According to the Federal Act on Assignments (Entsendegesetz; EntsG) every inbound assignee must be paid a salary that meets Swiss reference salary requirements for the time working in Switzerland. Thus, salaries currently paid to assignees in euro bear the risk to turn out to be too low and therefore not to be compliant anymore as a consequence of the decision of the Swiss National Bank (SNB) to abandon its three year policy of capping the Swiss Franc against the euro at CHF 1.20 respectively the resulting falling of the euro exchange rate.
Obligation to meet Swiss salary levels
According to Swiss immigration law, non-Swiss companies providing services in Switzerland must compensate employees temporarily working in Switzerland (so called “assignees”, German: grenzüberschreitende Dienstleister / Entsandte) at a level which is at least commensurate with the Swiss reference salary of the industry, profession and geographic area in question.
There is no blanket minimum wage in Switzerland (with the exception of certain industries where generally binding collective labor schemes or cantonal standard employment contracts apply). The relevant salary level must thus be assessed on a case-by-case basis using criteria such as:
- concrete role/activities/responsibilities when working in Switzerland
- job grade
- weekly hours of work
- qualification level (highest educational and professional certificates)
- years of service for the employer submitting the application
All of Switzerland’s 26 cantons apply their own reference salary levels and assess the salary level they consider to be sufficient at their own discretion. Cantons with a higher level of costs of living apply higher minimum salaries than cantons in which the costs of living are lower. All cantons, however, base their assessment on their statistical reference salaries for comparable Swiss employees in their canton.
In the event that the base salary as paid in the home country is revealed to be too low compared to the Swiss reference salary level, the employer is required to pay additional allowances (referred to as assignment allowances) to close the gap for the duration of the assignment in Switzerland. On top of this total remuneration (i.e. base salary and assignment allowances), assignment-related expenses such as the cost of accommodation, meals and travels while working in Switzerland must be borne by the employer (or by the host company, as the case may be).
If the compensation is paid in a foreign currency, the competent immigration authorities usually apply the official currency exchange rate of the FTA of the day on which they process the work permit application.
Labor inspection authority applies monthly average exchange rate
Labor inspection authorities perform random checks of foreign workers. During such inspections, the payslips of foreign employees and other documents are examined. If foreign currencies are in play, the authorities apply the monthly average exchange rate of the FTA when assessing the compliance of salaries and expenses paid to the employees in question.
In fact, during periods of high currency exchange volatility, there is a high risk that total compensation, which had been properly calculated or converted to Swiss francs at an earlier stage, will turn out to be insufficient at the time of inspection.
Risks in the event of a failure to comply with Swiss salary levels due to fluctuating exchange rates
If a labor inspection reveals that the salaries paid to non-Swiss employees are too low, the employer may be sanctioned for violating Swiss immigration law. Sanctions range from fines up to being banned from providing services in Switzerland.
Apart from the threat of penal consequences, it is important to be aware that non-adherence with Swiss salary requirements will also cause a great deal of administrative work since the employer will typically have to engage in time-consuming dealings with Swiss authorities including the filing of comprehensive documents and frequently lengthy discussions. What’s more, the company will have to anticipate the need to make salary back payments (German: Lohn-Nachzahlungen), as well.
Measures to counteract potential risks arising from fluctuating exchange rates
To mitigate the risk of sanctions and extra administrative work as a result of non-compliance with Swiss salary requirements, it is highly advisable to consider the following:
- During an ongoing assignment always assess the salaries of assignees working in Switzerland against Swiss reference salary requirements and by applying the monthly average exchange rate issued by the FTA at the end of every month and, if necessary, increase salary, retroactively. This holds particularly true during periods of high currency volatility.
- Be aware, however, that repeated payment of a higher total compensation due to exchange rate movements – depending on the applicable employment laws – may be considered a salary increase and thus may lead to an entitlement on the part of the employee to receive the higher compensation amount even if the exchange rate shifts in the opposite direction (currently: in case of a weakened Swiss franc).
- In view of the above and prior to the assignment, ensure that a written agreement is made with the employee which specifies that, in the event of currency exchange rate movements, adjustments to the assignment allowances being paid to the employee for the sole reason of bringing compensation into line with Swiss reference salaries may be made at any time and without the employee’s consent in case of exchange rate movements. Note: The lawfulness and enforceability of such an agreement under applicable laws should be checked in advance and on a case-by-case basis.