Cost of Employment in Germany, Switzerland and Austria (DACH)

Calculating the true cost of employment can be complex and managing employees in multiple countries can make an already daunting task seem overwhelming. The true cost of employment is not just determined through salary negotiations but often involve complex calculations and hidden costs not visible from the salary slip. In this blog, we will go over the actual costs of employment in the DACH region; Germany, Switzerland and Austria. Which costs components play an important part in the total employment costs? Let's find out. 

The cost of compliance, mandatory insurances, taxes and hidden fees must all be accounted for in order for proper payroll management to be maintained. This blog will explore the true cost of employment in Germany, Austria and Switzerland, otherwise known as the DACH countries with a benchmark salary of EUR 100.000,00 for illustrative purposes.

Germany germany-Oct-21-2020-02-38-39-69-PM

Germany is the second most populous country in Europe and has a highly developed social market economy with low unemployment rates, bordering nine neighboring countries. Germany’s central position in the EU makes it an ideal location for logistics hubs and distribution centers in Europe. Serving over 82 million German citizens, 150 million consumers in its neighboring countries and nearly 500 million EU residents, Germany is the direct link to Western and Eastern European markets.

An employer’s social contributions, while dependent on industry and company, averages around 19-22%. The five branches of the social security system are the unemployment insurance (1.2%), the national health insurance (7.3%), the long-term care insurance (1.525-1.775%), the retirement pension insurance (9.3%) and the accident insurance (Industry specific). Except for the accident insurance, which is contribution-free for the insured employees as it is just financed by the employers, the employees and the employers share the costs of the contributions. The total amount of the contributions to the social security system depends on the gross income. Employees further pay an additional 19.33% to health, pension, unemployment and long-term care insurances on top of the employer’s contributions.

Income taxes in Germany are progressive dependent on gross income. Rates vary between 15% to 45% (42% for married individuals) plus solidarity tax contribution and church tax if the employee is member of a church. Local employers are responsible for forwarding the income tax to the tax authority while employment for foreign entities require employees to personally report to their local tax offices. The income tax system can be complex as some benefits or expenses can be deducted from the worker’s yearly tax declarations. Additionally, some benefits are free from tax and social security contributions and others e.g., presents over 35 Euros have to be added to the gross salary.

13th month bonuses are customary in Germany and are paid on the December pay date or on the last payday of the financial year end of the company.

There may be further costs associated with works councils, health and safety, private benefits or CBA requirements, however this is dependent on a case-to-case basis.

Description of Cost Component

Amount

Gross Base Salary (Received by employee)

  100.000

Employer social charges ~20% (Received by the state)

20.000

13th bonus (Received by employee)

8.333

Total minimum Employer costs excluding benefits

128.333

Gross payment to employee

108.333

Less: employee social contributions 19.33%

(20.940)

Less: income tax 42%

(36.700)

Total Employee net pay excluding benefits

50.687

 

Austria austria

Austria consistently ranks high in terms of GDP per capita, due to its highly industrialized economy, and well-developed social market economy. Austria is also considered to be average to slightly above average in total employment costs when compared to other European countries and provides an attractive investment opportunity.

Payroll contributions by the Employer and employee are roughly 21.1% and 17.15%, respectively. The employer’s contributions are comprised of the national health insurance (3.8%), accident insurance (1.2%), retirement pension (12.55%), unemployment insurance (3%) and insolvency Guarantee Funds Contribution (0.55%). Employees meanwhile contribute to the national health insurance (3.9%), retirement pension (10.25%) and unemployment insurance (3%).

Income tax in Austria ranges from 0% to income lower that EUR11.000 p/a, and up to 55% for income over 1.000.001 p/a, with a wide bracket at 50%.

Income in €

Tax Rate %

11.000 or less

0%

11.001-18.000

20%

18.001-31.000

35%

31.001-60.000

42%

60.001-90.000

48%

90.001-1.000.000

50%

+1.000.000

55%

 

Austrian customs usually include a 13th and 14th salaries, with the annual salary paid in 14 equal payments. The 13th and 14th payments are paid out in June and November. Alternative arrangements can be made by agreement.

Description of Cost Component

Amount

Gross Base Salary (Received by employee)

100.000

Employer social charges ~21.1% (Received by the state)

21.100

13th and 14th bonus (Received by employee)

16.667

Total minimum Employer costs excluding benefits

137.767

Gross payment to employee

116.667

Less: employee social contributions 17.15%

(20.769)

Less: income tax 50%

(50.165)

Total Employee net pay excluding benefits

50.165

 

Switzerland Switzerland flag

Switzerland is home to a stable economy, characterized by a low unemployment rate, good social security benefits, and some of the highest salaries in the world. The Swiss economy is attractive to foreign investment, with many companies choosing to expand into the country due to its favorable tax conditions and high quality of life. While there are slight differences in costs and law dependent on the canton, in general the following calculations apply:

The social security system in Switzerland has a unique structure in that the various insurances are categorized in different pillars, some of which are mandatory and others which are voluntary. Employer social contributions are generally estimated to be around 9.463% and can be broken up as following: Old Age, Survivors, Disability Insurance (5.3%) Unemployment Insurance (1.10%, up to maximum 148.200 CHF), Supplementary Unemployment Insurance (0.50% above 148,200 CHF), Family Compensation Fund (2.45%), Maternity Insurance (0.043%), Early Childhood Contribution (0.07%) and Occupational Accident Insurance which is dependent on the industry and risk to which employees are exposed to. Employee contributions total roughly 7.168% and are comprised of AVS / AI / APG (5.3%), unemployment insurance (1.1%), Supplemental Unemployment Insurance (0.5%), maternity insurance (0.043%), income compensation (0.225%) and Non-Occupational Accident Insurance which is also dependent on a case-to-case basis.

Income tax in Switzerland is comparatively low, however is also comprised of 18 different brackets, which range from 0% on salaries of CHF17.663 or less (Geneva) to a maximum of 19% CHF615.022 (of which the max is 11.5% federal tax). Income taxes are levied at three different levels: at the federal level (which is the same all over Switzerland), at the cantonal level, and at the municipal level. Circumstances of the individual employee also have an impact on the tax rate levied. For the purposes of this blog, the income tax of the employee will be based on a single person residing in Geneva.

In Switzerland it is common for employees to be paid a basic salary plus a variable component (usually known as a “bonus”). However, the term “bonus” is not defined in Swiss law, therefore, trying to figure out how variable compensation should be categorized legally and whether it qualifies as a gratuity or as part of an employee’s salary can be difficult. Whether a bonus is classified as a gratuity or part of an employee’s salary is dependent on how the employment contract is drafted, but also on the employer’s practice when it comes to paying the bonus and how it relates to the employee’s salary. According to the Swiss Supreme Court, in the absence of an explicit agreement, the payment of a “gratification” becomes mandatory if it has been paid for three consecutive years, unless the employer made an express reserve by a declaration addressed to the employee. For illustrative purposes, this blog will assume a 10% guaranteed annual bonus categorized as salary.

Description of Cost Component

Amount

Gross Base Salary (Received by employee) (EUR equivalent)

CHF 105.540

Employer social charges ~9.463% (Received by the state)

CHF 9.987

10% bonus (Received by employee)

CHF 10.554

Total minimum Employer costs excluding benefits

CHF 126.081

Gross payment to employee

CHF 116.094

Less: employee social contributions 7.168%

CHF (8.322)

Less: income tax 29.2%

CHF (31.513)

Total Employee net pay excluding benefits

CHF 76.259

 

Conclusion

As this blog details, the basic employment costs and expenses can become very complex especially for foreign employers who do not have experience in managing payroll in different countries. While this blog assumed the same salary across the three DACH countries, it does not adjust for aspects such as the cost-of-living or industry and country norms.

Frequent changes based on the needs of the time, such as during the covid-pandemic also means that all of the information provided above can change with short-to-no notice. International businesses need a trusted partner who can assist them in the successful management of payroll costs and taxes, as a failure to abide by these requirements can have massive financial and legal implications.

Professional Employer Organizations (PEOs) such as EuroDev European Business Development Group can provide invaluable assistance in navigating these complex requirements in a fully compliant manner which allows companies to focus their attention, time and resources on the core of their business operations.

More information

In case you would like to have more information, do not hesitate to connect with Monique Ramondt-Sanders - Executive Vice President of Human Resource Outsourcing at EuroDev. Interested in more information concerning our HR Outsourcing services? Please have a look at our HR Outsourcing page

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