Short-time work and loss of income: the impact on occupational retirement provision

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Short-time work and loss of income: the impact on occupational retirement provision

April 20, 2020

The spread of the coronavirus has put the Swiss economy in a perilous position. Many small and medium-sized enterprises and self-employed people are experiencing liquidity bottlenecks. The Swiss Federal Council has drawn up a comprehensive package of measures to soften the economic blow and preserve jobs. What impact will these have on occupational retirement provision?

The package of measures adopted by the Federal Council aims to support the Swiss economy, preserve jobs, safeguard wages and provide a cushion for the self-employed. Liquidity injections are being given to companies, and access to short-time work compensation has been expanded and simplified. Since some groups are not entitled to short-time work compensation, the Confederation has agreed a separate package of measures based on the provisions of the income replacement regulations.

Short-time work

Short-time work compensation is used to preserve jobs and secure wage payments in the event of a temporary loss of work. Short-time work must be applied for by the employer. However, the eligible employees must consent to it. The basic requirement is that at least 10 percent of work is lost over four continuous weeks. Short-time compensation is calculated as follows:

total target hours of eligible employees

– deduction of all paid and unpaid absences

= total hours worked

A loss of working hours due to measures ordered by the authorities (such as the containment of the coronavirus) is normally sufficient, and will lead to compensation if the other requirements are met. There is one exception to this: there is no entitlement to compensation if the company can take advantage of other sales opportunities and thus continue to use an employee's full capacity, or if a private insurance company will cover the losses.

Who is entitled to short-time work?

In principle, employees who are liable to pay unemployment insurance contributions, who have completed compulsory education and who have not yet reached the AHV retirement age are entitled to file a claim. The current special regulation also expands the circle of those entitled and simplifies the application procedure. For example, at the moment, employees no longer have to first exhaust their overtime to benefit from short-time work compensation. And there is no longer any waiting period to receive short-time work compensation. This completely eliminates the need for employers to contribute to the loss of working hours.

Persons newly entitled to file a claim under the special scheme are:

employees with fixed-term contracts including temporary employees
students
people in a position similar to that of an employer (e.g., people employed by their own limited corporation or joint-stock company, shareholders and members of the highest executive body), including spouses or registered partners. They can claim a lump-sum monthly allowance of 3,320 Swiss francs as short-time work compensation for a full-time position.

Employees are not entitled to compensation for short-time work

if they are still in their notice period
if they do not agree to short time
if their working time cannot be checked sufficiently (e.g. work on call).

How much is the short-time work compensation?

Short-time work compensation is calculated at 80 percent of the eligible loss of working hours, limited to a maximum of 12,350 Swiss francs per month. (explanation) If a different insurance benefit is already being paid, there is no longer any entitlement to short-time work compensation.

Commencement and duration of short-time work compensation

A right to compensation exists from the moment short-time work is introduced. The short-time work compensation can be claimed for a maximum of twelve months within two years.

What happens to contributions to social security schemes?

Good to know: all social security contributions must be calculated based on 100 percent of a person's salary. The employer will be reimbursed by the unemployment insurance fund for its share of social security contributions. What does this mean for contributions to occupational retirement provision? In order to avoid gaps in an employee's occupational retirement provision, contributions remain due at the same level.

Application for short time work

You can apply for short-time work with the relevant cantonal office (KAST).

Compensation for loss of income

Compensation for loss of income serves to mitigate the economic consequences of lost earnings. In accordance with the provisions of the income replacement regulations, the Federal Council has created a coronavirus income compensation scheme to cushion any loss of income due to the measures ordered by the authorities in connection with the coronavirus. This special provision is valid for a limited period of six months.

Who is entitled to compensation for loss of income due to the coronavirus?

The following groups of people are entitled to compensation for loss of income due to the coronavirus:

self-employed people who suffer a loss of income due to the closure of a business or the ban on events ordered under federal law; these include, among others, freelance artists whose engagements have been canceled,
self-employed people who have less or no business due to the official measures taken in response to the corona pandemic, but are able to continue working and are thus only indirectly affected by the measures, for example taxi drivers, provided that their income subject to AHV contributions does not exceed CHF 90,000,
parents with children under the age of twelve who have to interrupt their employment because there is no longer guaranteed childcare for their children; not, however, if short-time compensation is already being paid,
parents of special-needs children under the age of 20 who have to care for these children at home, and
people who have to interrupt their employment because of an official or medical quarantine measure; not, however, if short-time work compensation is already being paid.

How much is the compensation for loss of income?

The compensation for loss of income is calculated at 80 percent of the average gross income earned. The insured wages are limited to a maximum of 88,200 Swiss francs per year, which is equivalent to a maximum monthly amount of 7,350 Swiss francs. This would provide a daily allowance of 196 francs per day. The compensation for loss of income is subsidiary. This means that if a person who is entitled to claim already receives benefits from another social or private insurance, they have no right, or at most a partial right, to compensation. In the case of continued payment of wages, the employer is entitled to file a claim.

The start and end of compensation for loss of income vary

Start/end for self-employed people: once all the requirements are met (from March 17, 2020, at the earliest), daily allowances will be paid for as long as the officially ordered measures last.
Start/end for parents: from the fourth day after all the requirements have been met (from March 19, 2020, at the earliest), until an alternative care solution is found or the measure is lifted, and a maximum of 30 daily allowances are paid out for those who are self-employed. In most cases, the first three days are covered by the employer's continued salary payments.
Start/end for people in quarantine: as soon as all conditions have been met (from March 17, 2020, at the earliest), a maximum of ten daily allowances will be paid until the quarantine is lifted.

What happens to contributions to social security schemes?

The compensation of loss of income is subject to the obligation to pay contributions under social security law. This means that the usual contributions for AHV, disability insurance, income replacement insurance and, if applicable, unemployment insurance are deducted. The AHV compensation funds can grant employers and self-employed persons a payment deferment for six months without interest on arrears. In the pension fund, insured earnings are not adjusted as long as the employer's obligation to the continued payment of wages exists in accordance with the Swiss Code of Obligations, Art. 324a. The full contributions are therefore still due.

Registration for compensation of loss of income

The employee must apply for compensation of the coronavirus-related loss of income from their responsible AHV compensation fund it is paid out as a daily allowance.

Good to know for those insured by the Vita Joint Foundations

Nothing changes for employees: the applicable salary for the occupational retirement provision remains unchanged and corresponds to the presumed annual AHV salary. For self-employed people who are insured together with their staff, the following applies:

the basis for calculating the insured salary for occupational retirement provision is still the expected annual salary.
the annual income also includes compensation for loss of income due to measures to contain the coronavirus (coronavirus loss of income compensation).

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