Employee vs contractor compensations: how to compare?

I’m trying to compare compensations for two competing offers, one as an employee, the other as a contractor (IT companies based outside of Switzerland, remote work). Curiously I haven’t seen relevant topics on the forum so far, so here’s mine!

Two options:

  • employee at company A
  • contractor at company B

Becoming a contractor allows company B to hire me without having a legal entity in Switzerland. I would still be considered like an employee with similar conditions on their side (unofficially, according to them, no contract seen yet). There are different solutions from my side, like using a payroll company, such as https://payrollplus.ch (but there are many others) which seems to take 3% of the sum billed to the client. Another is to create my sole proprietorship, which seems straightforward from what I’ve seen (I haven’t looked at the taxes though…).

I’m talking numbers with A and B. But how do I compare a contractor yearly rate with a salary?

If I understand https://payrollplus.ch/en/freelancer/calculator/, a salary of 100kCHF (to take a round number) would be obtained with a monthly rate of 10kCHF so 120kCHF billed to the client (my “employer”) yearly.

Does that sound correct? Are there better tools to compute this?

If I do all of this myself would I simply trade time for this 3% fee, or would there be other costs that I’m not foreseeing, making the payroll company more attractive? I see it as a learning experience, and I assume that it should be easy after the first year. And the 3% is not negligible, in this example that’s 3600kCHF per year.

There are other considerations to take into account (I think being a contractor allows you to avoid the 2nd pillar and invest the money better for instance), but right now a raw comparison is my biggest concern, especially for negotiations.

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Generally speaking a IT contractor in Switzerland should have a daily rate of 800-1600 CHF so only getting out 10k CHF/month on a contractor basis would be a rather bad deal. The 3% of the sum billed to the client is in addition to the whole social security and 2nd pillar deductions. So if the contractor pay is around 120k CHF you end up with much less than with a employee 120k CHF salary.

I guess that’s true for “real” contractors, in my case I’d have only one “client” and I would still have a 2 or 3-month notice and other benefits usually coming with regular employment, no need to look for other clients. That’s how I ended with this comparison, 120k billed as contractor == 100k as employee.

800 seems rather low (that would be a non senior level position?). That would be about 100.-/hour. I wouldn‘t go under 120.-/hour for a senior position

The numbers given are arbitrary, I’m mostly looking for a way to compare the two options reliably. I intend on negotiating for higher than that!

Going for the contractor route should give you clear benefits to compensate for the weaker protection. If the numbers are close, then the biggest reason to go for contractorship, money, vanishes.

As a contractor you will have to pay 1st pilar, unemployement, invalidity and so on and so forth. I would deduct 16% for that. Then there is 2nd pilar: 8%. Accident: 1%.
→ ~25% to be deducted from the revenue + 3% for the middle-man = 28%
If you earn 120000 then you take home 86400.

Also, be very careful with “unofficial” claims about conditions and benefits. They are most probably fictitious and you will have no way of enforcing them later.

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Yes, and any well run company would likely never say that in writing. (It’s a lawsuit waiting to happen)

And if they do provide you the same benefits, that’s also a large risk for them (usually companies try to clearly differentiate (e.g. no access to similar benefits) contractors vs employee to avoid having to requalify if they’re sued.

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Yes it makes sense to ask for more to compensate for this lack of guarantees.

Related to using Payroll plus, I’m going through the same process right now. Technically you will be a commission based employee for Payroll plus if you go with them, which has its pros and cons.

There are many additional costs which can be significant that you will need to pay yourself

  • To 100% of the amount invoice, remove 3% as the fee.
  • To what’s remaining, 10% employer contributions (OASI, occupational accident insurance, daily sickness allowance insurance, unemployment insurance).
  • To what’s remaining, reduce pension contributions from employer side.
  • To what’s remaining (gross salary), reduce 8.85% of employee social contributions (OASI, unemployment, non-occupational accident insurance, daily sickness allowance insurance,).

On the good side, you get more security. If the company to which you’re contracting to stops the agreement, you’ll still have unemployment insurance. You also get occupational accident insurance and sickness allowance.

The employee is insured for collective daily allowance. The daily allowance benefits of the collective insurer fully cover the employer’s obligation to continue paying the salary in accordance with Art. 324a and 324b CO. The benefits amount to 80% of the average salary, provided that the work incapacity is at least 25%. The benefit lasts for 730 days, including the waiting period.

An important pro in my opinion was that they can help you with the renewing work permits if you’re foreign.

Awesome thanks for the details, that seems to match their calculator, more or less!

I’m a EU national so basically no need for a work permit. And I avoid getting unemployment benefits in any case, for these reasons:

  • conditions to get them (need to apply regularly including to companies I don’t really want
  • possible bad sign if I want to apply for citizenship later

Honestly I’m not 100% sure these make sense, but that’s my stance right now (happy to be corrected!).

Given this, the two advantages you mention do not really apply to me. I feel I would be better off being my own company and billing directly, it’s just unclear to me how much paperwork will be involved and what the hidden costs are. 3% sounds like a huge expense for something that I should have pretty much figured out after the first year. And if I’m a contractor for the next 10 years, that’s just not a cost I can justify.

Maybe you want to consider this then STARTUPS.CH | Start your business now. I’m not sure if this is the best option, but that might be what you want.

I’m a EU national so basically no need for a work permit.

As far as I know, you still need a work permit if you want to keep residence. I think starting your own company and then only having one client (the company you would be invoicing to) could be seen as something similar to false self employment.

I think the idea is to create a sole proprietorship, which is quite common in Switzerland.

It seems you can do most of the steps online:

You might need to have a job to renew your residence permit (not sure, and anyway, I have a B permit valid for the next 4 years so I think I’m fine), but you don’t need a work permit to work:
https://www.ch.ch/en/working-switzerland-eu-efta/

IMO this is a bad idea. You then hold liability with your personal money in case something goes wrong.

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I have a B permit valid for the next 4 years so I think I’m fine

And if I’m a contractor for the next 10 years, that’s just not a cost I can justify.

These two statements contradict a bit. I know 4 years is far ahead, but I just wanted to bring that it could be complicated to renew your residence permit if you’re a sole proprietor with a single client (+ that client being outside Switzerland).

It’s very difficult to work for just one customer if you have your own company, please look up “Scheinselbstständigkeit”.
But it’s not worth it anyway as operating the business costs time and money as well. And it’s a lot riskier.
Just do it with a payroll company like PayrollPlus, IET, Sallis or any other company you like.
Imho in your situation I’d try to get a regular perm contract. They tell you they wont fire you until they do it. With a temporary contract you have more risk and you should get compensated for it, otherwise it’s shady and I would stay away.

So from when onwards does it make sense to work as a contractor compared to normal employment?

Let‘s assume the normal perminant job net salary is 100k . What would you ask for to be contracted, where you need to pay all required deductions out of your own pocket and also including the risk of being without income for a few months?

I think it depends on your personal situation. If you can handle periods without a project it might even make sense for 110k, but it’s unlikely that this is the market rate. Your payment after commissions, employer expenses and so on shouldn’t be less than 90 CHF per hour. So 90 CHF × 8 hours × 220 days = 158k per year.
But of course it depends on your experience, skills, negotiation, urgency, length of the project, …
It’s very hard to tell and the numbers might be off for your situation.

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I think the first question is really the money equivalence: how do I earn the same amount as a contractor billing $B as I would as an employee earning a salary $S.

From @Dago’s post, for the 100k salary example, you end up with 120k billing.

Then on top of that you add quite a lot to compensate for less security etc. So depending on how much you value these, how much you value the work and what your alternatives is, you might prefer being a contractor for 130k - 160k rather than an employee at 100k.

At least that’s what I understand from this thread so far.

Ok I understand that what I had envisioned might not be possible.

Just about the costs and why I’m still trying to see if there’s an alternative: according to the payrollplus calculator, switching from 3% to 0% of costs (so assuming I don’t use a payroll company) results in a net wage (meaning without income tax) difference of 250 CHF per month on the example I gave of a 10kCHF billed monthly, so 3kCHF / year. The actual numbers will probably be higher, so the difference will be higher as well.

That’s why I’m trying to see if there’s another way I might be missing.

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