Employee vs contractor compensations: how to compare?

It’s very difficult to compare, as different payroll companies have different commission, insurances, BVG plans, …
Comparing with a perm position is even more complicated, especially if the company that wants to hire you is not based in Switzerland. This might make taxation difficult or very unattractive, but I’m not an expert. In your situation I would just use a cheap payroll company to be safe.
Or look for a contract in Switzerland as you’d probably earn more here anyway.

In any case I won’t accept something that I know is lower than what I would get locally, but companies that hire globally can have competitive salaries, especially if they already have people in high-wage countries such as the US.

Not really. I know at least two counterexamples around me, EU nationals.

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If I am not mistaken it should be 138’888 = 100’000/(1-0.28)

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Sorry to be direct here, but you are missing a lot of ways.

  1. you are not accounting for any time you have to spend to create your company / sole proprietorship
  2. you are not accounting for a tax advisor (easily 4k per year for accounting + creating balance sheet at the end of the year - not sure if this is needed for sole proprietorship). Still, you’ll need a tax advisor, unless you are an expert yourself
  3. you are not accounting for the time to select different providers (BVG, KTG, UVG). BVG (pillar 2) you might be able to skip as a sole proprietor, but still you have to check this stuff.
  4. you are not accounting for the time you need to register with AHV and authorities

Believe me, the time and money you spend for those four things alone are way more than 3% you pay to the payroll company.

As a rule of thumb: I would calculate 1.5 times the gross amount of a permanent salary

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I would say you do not necessarly need a tax advisor for accounting and taxes for a sole propriorship.

Got a KLG with my wife (same than sole but with two people owning it). We pay around 250 CHF/y for bexio software.

First year we got an advisor for the end-of-year closure, but not mandatory. Next year I will probably do it myself.

And we do double entry accounting and VAT (as complicated as it gets for a sole proprietory)

You don’t need BVG and KTG for yourself. And UVG is just with your normal health insurance providor.

In the end, it is really easy to start and register a company in Switzerland. You need about 500 CHF and that’s it. Registration of the compay is about 3h maximum to understand and get it done. AHV about 1h. For your registration you can also pay someone who does it for you.

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Yeah it could be. Honestly between the red tape and the potential bad mark I’d get (or not), I find it not worth it. I should just go to one of their offices and ask them directly.

True, I think I wrongly assumed that the income tax was included in one and not the other.

That’s what I’m looking for, thanks!

Given what the previous comments have mentioned, it might not be legal for me to do this so I guess I’ll discard the idea anyway. But initially I thought that many of the costs (incl. time) would only happen in the first year. That would have been helpful also if I end up creating my own company one day.

From the little I’ve seen, requirements for taxes / accounting are relatively low for sole proprietorship with not much money, and in this simple situation I had assumed I could even do it myself.

Thanks! That seems to match what I currently have in mind.

Ok yeah that matches what I’ve read as well. I already do my personal accounting. In a situation with few clients and expenses, my professional accounting would actually be simpler than my personal one. Thanks for sharing!

I guess it also comes down to how many invoices you have. VAT for a few invoices is easy, but if you have invoices yourself where you can deduct the VAT, it gets more tricky. In the end you have to calculate how many hours it takes you to do the account vs hiring someone who’s doing it as his/her profession.

KTG you are right, my fault. I’m writing from the perspective of a GmbH, and even though it’s not mandatory, you are almost obligated to have one. Otherwise, UVG gets more expensive.
Regarding BVG: yes, you don’t need it, but how do you save money for pillar 2? Or is it something you don’t do?

With only this one client, it’s most probably not legal. Also keep in mind that you would have a client abroad, which brings other problems as well. E.g. currency conversion rates, what about VAT?
Just food for thought :slight_smile:

I had the feeling that there was a consensus in this community that it’s a plus: 2nd pillar is usually a safe investment that you can easily replicate manually with bonds (if you’re close to retirement), and you might as well invest it more aggressively most of the time. Or are you of a different opinion?

Yup I think at this point it’s clear I won’t go this way! In any case I wanted to avoid the GmbH for now.

Disclaimer: this will be a longer answer :slight_smile: and it’s my(!) personal opinion

  1. always question general consensus and ask your own questions, also question my advice!

Short answer: which bonds do you want to use to achieve 1% (or 0.5%) per year? I don’t see any “safe” bonds at the moment which are returning that much. Most of the “good” bonds are returning negative rates (Swiss government bonds, German government bonds etc)

Long answer: from my point of view, a lot calculations regarding pillar 2 don’t really count all factors which are playing a role.

  1. your employer is obligated to pay at least 50% of your pillar 2. This is money you usually don’t get paid out. Even if your employer would pay you this money, you would not receive 100% of it, but you would have to pay AVH/IV/EO plus higher taxes on it.
  2. Both your and your employers contributions to pillar 2 are pre-tax, so you don’t have to pay AHV/IV/EO on it (as well as your employer). This is easily 20% (10.55% for AHV plus roughly 10% personal tax rate). This is highly dependent on the canton of course, and the people in french speaking cantons will most probably have to pay more.
  3. You are insured against invalidity and death, to some extent.
  4. If you are the employer, you can also save profit tax as well, because pillar 2 contributions are pre-tax expenses.
  5. Another advantage for employers is the employer contribution reserve. You are allowed to transfer up to 5 years of employer contributions to a separate bank account of the pillar 2 provider, which are also not counted against your profit at the end of the fiscal year. Of course once this account is filled up, you can’t use it anymore to save on profit tax.

To sum it up: yes, the interest rates on pillar 2 are worse than if you invest it on your own in the stock market, but you are starting from different points. If you invest your money in the stock market, this is after tax money (hence you have less money to invest). Depending on the pillar 2 provider you choose, you have different costs. From what I’ve seen, it can be between 15% and 25%. If you choose an expensive provider then you might indeed be better by investing the money on your own.

Please note that I’m writing this from the employer and employee point of view (because I’m an employee of my GmbH). Initially, I also only used minimum contribution to P2. After calculating the different cases though, I decided to pay more into P2. This might change again in the future (and writing this post also raised more questions for myself), but as of right now I think P2 is a good trade-off for me(!)

PS: I’m happy to receive other thoughts and comments to also question my current point of view

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Interesting about the pre-tax stuff. I didn‘t consider that fact. If you don‘t have a second pillar (only if truly selfemployed without a GmbH in your name?) you can contribute significantly to Pillar 3a (I think about 5x normal limit but max theses 5x or 20% of your salary, whichever is lower). That wouldn‘t work in your case though?

True, it doesn’t work in my case, because I’m still an employee.

Maximum allowed amount for Pillar 3a as sole proprietor is indeed max. 20% of your annual salary (capped at CHF 34’416). CHF 34’416 are 20% of CHF 172’080, so if you earn more than that you can’t pay more into P3a. Still, that’s a nice option to have, and you can invest in assets you want to have.

Thanks for pointing that out!

With the right software it is easy. We have about 30 invoices/month sales and buying combined. Basically it goes parallel to the process flow and the software handles all the VAT automatically (also the buying invoices to deduct Vorsteuer).

In a GmbH, you won’t be actually self employed anymore. You will be employed by the GmbH, and then it could make sense to have a BVG and all. As a self-employed in a sole propriorship, you can pay up to 20% of your profit into the 3rd pillar, or about 33’000 CHF7y, whatever is lower.

This is actually not much of a problem. Since the service or goods go abroad, there will be no VAT involved.

whatever is lower, not higher

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Thanks, brainfart from my side. Corrected in the orginal post.

Yes, but don’t forget about double taxation. If you make profits, you will pay income tax twice (gmbh income and personal income). There are a lot of article on the internet on this topic comparing the case of increasing/reducing your salary

All depends on how your company works. In a lot of cases, a GmbH will pay less taxes because as long as you keep the money in the company, it will only be taxed by company taxes which is much lower.

Therefore it can be interesting to have a GmbH if you need to leave profits inside the company for future investments. There are also much more possibilites inside the accounting area compared to a sole propriorship. Basically you leave the money in the company => means no personal tax + no AHV/ALV etc., just an increase of your wealth as well as some corporate tax.

Just in a nutshell, details is the key here.

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Related to this thread: how legal is it to sign a direct contract with a company? Let’s say the company is giving me a contract, under another country’s law, and ask me to sign it. Would I be doing something illegal by signing it? Would they?

As far as I understand I’m supposed to have some structure, I shouldn’t be able to legally sign what they’re giving without a payroll company or my own structure. Is this correct?

Do you know what happens if later in the future you want to access the money left in the company?
How much taxes do you have to pay on that?