Freedom of movement within the countries of the European Union (EU) and the European Free Trade Association (EFTA) theoretically offers the possibility for employees residing in Switzerland to work remotely from many European countries.
However, in practice, the employer must be thoroughly informed of the legal conditions that govern remote work for an employee abroad to avoid potentially undesirable consequences. This includes considering the implications regarding tax regulations, affiliation with social insurance coverage and benefits, data protection, as well as the specificities applicable to posted workers.
It is also recommended to stipulate in the employment contract which labor laws apply to the employer-employee relationship and to what extent remote work from abroad is feasible.
When an individual employed and residing in Switzerland decides to work remotely from a member state of the EU or EFTA, they remain subject to taxation in Switzerland, in their canton and municipality of residence, as long as they do not spend more than 183 consecutive days in the host state – including non-working days and vacation days.
They must also continue to officially reside in Switzerland and receive remuneration paid by their Swiss-based employer. After this period, the host state has the right to impose taxes on the income of the employee staying within its territory, according to its own legislation.
For owners of a small business, an extended stay – with the threshold varying from one country to another – in another state may call into question the actual place of business. The host state may consider that the business operates within its jurisdiction, which can have significant tax consequences, such as the taxation of a portion of the profits in the host state instead of the usual state of residence. However, this scenario is practically excluded in the case of a large company.
Furthermore, the State Secretariat for International Financial Matters recommends that employers accurately assess each case with tax law experts specializing in international taxation before allowing remote work from abroad for employees or executives who usually reside and work in Switzerland.
Switzerland, like the EU and EFTA member states, participates in the European system for coordinating social insurance, which applies to Swiss nationals and individuals from EU/EFTA states. In principle, regarding coverage, the current regulation stipulates that:
- The employee is subject to only one social security system, generally that of the state in which they work (Regulation (EC) No 883/2004 of the European Parliament and of the Council of April 29, 2004, Article 11, Paragraph 1 – only in German);
- An employee who usually resides in Switzerland and performs at least 25% of their working time there remains subject to Swiss social insurance (Regulation (EC) No 883/2004 of the European Parliament and of the Council of April 29, 2004, Article 13 – only in German);
- The 25% portion is generally determined proportionally to the total working time;
- The calculation is based on the situation anticipated for the next 12-month period.
It should be noted that when an employee is in a situation where the conditions for affiliation to Swiss social insurance are not met or no longer met, the Swiss employer must pay social security contributions to the competent authority abroad. The employer must be aware of the amount of contributions and the organization of the social security system of the respective country to fulfil their legal obligations. This can entail a significant additional workload.
Social contributions abroad may be higher than in Switzerland. Even if unintentional, non-compliant affiliation can have serious consequences for both the company and the employee.
For more information, employers can consult their AVS compensation funds, which is the competent body for social security contributions.
Cross-border teleworking does not have any impact on the compensation in case of reduced working hours (RWH), as long as the usual conditions are met.
In the case where the job seeker falls under the host state – meaning they have performed a substantial portion of their working time (over 75%) or generated a substantial part of their income there –, they are advised to register with the relevant institutions in the host state.
Recognition of unemployment contributions abroad
To have their contribution periods in Switzerland recognized by the host state, the job seeker is required to contact the relevant Swiss unemployment fund (the one handling their case, if applicable, or the fund of their choice), using the PDU1 form (only in German).
Since unemployment benefits are generally not retroactively paid but only from the date of registration, it is recommended to order the form early enough.
According to the current European regulation, the institution responsible for unemployment benefits takes into account all contribution periods completed by the job seeker, including those carried out in another EU country, EFTA, or Switzerland (Regulation (EC) No 883/2004 of the European Parliament and of the Council of April 29, 2004, Article 61, Paragraph 1 – only in German).
Compensation in case of insolvency
Under certain conditions, the employee who has been terminated or has terminated their contract after the employer's default on salary payments may, in the event of their employer's insolvency, seek compensation from the relevant public unemployment fund. As long as the employee contributes to the Swiss social insurance system, remote work abroad has no impact on the entitlement to compensation in case of employer insolvency.
However, if the employee performs a substantial portion of their work (typically beyond the threshold of 25% or even 50% in certain countries, subject to a new agreement – only in German), they are affiliated with the local social insurance system, and the benefits provided depend on the host country according to its applicable legislation.
Data protection responsibilities
Under the new Data Protection Act (FADP), which can apply extraterritorially when a connection to Switzerland is established, it is the employer's responsibility to ensure the protection and security of the data it hosts (company, employees, clients, etc.) through appropriate technical and organizational measures. In the case of an employee working abroad, the employer remains responsible for information security and data protection.
In this regard, it is the employer's duty to implement sufficiently reliable software that is suitable for the needs of their company. In the case of remote work abroad, the processing of confidential data hosted in Switzerland can only be done through a secure connection using a virtual private network (VPN). Furthermore, it is expected that the employee does not disclose or provide access to any confidential data during their stay abroad. As long as these principles are respected, data processing in the context of remote work is not considered cross-border communication, and therefore, the applicable law remains the same as it would be for data processing carried out within the company premises in Switzerland.
The current legislation does not provide for criminal penalties in case of negligence. However, intentional offenses can result in criminal proceedings that may lead to fines of up to 250,000 Swiss francs, usually imposed on the responsible individual. Additionally, any violation of the law can result in both public and private legal procedures.
Application of Swiss and European data protection rights
The FADP applies extraterritorially when the processed data concerns individuals or companies based or working in Switzerland.
Swiss companies and federal authorities are generally subject to Swiss law and must therefore comply with the FADP. In some cases, European law (General data protection regulation, GDPR) may also be applicable, particularly regarding the data of individuals processed within the territory of the European Union (EU), regardless of their nationality or place of residence.
If the data subjects affected by the data processing are located within the EU territory, the GDPR is applicable. The fact that the data controller (the person teleworking) is or is not located within the EU territory, or whether their employment contract is governed by Swiss law or not, does not change the legal situation in this case.
However, the GDPR generally does not apply to the processing of data of individuals residing in Switzerland by Swiss companies, even if this processing occurs – due to teleworking – within the territory of the EU.
In other words, teleworking from the EU by an employee whose usual workplace is located in Switzerland does not, at present, constitute a sufficient criterion for the application of the GDPR in itself.
In the case of an extended stay abroad, it is strongly recommended to explicitly specify which labor law applies. In the absence of any mention of the applicable labor law in the contract, if a significant portion of the work is carried out abroad, the application of Swiss labor law may be called into question.
However, in the event of an explicit mention of the applicable labor law, it will also apply to employees engaged in remote work abroad.