Consultancy agreements play a crucial role in the professional landscape of Switzerland, outlining the responsibilities and rights of both parties involved. There are legal distinctions between independent consultants and employees as defined by the Swiss Federal Supreme Court. Understanding these guidelines is essential for companies and consultants alike to navigate the tax and social security implications that arise from their working relationships.

In line with Swiss legislation, the factors that distinguish an independent consultant from an employed consultant are:

• The independent consultant does not perform his/her services exclusively for only one company/client.
• There is no subordination of the independent consultant to the company for which he/she provides services.
• The independent consultant is entitled to organise his/her work at its own discretion in terms of schedule, activity and location.
• The independent consultant bears a certain economic risk.

Should a consultant be considered an employed consultant, the company contracting the employed consultant could be responsible for, among other things:

• The payment of tax at source (depending on the consultant’s actual situation on work permit);
• The payment of social security contributions; and
• The preparation of yearly salary certificates for tax declaration purpose.

It is therefore strongly recommended that companies contracting consultants obtain the following confirmations before engaging an independent consultant, which may help to mitigate the risk of having to pay social security contributions and having to maintain payroll calculations:

• Proof of establishment of an own company;
• Confirmation by the appropriate social security authority regarding self-employed status (e.g., not as employee);
• Proof of business organization (e.g., business premises, website, marketing channels, etc.);
• Track record as independent contractor (e.g., other clients).

Furthermore, employed consultants would not be able to deduct their professional expenses from their taxable income. In addition, the services of independent consultants are generally subject to VAT, whereas the fees paid to employed consultants are not.

Should you become aware of a client using consultants, please check to make sure that the required documentation is obtained to make sure that the companies are properly fulfilling their statutory obligations in terms of social security contributions and, potentially, source tax payments.

Distinguishing between independent consultants and employees is vital for ensuring compliance with Swiss laws and regulations. By adhering to the guidelines from the Swiss Federal Supreme Court and obtaining necessary confirmations, companies can mitigate risks associated with engaging independent consultants. Clear and well-documented consultancy agreements further contribute to a transparent and mutually beneficial professional relationship. The Centralis team can support any firm who may have questions or require guidelines to support their consulting endeavours.

Please contact Marc Buehlmann, Payroll and Human Resources Manager, for more information.