What are the up- and downsides of a Payroll company?

What are the benefits of a payroll company?

The employee enjoys the following benefits when employed by a payroll company:

  • Setup is easy to understand

The concept of payroll companies is simple and easy to understand for both parties.

  • Simple handling

The process is simple for both parties: the payroll company enters into a contract with the de facto employer and hires the employee. The entire administrative effort lies with the payroll company.

What are the disadvantages of a payroll company?

As attractive as a working relationship with the employer abroad via a payroll company may seem at first glance, it comes with disadvantages:

  • Employment relationship with previous employer is lost

The employee must terminate his employment contract with the previous employer and then be re-employed by the payroll company. There is therefore no direct contractual relationship between the employee in Switzerland and the employer abroad. This can be particularly problematic in the case of legal disputes or, for example, specific salary models such as employee share ownership.

  • Costs are high and scale with salary

Since the costs of the payroll companies are usually based on percentages, there are considerable cost differences, especially for higher salaries, compared to the ANobAG model, in which the costs are determined independently of the salary. The difference can quickly amount to several thousand francs per year – which could otherwise be used additionally as salary or saved for the employer, or both (when the savings are shared).

  • Depending on the payroll company, caution is advised

There are payroll companies that advertise attractive conditions but then fail to deliver what they promise. An example of this is when weekly commuting employees are promised that travel costs and other expenses can be reimbursed tax-free. However, without approved expense regulations, this is not compliant and such expenses can hardly be approved. This can have serious consequences for the employer abroad (through contractual passing on of liability) and also employees (through after-tax proceedings), as the tax office can levy taxes on the “lump sums” paid out. Thorough screening before contracting with a payroll company is therefore essential to reduce the risk of being hired by a “black sheep”. If an expense policy is advertised, it should be available for reviewing upon request.