When integrating a new member into the team, the question arises regarding the obligation to pay the LPP contributions. It is possible that you also have questioned on how the insurance company makes the calculation of the deduction, which then divided equally between the employee and the employer.
In most situations, a new employee is taken and all the relevant information is transmitted to the insurance consultant. However, it is essential that a) such information is accurate EB) it is always useful to personally understand the real functioning of the system.
Therefore, we want to briefly illustrate the main aspects of the LPP (compulsory insurance to which all workers subject to AVS contributions must register, with a permanent or determined employment contract lasting more than three months).
Who is subject to the obligation of the BVG?
The acronym BVG refers to the federal law on professional social security for old age, survivors and disability. This insurance is mandatory for all people subject to HV who are employed in an indefinite or determined working relationship lasting more than three months. Even if a test phase is expected, the insurance coverage starts from the first day of work.
When do you compulsorily make sure of the BVG?
- Starting from 1 January of the year following the age of 17 (as for AHV). It is a coverage against the risks of death and disability, with a rather contained initial contribution, equal to a maximum of 35 Swiss francs.
- From 1 January of the year following the achievement of the 24th year of age, the real saving for retirement begins, with an increase in contributions to be paid.
- The annual income must exceed 22,050 Swiss francs (excluding the allowances for extraordinary and other irregular allowances!). Even in the event of an employment relationship of a few months or weeks, it is necessary to calculate the BVG if the annual income, projected, reaches this amount.
It is recommended to interrogate the candidate, during the hiring interview, regarding the insurance company with which he is currently covered. To carry out the transfer of the LPP capital to the new Cassa, the candidate will need a QR payment bulletin provided by the previous employer. The current insurance company usually retains the funds for a maximum period of six months, after which the money is transferred to the "LPP replacement institution".
How is the LPP deduction determined?
Usually, you communicate your annual salary to the insurance company, which provides an overview of the performance and deductions for both the employee and the employer. Below is an example of calculation, which may vary slightly in some situations:
Starting point
Total salary subject to AVS: 60,000 Swiss francs
Women's age: 37 years old
Entrance threshold (year 2023): pensions = CHF 22'050 / Coordination deduction = CHF 25'725 (the deduction of coordination ensures that contributions already covered by the 1st pillar are not taken).
Calculation
Annual salary less the deduction of coordination = 34,275 francs
Insured salary = 34,275 francs per year
Old age: 10 percent of the insured salary = CHF 3,427.50 per year
Costs for the employee (50 percent) only for the savings part = 1,713.75 francs per year = 142.80 francs per month
Costs for the employer (50 percent) only for the saving part = 1,713.75 francs per year = 142.80 francs per month
(Risk contributions and administrative expenses are not included. These are also divided equally between employer and employee).
Example of fixed -term employment relationship:
A consultant is taken from 1 March to 1 November, for a total of nine months. The consultant has a workload of 50% and perceives a gross monthly salary of 2,300 francs. Therefore, for these nine months, the total salary amounts to 20,700 francs. However, for the LPP, the annual salary is relevant, which is 27,600 francs, thus exceeding the entrance threshold. It is therefore necessary to record this employee at the LPP.
What should I communicate to the insurance?
- The effective annual salary corresponds to the salary reported in the salary certificate as "gross salary" and "total wage subject to AVS contributions", also in the case of a fixed -term employment contract.
- Information on the employee:
- surname, name, address
- date of birth
- AVS number
- Civil status
- start of the employment relationship
- percentage of workload
Please note that it is essential to provide total annual wages. For example, if an employee has been on duty since August, it is not necessary to indicate the salary from August to December, but rather the annual salary that would receive if it was used since January.
Which insurance company should I record my employees?
There are numerous insurance companies that offer the possibility of registering employees to LPP. It is essential to remember that the most convenient option is not necessarily the best. It is necessary to consider services in the event of death or disability, the savings contribution, administrative expenses and pensions. Therefore, it is crucial to request comparative offers, receive consultancy and, above all, avoid being forced to make a hasty decision.
Total insurance or semi-autonomous pension plan?
You can opt for total insurance for your staff or for a semi-autonomous defined solution. In addition, it is feasible to make distinctions, for example, if you want to guarantee different coverage for management compared to other employees.
With total insurance, the emphasis is placed on protection. Pension benefits and interests are completely guaranteed by the insurance. This approach also ensures a moderate interest rate. However, pension funds can only be invested through a prudent investment strategy, which could result in lower returns.
In the semi-autonomous solution, the risks related to death or disability are also covered. In this scenario, both the company and employees can exercise a certain degree of control, in particular in the selection of investments. The social security funds are influenced directly by the progress of the financial market, which offers the opportunity to obtain higher returns in the long run, but also involves the risk of losses.
It is recommended to request advice to your insurance company to determine which model responds to the needs of your company.
