Freelancers have become an important part of the economy, particularly as a result of digitalization; large corporations, startups, and many international companies employ thousands of them. Well-known international companies such as Google, Facebook, and Uber rely on collaboration with freelancers to grow and thrive. Platforms like Upwork and Fiverr offer numerous opportunities to take advantage of this flexible work model.
How is Switzerland handling this boom? How does this new way of working fit into the Swiss social fabric? Swiss freelancers must decide early on what legal structure they want to use to carry out their work as freelancers. Swiss law offers little leeway, as the term “freelancer” does not exist in a legal sense.
“In any case, a distinction must be made between self-employment and employment.”
In Switzerland, freelancers have the option of registering their work as self-employment with the AHV compensation fund (sole proprietorship). However, the AHV often rejects claims of self-employment due to economic dependence on the client. The best example of this is the ride-hailing platform Uber. According to Uber, all drivers are self-employed, but the AHV sees it differently and refuses to recognize them as self-employed.
In addition, freelancers could:
- be hired by their clients as employees (non-self-employed),
- form an AG or GmbH (as an employee, since you would be employed by your own company),
- get hired through a staffing agency, also known as a payroll provider.
All these different forms of freelancing have an impact on social security.
The Crux of the Matter – Entitlement to Unemployment Benefits
Only employees (i.e., those in salaried positions) are generally entitled to unemployment benefits when needed.
In the case of a sole proprietorship, there is no such coverage. A sole proprietorship does not pay unemployment insurance contributions and is therefore not entitled to unemployment benefits.
Owners of an AG or GmbH must first relinquish their employer-like status, or the company must be in liquidation, before they become eligible for benefits even if they have paid contributions.
For these reasons, more and more freelancers are choosing to be hired through payroll+ so they can benefit from the social security protections of an employee while continuing to enjoy the freedom of self-employment.
Temporary Staffing for Freelancers: Is It the Best Solution?
Temporary staffing agencies can offer the protection freelancers are looking for; they are employed as traditional temporary workers. They have a pension plan, health and accident insurance that provides daily benefits, and unemployment insurance contributions are paid on their behalf.
This employment model is not a viable solution for every freelancer, because, according to the AVG (Temporary Employment and Placement Act), a confirmation of engagement must be agreed upon with the client. Many freelancers work on a project basis, which means that the client is unwilling or unable to guarantee working hours or a salary. The best examples of this are software developers or programmers. They typically work strictly on a project basis or even under a contract for services.
This cannot be reflected in temporary staffing arrangements. In the absence of alternatives, temporary staffing is often chosen; however, this in no way corresponds to the legal nature of the relationship.
“payroll+ AG offers an alternative to this with its innovative employment model, payroll+Flex.”
New Employment Models on the Rise
Over the years, payroll+ has addressed the issue of social security coverage for freelancers and developed new, innovative employment models. One of these is the payroll+Flex model. Freelancers have access to our online tool, which allows them to send invoices directly to their clients.
Freelancers can enter into a contract for services or a contract for work directly with clients.
Invoices are issued in the name of payroll+ AG; insurance premiums for daily sickness benefits and accident insurance, pension fund contributions, and AHV contributions are forwarded directly to the social security and insurance partners. The freelancer must therefore comply with certain labor law guidelines provided by payroll+, such as adherence to the Labor Act, time tracking, and the Code of Conduct. These are clear criteria that indicate the existence of an employment relationship.
With this model, payroll+ ensures social security coverage for freelancers in the simplest way possible. This model benefits all parties: freelancers by providing expanded social security coverage; social partners by ensuring guaranteed social security contributions, tax revenue, and work permits; and contracting parties by helping them avoid the risk of bogus self-employment.
This employment model also facilitates payroll processing for interim earnings. Short-term assignments involving interim earnings were difficult or even impossible to account for in temporary staffing. This often led to these assignments being billed off the books or not taking place at all, since the administrative burden of correct billing is far too high. With payroll+Flex, this is no longer a problem; as a result, unemployment insurance funds have to pay out fewer unemployment benefits, and companies incur no additional administrative burden related to interim earnings, since payroll+ handles the processing.
Job seekers are more motivated to find temporary work because they have an easy way to report their earnings. Without any extra effort, they remain integrated into the workforce, and the host company is not necessarily made aware that they are earning income from temporary work.
Self-employed or employed?
The authority to determine whether a person is self-employed or employed rests solely with the relevant AHV compensation fund. In the past, however, AHV compensation funds have failed to recognize thousands upon thousands of people who wanted to become self-employed as such. This is where payroll+’s employment solutions come into play.
As an alternative to the most traditional legal structures, such as the AG or GmbH, payroll+ offers payroll+Flex—a unique, innovative employment model—in addition to its proven temporary staffing services. Those involved clearly hold the status of employees and thus enjoy the corresponding social security benefits without having to completely give up the freedoms of self-employment.
Unemployment Insurance (ALV) Denies Claim
In two cases, to our great surprise, we observed how unemployment insurance funds (ALV), through the actions of very ambitious employees, exceeded their authority by classifying these payroll+Flex employees as self-employed individuals without having the authority to make such a determination. As a result, they denied unemployment benefits on the grounds that the applicants were not employees of payroll+ AG. This arbitrariness is not only impermissible, but also very dangerous in terms of legal certainty in the area of social security.
AHV: The AHV compensation fund clearly disagrees with the decision of the unemployment insurance fund (ALV)
From our perspective and that of the AHV, this conduct by the ALV is not only arbitrary and impermissible, but also unfair. The insurance funds are happy to collect the corresponding ALV contributions from these employees, but when it comes to entitlement to benefits, they refuse to grant them. This conduct by the ALV lacks any legal basis and must not lead to further social disadvantages and injustices.
Criteria for Defining Self-Employment
Recognition of self-employment is a prerequisite for being able to report the income earned from a sole proprietorship on one’s own. As mentioned earlier, the responsible compensation office determines on a case-by-case basis whether a person is to be considered an employee or a self-employed individual for AHV purposes.
With a short checklist, this can be roughly determined based on social security information. Payroll+ has also meticulously completed this checklist for its freelancers in the payroll+Flex model.
Explanation of the completed checklist: Two points indicate self-employment; five points indicate employment.
If characteristics of both types of employment are present, a determination is made as to which characteristics predominate in absolute terms (or in terms of number).
The comprehensive package that payroll+ offers with this new employment model, as well as the government’s clear responsibility for social security, is also reflected in the Federal Constitution. In its 2018 report on digitalization—commissioned specifically for this purpose—SECO states the following:
“In the future, the social partners can and must incorporate various aspects of digitalization into collective bargaining so that Switzerland can remain internationally competitive and maintain its currently high level of social protection.”
“In addition, the social partners must combat bogus self-employment in order to preserve existing social partnerships and develop new ones in other sectors, particularly in the service sector and for workers in the service sector (stabilize competition—prevent social dumping).”
Due to the lack of self-employment status, eligibility for unemployment insurance (ALV) would exist in the following two cases: employment through a staffing agency or direct employment with the client. In both cases, the freelancer would be considered an employee.
A freelancer would also be eligible for unemployment benefits if he or she had voluntarily established an AG or GmbH, but only once he or she is no longer in a position similar to that of an employer.
For customers abroad, the “Anobag” option (employees without an employer subject to social security contributions) would have applied, which ultimately would have resulted in eligibility for unemployment benefits.
In summary, it should be noted that the payroll+ Flex solution in no way constitutes a circumvention of employer obligations, nor does it involve the misuse of social security systems. On the contrary: Our top priority is ensuring social security for freelancers so that they continue to enjoy comprehensive social protection in the future.
It makes it easier for social partners to reach insured individuals, eliminates the need for laborious collection of contributions, and helps minimize undeclared work. As part of the digital transformation, it offers a simple and flexible work model—one that society has long been calling for.
“In summary, it should be noted that classifying freelancers as employees generally provides better protection against social risks.”
Closing Remarks: payroll+
Here at payroll+, we continue to offer traditional temporary staffing as an employment model—a model that has been a staple of the workforce for years. Years ago, we recognized the urgent need to address the challenges that the flexible and digital world of work would bring. Accordingly, we have developed our innovative solutions and have therefore focused intensively on labor and social security law, as well as the needs of new forms of work such as freelancing, consulting, and contracting. Every day, we passionately advocate for our freelancers to ensure they have social security coverage and can work flexibly.
Photo: Larissa Moser, Head of Sales & Marketing, and Edgar Weber, Founder & Owner of payroll+