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Understanding how contributions work and why your compensation fund charges you at year-end
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Understanding how contributions work and why your compensation fund charges you at year-end

At the end of the year, compensation funds may send additional invoices to organizations. What was paid during the year being an estimate, the final amount is calculated at the end of the year and is based on the actual data of the payroll. This is why the fund may charge you more or issue a refund.

Let's detail the calculation system in order to help you better understand and anticipate.

 

Contributions

AVS contributions are collected by the compensation funds, together with those of the AI (disability insurance) and APG (insurance for loss of earnings). In the same way, the employer deducts half of the contributions from the wages and pays them periodically to the compensation fund, together with theirs. A contribution for administrative costs paid by the company is also added.

 

At the beginning of each calendar year, or at its date of creation, the company shares with the compensation fund an estimate of its annual payroll. On this basis, the fund calculates and sends down payments to the employer. These will generally be monthly installments, but they can be quarterly if the annual payroll is less than CHF 200,000.-. These contributions paid by installments are provisional partial payments.

Most companies use the ordinary accounting method and must notify their fund when major changes in payroll occur (variation of 10% or more compared to the amount declared and greater than CHF 20,000 .-) so that the installments can be adapted.

Under certain conditions, in particular if the timely payment of contributions is guaranteed, the compensation fund may authorize a company to pay actual instead of non-provisional contributions.

Since June 1, 2016, the employer is no longer obliged to announce new employees who already have an AVS number within 30 days of hiring. But they have to announce them at the latest when submitting the salary declaration for the past year. However, this step being compulsory to benefit from family or maternity allowances or military loss of earnings allowances, it is recommended to systematically announce new employees as soon as they start.

 

The final payroll statement

Within 30 days of the end of the settlement period (30th January at the latest), the company fills in a salary certificate (on paper or sent electronically using the Swissdec system) on which each annual gross salary paid to its employees is indicated. The compensation fund creates the annual statement and the final contributions on that basis. If the advance payments are higher than the final contributions, the compensation fund reimburses the difference. If they are lower than the final contributions, the compensation fund charges the difference.

This process therefore causes no problem when the workforce is constant. But case of an increase in the number of employees, there may be a significant overdraft at the end of the year. This is why it is better to inform the fund that the advance payment must be updated, or at least be aware that a bigger invoice will be received at the end of the year.

 Please note default interests may apply if: the annual statement has not been sent on time, contributions have not been paid within 30 days of invoicing or the difference between contributions and the advance payment actually due is too important. On the contrary, in certain situations such as overpaid equal or personal contributions, as well as contributions to be refunded based on the down payment, compensatory interests may be granted.

 

Case study

The income on which the amount of the contribution is calculated is not limited to salary, but includes any remuneration paid in cash or in kind, related to employment service.

In fact, here are some examples of changes that may affect your statement and that you may not have expected at the start of the year:

  • You now grant your employees a sports subscription worth CHF 500.- per year or make vehicles available to them. Income in kind is part of the determining salary, AVS salary includes any salary supplement, paid in cash or in kind, in the form of regular benefits (unlike punctual benefits such as tickets to a show);
  • You did not check the status of a foreign self-employed person before appointing them and you discover after their assignment that they are not affiliated with any compensation fund in their country. You therefore have to pay social charges as if they were your employee;
  • One of the employees retired early and you are paying them an AVS bridge of a certain amount until the retirement age. Whether paid monthly or in capital, an AVS bridge must be declared in full to the compensation fund, unless the employee has not been subject at all for certain years to the second pillar (in the company in question) or if the early retirement is motivated by operational requirements (closure, restructuring, collective redundancies, etc.);
  • You fired an employee and paid them compensation when the contract was terminated. If a compensation is paid later, after a labor court sentence for example, there are no contributions to be paid on this sum (be careful there are some special cases such as: abusive termination of the employment contract, termination without cause, certain social benefits);
  • You paid additional fees to one or more administrators of the company;
  • You have hired a new employee;
  • You have modified the remuneration of your employees by paying them an exceptional bonus, a thirteenth salary, a share in the results, commissions on business, vacation allowances, etc. The company will however be exempt from social security contributions (under certain conditions) for the payment of a bonus to its employees once every 25 years.