays would be roughly equivalent to EUR 5'100.-, USD 5'500.-, or GBP 4'400.-. Of course, compared to the salaries you can expect in other parts of the world, it can seem very high.
However, you also have to account for the fact that the cost of living in Switzerland is much higher than in other countries. With such different figures, it can be difficult to realize what a salary of CHF 5'000.- means. Let's take the example of Mr Martín Fulano, 35 years old Spanish citizen who's married and has a child under 18.
Mr Fulano arrived in Switzerland in early 2023 with his wife and son. He has a B permit, which allows him to live and legally work in the country. With a B permit, his employer must deduct taxes directly from his salary.
This is what his pay slip would look like for January 2023:
We notice here the gross salary of 5'000.-, a child allowance of CHF 265.- (variable from canton to canton - in this case, Fribourg), and several deductions. These deductions are mandatory, there is no way around them. In some cantons, additional regional deductions are applied which don't figure here. For example, in Geneva, they also deduct a mandatory maternity insurance worth 0.043% to 0.046% of the gross salary.
In any case, here's a summary of the main deductions that are applicable in the whole country:
5010. Cotisation AVS/AI/APG: briefly said, it is the retirement insurance. You may have heard that the Swiss system works with three "pillars:" this is the first one. It is paid 50/50 between employer/employee, each paying 5.3% of the gross income.
5020. Cotisation AC: the unemployment insurance. It is also paid 50/50 between employer/employee, each for 1.1% of the gross income. Thanks to this insurance, should Mr Fulano lose his job, he would be able to claim unemployment insurance for a maximum of 2 years, or until he finds a new job. The insurance would pay 70% of his usual income and would be granted on the condition that he worked for at least one full year in Switzerland before losing his job.
5025.1 Cotisation AANP: Swiss companies are required to insure their staff against professional and non-professional accidents. They can charge the non-professional part to their employees. If you work at least 8 hours per week at the same company, you must be insured against accidents. If it doesn't appear on your pay slip, it means that your employer is paying it for you. The % depends on the individual contract : in this case, non-professional accidents cost 1.452% of the gross salary.
5041.1 Cotisation ass IJM: this insurance is not mandatory, but if your company signed up for it, you must pay half the premium (again, 50/50 employer/employee). It covers cases of absence due to illness. We recently had the example with the COVID virus: being a case of sickness, employees' absence from work would not be covered by the accident insurance but by this kind of health insurance (IJM = Indemnités Journalières Maladie).
5050. Cotisation LPP: the "LPP" is the Swiss pension fund and corresponds to the second pillar of the retirement system. Briefly put, the employer deducts a fixed amount every month. Contrarily to the AVS (first pillar), companies have many options to modify their LPP contract if they want to offer better retirement plans to their employees. The legal minimum says that the cost must be split 50/50 between employer/employee, but in practice it is very common that companies would offer a 60/40 split in favour of their employees. There are many options that we will detail in a future article.
Part of the % depends on the employee's age (25-34 years: 7%, 35-44 years: 10%, 45-54 years: 15%, 55-64 years: 18%). The basis for calculation is not the whole of the gross income, a deduction must be applied. In 2023, this deduction amounts to a yearly amount of CHF 25'725.-. In the example of Mr Fulano: his yearly gross income is CHF 60'000.-, which means his insured LPP income is CHF 34'275.- (60'000 - 25'725 = 34'275).
5060. Retenue impôt à la source: withholding taxes. Someone with a B permit gets their taxes deducted directly from their salary. Contrarily to the social insurance, the child allowance must be included here because it is part of the employee's income. This is why the calculation is based on CHF 5'265.- instead of CHF 5'000.-. If the worker is married to someone holding a C permit or a Swiss national, they can ask to pay their taxes with their spouse to avoid the withholding tax. However, in most cases, this wouldn't change anything because most cantons require taxes to be paid in monthly instalments anyway.
In our example, it must be said that the tax rate is extremely low because it is a family with one child where only one of the parents is working. If both parents were working, or if they didn't have a child, the tax rate would be significantly higher. Each canton publishes its withholding tax rates on their official website (for example, click here for Fribourg)
After these deductions, we can see that the net salary, which Mr Fulano will effectively receive on his account, is reduced to CHF 4'592.25.
In the next article, we will analyse a family budget to see how much of this salary will be left over after the living costs are taken into account.