Many companies in Switzerland now use the services of self-employed individuals (sole proprietors, freelancers, contractors, etc.). This allows companies to expand their staffing capacity on an as-needed basis without committing to becoming an employer. This is useful for handling temporary spikes in workload or launching a project with a fixed duration.
In most cases, a contract for services is entered into between the client and the self-employed individual. The self-employed individual then invoices the client directly for the service.
When a contract for services is entered into, it is assumed that the self-employed person does not become an employee of the client and, therefore, the company is not required to provide social insurance coverage. There are no employer obligations, and in the event of illness, accident, pregnancy, or military service, the client is not required to continue paying wages. The notice periods specified in the Labor Code do not have to be observed.
What is bogus self-employment?
The simplest way to explain it is this: an agreement between a company and a “self-employed” individual that, contractually and to the outside world, gives the legal appearance of self-employment but in reality constitutes an employment relationship.
Whether someone is an employee, a freelancer, a contractor, a self-employed person, a pseudo-self-employed person, or an entrepreneur has significant legal implications for that person and their client or employer. These implications extend beyond labor law to include social security and tax law as well.
The AHV Compensation Fund must determine whether a case of bogus self-employment exists
The AHV regularly and systematically monitors how companies work with self-employed individuals and freelancers. It determines on a case-by-case basis whether the person’s activities actually constitute self-employment.
Important to know: For the purposes of determining AHV eligibility, it does not matter whether
- the employee is expressly designated as self-employed in the contract,
- the client transfers responsibility for social benefits to the contractor in the contract
- the contractor can provide a certificate of self-employment issued by the AHV, or
- is registered with the AHV and pays contributions regularly
The only factors decisive for the assessment are the criteria of economic dependence and the authority to issue instructions. If the contractor derives 50% of their income from work for the client, they are already economically dependent on that company. From the AHV’s perspective, this constitutes bogus self-employment. The same applies if the contractor has fewer than three different clients.
Consequences of Bogus Self-Employment for Clients/Companies
- Employers risk having to pay missing AHV contributions retroactively for up to five years
- At most, employers are required to retroactively enroll the affected individuals in a pension fund.
- If the person has neither registered with the AHV nor paid their contributions, then employers may even find themselves in violation of the law—this constitutes illegal employment, which is subject to the corresponding criminal penalties.
- If this person were to suffer an accident resulting in disability, the client would be liable for damages, as the client should have insured the employee. Coverage under the self-employed person’s or freelancer’s accident insurance does not apply, since the individual is an employee. The employer is left to bear the financial loss without reinsurance.
- Administrative and costly efforts involved in reversing the transaction for the employee (wages, social security contributions, pension fund contributions, and any withholding tax).
Consequences of bogus self-employment for contractors / employees
The contractor has no obligations arising from bogus self-employment.
Swiss law assumes that the employee is the weaker party and is therefore subject to the employer’s duty of care.
Simply put, every company must be familiar with the law and is solely responsible for correctly classifying its legal relationship with self-employed individuals and freelancers.
If the contractor is reclassified as an employee, this may have tax implications and, as a result, entail additional administrative work.
How can companies protect themselves?
Many companies have already stopped working with self-employed individuals (sole proprietors) and thus completely avoid the risk of bogus self-employment.
If a contract is awarded to an AG or GmbH, the company never assumes any risk—this is a B2B transaction. However, if a contract is awarded to a self-employed individual for execution, the criteria for self-employment must be met.
The AHV Compensation Fund provides a checklist with criteria for determining this. An AHV certificate of self-employment must be presented before any invoice from a sole proprietorship can be paid. An exception applies to minimal income (i.e., less than CHF 2,300 per year), which is not subject to contributions and therefore does not pose a problem regarding bogus self-employment. You can find information from the AHV on this topic here.
A Simple Solution with payroll+
For self-employed individuals or freelancers without a legal business structure, the easiest way for companies to use the payroll+ service is…
For just 3% of the invoice amount, payroll+ acts as the employer. The company simply needs to provide us with the agreed-upon fee and the employee’s personal information.
- Freelancers are automatically covered by accident and sick leave insurance, can choose their pension fund contribution plan, and are covered by unemployment insurance (ALV).
- payroll+ pays the AHV contributions and invoices the company for the freelancer’s work.