Becoming Self-Employed in Switzerland: Financial Considerations

Are you interested in becoming your own boss? Approximately 12.3% of working adults in Switzerland are self-employed according to the Federal Statistical Office. But if you are used to the cushy lifestyle entitlements guaranteed to employees, it is important that you understand that many of those entitlements fall away when you become self-employed.

Carefully review these key points to find out how becoming self-employed in Switzerland affects basic building blocks of your financial life.

1. Accident insurance

Unlike employees, self-employed individuals are not required to subscribe to accident insurance. If you want to insure yourself against these costs, you can take out employment-based accident insurance on a voluntary basis from the same insurers which provide compulsory accident insurance to employees. A number of insurers provide accident insurance policies specifically designed for self-employed individuals.

While you can also get basic accident insurance as a rider for your compulsory health insurance policy, this insurance only covers medical expenses and not loss of income. The deductible which applies to your compulsory health insurance policy applies to the accident insurance rider as well.

2. Retirement savings

Self-employed individuals are not required to join an occupational pension fund under the Swiss pillar 2a category of retirement savings. Note: This does not apply to those who open a GmbH or AG, as they become employees of their company and must join a pension fund.

If your business has employees, the pension fund which covers your employees may allow you to enroll as well. Each pension fund has its own rules governing whether or not company owners can participate.

If you are not able to join a pension fund, you can join a voluntary pension fund from the Substitute Occupational Benefit Institution. The conditions are less favorable than those of many occupational pension funds.

A number of Swiss industry associations run voluntary pension funds for their members, and if you are a member of an industry association – or are willing to join one – these can provide a good solution for remaining part of a pension fund after becoming self-employed. These pension funds are often more favorable than the Substitute Occupational Benefit Institute.

The pillar 3a category of retirement savings provides a supplement or alternative to pension funds. If you are self-employed and do not participate in an occupational pension fund, you can save up to 20% of your income in pillar 3a accounts, retirement funds, and other tax-privileged pillar 3a solutions.

3. Loss of income insurance

As a self-employed person, you forgo the paid sick leave entitlements which employees count on to cover expenses when they are too ill to work. The basic accident insurance which comes as a rider on your compulsory health insurance policy does not cover loss of income like the accident insurance which employees get through their employers.

Special loss of income insurance is offered by a number of Swiss health insurance providers. This compensates for earnings you miss out on while you are ill. The downside is that, because this is not a compulsory insurance, your application may be rejected if insurers feel that your health condition, occupation or lifestyle make you a high risk. You should also be prepared to pay relatively high insurance premiums.

A loss-of-earnings rider can be added to your compulsory Swiss health insurance policy and insurers cannot deny you this coverage even if you have pre-existing health conditions. However, the benefits paid out are extremely low and are not sufficient to cover an income. Additionally, the premiums are high in relation to coverage.

4. Social security

When you are employed, your employer covers part of the cost of old-age insurance, disability insurance, unemployment insurance, maternity leave insurance and accident insurance premiums. In most cantons your employer covers child benefit scheme contributions as well.

As a self-employed person, you cover the full cost of social security contributions yourself. Depending on your income, your social security premiums equal between 5,196% and 9.65% of your income. You also pay an administrative fee for self-employed individuals equal to up to 5% of your social security contributions.

5. Unemployment insurance

Being able to rely on getting an income if you become unemployed provides a lot of peace of mind. Unfortunately, you do not benefit from unemployment insurance as a self-employed individual. That means you will want to keep enough savings aside to cover your living expenses for a time if your business goes under.

6. Maternity leave

Paid maternity leave is a benefit available to most employed women in Switzerland. If you choose to take the self-employed route, you can still benefit from paid maternity leave based on your income.

But while being self-employed does not impact paid maternity leave benefits, it does impact the premiums you pay for maternity leave insurance. While employees only cover half the cost of premiums (their employer pays the other half), self-employed individuals pay the full premiums themselves.

7. Liability

When you work for an employer, they bear liability for your professional actions. As a self-employed person, all liability falls on you. Unlike employees, you cannot pass on liability to your company because you are the company. Getting your own commercial general liability insurance for your business is generally recommended.

Verdict

Being your own boss is rewarding in its own way, but a lot of responsibility comes with the perks. Unless going without coverage is an option for you, be ready to pay good money for benefits which you paid little or nothing for as an employee.

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