DACH Region Total Cost of Employment: Germany, Switzerland, Austria

Calculating the real 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 involves complex calculations and hidden costs not visible from the salary slip. The cost of compliance, mandatory insurance, taxes, and hidden fees must all be accounted for for proper payroll management to be maintained.

In this blog, we will go over the total cost of employment in the DACH region – Germany, Switzerland, and Austria, with a benchmark salary of EUR 100,000,00 for illustrative purposes.

Cost of Employment in Germany

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.

Overview of employment costs

An employer’s social contributions, while dependent on industry and company, average around 19-22%. The five branches of the social security system are:

• Unemployment insurance (1.2%),
• National health insurance (7.3%),
• Long-term care insurance (1.525-1.775%),
• Retirement pension insurance (9.3%),

• Accident insurance (Industry-specific).

Except for 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 contributions to the social security system depends on gross income. Employees further pay an additional 19.33% to health, pension, unemployment, and long-term care insurance on top of the employer’s contributions.

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

Income taxes in Germany are progressive and 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 a member of a church. Local employers are responsible for forwarding the income tax to the tax authority, while employment for foreign entities requires 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.

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.

Learn more about hiring in Germany.

Cost of Employment in 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.

Overview of employment costs

Payroll contributions by the employer and employee are roughly 21.1% and 17.15%, respectively. The employer’s contributions are comprised of the following:

• National health insurance (3.8%),
• Accident insurance (1.2%),
• Retirement pension (12.55%),
• Unemployment insurance (3%),
• 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% for income lower than EUR 11.000 p/a and up to 55% for income over 1.000.001 p/a, with a wide bracket at 50%.

Austrian customs usually include 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.

Learn more about hiring in Austria

Cost of Employment in Switzerland

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 laws dependent on the canton, in general, the following calculations apply.

Overview of employment costs

The social security system in Switzerland has a unique structure in that the various insurances are categorized into different pillars, some of which are mandatory and others voluntary. Employer social contributions are generally estimated to be around 9.463% and can be broken up as follows:

• Old age, survivors, disability insurance (5.3%),
• Unemployment insurance (1.10%, up to a maximum of 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%),
• Occupational accident insurance (dependent on the industry and the risk to
  which employees are exposed).

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, it 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 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 depends 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.

Learn more about hiring in Switzerland.

Are you planning to hire employees in the DACH region?

The basic employment costs and expenses in the DACH region can become very complex, especially for foreign employers who do not have experience in managing payroll in different countries. 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.

With EuroDev, you can hire abroad fast without worrying about setting up an entity. You will stay compliant in every European country of your choice, and you will have an excellent team experienced to offer the necessary HR Outsourcing solutions and support.

Let’s chat about the next steps for your hiring in Europe.