Globalization and digitalization enable companies to recruit talents worldwide. But what legal and administrative hurdles do Swiss companies need to consider when hiring people abroad?
Companies have various options for employing international talents:
- EOR as a flexible solution for uncomplicated employment without having their own branch.
- Freelancer models as an alternative to permanent employment.
- Direct employment in Switzerland with remote work, taking into account tax and social security obligations.
In this blog post, we look at these three employment models, highlight the relevant legal framework and provide practical tips on what companies should look out for.
EOR
An "employer of record" (EOR) is an organization that acts as an official employer for employees, even though they work for another company. This model is often used in international HR management, especially when companies want to employ staff in countries where they do not have their own legal presence. The EOR takes on all the administrative and legal obligations of an employer, such as employment agreements, payroll and tax payments, while the company manages the employee's day-to-day work and performance.
An EOR is usually more cost-effective and enables the employee to start work much more quickly than setting up their own foreign company. In addition, the transfer of employer obligations to the EOR can minimize the company's risks with regard to employment law, tax regulations, permanent establishment risk and compliance.
EOR contract constellations
There are various contract models for the use of EOR:
- Direct employment by the EOR – the EOR officially hires the individual while the company takes over operational control.
- Subcontractor model – the EOR commissions a local company that hires the employee and "lends" them to the company.
- Hybrid model – a mix of internal management and EOR responsibilities.
Companies should ensure that the contractual arrangement complies with both local labor laws and company objectives.
Laws on cross-border staff leasing
Cross-border staff leasing from abroad to Switzerland is prohibited (Art. 12 para. 2 EmpA). An EOR abroad generally meets the criteria of a temporary employment agency within the me aning of the Employment Agencies Act (Art. 26 RecO). Accordingly, the EOR requires a permit for the deployment of employees in Switzerland. However, if the employees are only deployed at their place of residence abroad, the hiring out is subject to foreign law – which may also stipulate strict regulations.
Caution is required in particular where employees hired by the EOR not only work at their place of residence abroad, but are also lent to Switzerland: This would constitute indirect hi ring out, which is prohibited under the AFMP or the Posted Workers Act.
Violation of these regulations can lead to high fines and legal consequences.
Companies that use an EOR solution must therefore ensure that
- the local legislation of the country of employment is complied with;
- regulations on social security and tax liability are taken into account;
- and an authorized temporary employment agency is involved if this is required by law.
Freelancers from abroad on an agreement basis
Instead of an employment agreement, companies can also work with freelancers abroad on the basis of a service agreement. A freelancer on an agreement basis is generally not considered an employee, but acts as an independent contractor. This means that labor law regulations (such as working hours) do not apply to freelancers. The following points should also be noted when working with freelancers:
- Clear contractual regulation: the agreement should precisely define the freelancer's ser vices, remuneration, termination modalities, intellectual property rights, confidentiality clauses and other relevant aspects.
- Tax aspects: Companies must check whether the use of the freelancer creates tax obligations for them in the freelancer's country of residence or whether double taxation agreements exist.
- Avoid bogus self-employment: There is an exception to the principle that a freelancer is not considered an employee on a contract basis if the freelancer is too closely integrated into the company's processes (e.g. no infrastructure of their own, only one client, strongly bound by instructions or economically dependent). In such constellations, there is a risk that the freelancer will be classified as an employee under social security or employment law. It is therefore worth paying attention to these criteria, making clear contractual arrangements and, in particular, agreeing that the freelancer will manage their social insurance independently.
Remote work from abroad
Another option is to employ a person in Switzerland who works from another country. The following factors in particular must be taken into account:
- Social security obligations: Depending on the country, there may be an obligation to pay social insurance in the country of residence and the employee and employer contributions vary accordingly. When working within the EU/EFTA area, the person generally remains covered by social security in Switzerland – however, it is necessary to obtain an A1 certifi cate (proof of compulsory social insurance in Switzerland).
- Tax implications: Double taxation agreements should be checked in order to avoid tax disadvantages.
- Labor law provisions: Local labor laws (e.g. minimum wage, notice periods) must be observed. However, paying a wage at the local (foreign) level is generally permitted – as long as it is in line with the local minimum standards.
- Permanent establishment risk: The employee's regular work abroad may create a taxable presence for the company.
The Swiss company usually handles the social security contributions and, if applicable, income taxes for employees working remotely abroad via shadow payroll accounting.
Conclusion
Whether EOR, freelancer or remote work – the choice depends on your business objectives, the legal framework and your individual needs. If you examine the options carefully, you can recruit internationally with legal certainty. On request, we will be happy to provide you with a list of recommended providers for support with hiring abroad via e-mail. We will also be happy to send you via e-mail the detailed article «Spezialisten aus dem Ausland bei Fachkräftemangel» in WEKA by Dagmar Richardson, owner of International HR Services AG – one such recommended provider.
