Daily sickness allowance insurance: What employers should consider?
We all get ill sooner or later. This is an unfortunate fact that we prefer to not think too much about, but is important to consider when running a business. Employees can and do get ill, which affects their ability to work. This article discusses what employers can and must do in such a situation. We explore the subject of daily sickness allowance insurance and all its aspects. We look at whether such insurance is mandatory, and what obligations the employer has in terms of covering an employee’s wages in the case that there is no insurance.
Book a free initial consultation with our experts.
Book a callHighlights
- continue wages Swiss law mandates employers to during an employee's illness for a limited time
- daily sickness allowance insurance Employers can opt for to extend illness wage coverage
- financial security Although not required by law, this insurance provides during extended illnesses
- 80% wage coverage The insurance typically offers after a specified waiting period
- attract talent Offering this insurance can and mitigate financial risks for employers
Content
- Daily sickness allowance insurance: What employers should consider?
- Employer obligation to pay wages in the event of employee illness
- What is daily sickness allowance insurance?
- Is daily sickness allowance insurance mandatory?
- How does illness insurance work?
- Advantages of daily sickness allowance insurance
- The role of prevention and health maintenance of employees
- Conclusion
Employer obligation to pay wages in the event of employee illness
Article 324a of the Swiss Code of Obligations (CO) states that an employer is obliged to continue paying wages for a limited period if an employee is unable to work due to illness. This minimum obligation is enforced irrespective of whether there is a daily sickness allowance insurance in place.
The minimum period of continued payment of wages is dependant on both the length of service to date, and the canton in which the employment contract is based. In general, the minimum period of continued wage payment is three weeks if the illness occurs during the first year of service. The wages are paid at 100% of the wage amount from the first day of illness. This obligation to continue paying wages only comes into force if the employment relationship has lasted for more than three months.
If the employment relationship has existed for more than one year, the minimum period of wage payment from the date of illness varies by canton. The courts have developed the Bern, Basel, and Zurich scales for determining the obligatory period to continue paying wages.
Book a free initial consultation with our experts.
Book a callWhat is daily sickness allowance insurance?
The employer and, especially the employees, may rightly feel that the minimum statutory obligation to continue paying wages is insufficient to cover the risk of prolonged illness. In this case, the employer and employee may form a written agreement which replaces the employer’s statutory obligation to continue paying wages with daily sickness allowance insurance.
A daily sickness allowance insurance policy assumes the risk of paying employee wages during a period of extended illness. The length of time of coverage, the percentage of wage paid out, and the waiting period can all vary depending on the policy conditions; however, certain norms do generally apply. We will discuss these details further below.
Book a free initial consultation with our experts.
Book a callIs daily sickness allowance insurance mandatory?
Daily sickness allowance insurance is not required by law and employers are by no means obligated to agree to such a policy. However, it can certainly be advantageous to both employers and employees to take out such insurance. Collective labour agreements also commonly demand the payment of wages beyond the legal minimums set by Article 324a, which can be a significant risk to employers who do not take daily sickness allowance insurance.
It is important to note that an agreement to replace the employer’s minimum sick pay obligations with illness insurance is only allowable if the insurance benefit is at least equivalent to the mandatory illness pay without insurance. There are certain criteria which must be satisfied to ensure that this minimum equivalence principle is met.
Book a free initial consultation with our experts.
Book a callHow does illness insurance work?
What is the waiting period?
Daily sickness allowance insurance usually stipulates a waiting period in the contract. This means that the daily benefits only start getting paid after this waiting period has expired. Waiting periods are usually between 30 and 60 days depending on the contract, but can even range from 0 to 360 days in more extreme cases. Most insurers will provide different options, with a reduced waiting period obviously resulting in higher premiums.
What happens to wages during the waiting period?
It is the norm that during the waiting period, the employer must bear the wage costs. This is usually from the first day of illness, but individual and collective employment agreements may be made whereby the employer only starts paying wages 1 to 3 days after the onset of illness. During the insurance waiting period, the employer usually covers 100% of the wage including social security contributions, unless an alternative agreement is made in writing, with the absolute minimum agreed amount set at 80% of wages.
Here it should be noted that, depending on the contract, the employee may get an exemption from paying the 2. pillar pension premium. This should be considered by the employer, as they could end up overpaying the employee if they continue to pay gross wages as before the illness.
Percentage of wages covered by insurance
Daily sickness allowance insurance policies usually only provide benefits as a percentage of insured earnings. The standard is for these insurance policies to pay out at 80% of the wages prior to illness, excluding social security contributions. Depending on the policy agreement, the percentage payout could be increased up to 100%, but should never be lower than 80%, which is considered the minimum allowance to be at least equivalent to the statutory minimum payout by the employer without insurance.
An increase in the percentage or an agreement to include certain social security contributions would both naturally result in a higher premium.
Daily allowance instead of salary
Daily allowances are not remuneration for work, which is why deductions for social insurance no longer have to be made. However, if your company continues to pay the full salary and only receives the daily allowances, social insurance contributions must still be deducted on the difference. When reporting the total annual salary to the various social insurances (AHV, UVG), make sure that daily allowances paid to the insured person are not declared as salary.
How long do the benefits last?
Standard benefit periods are either 365 or 730 days. The latter is preferred by many as it allows the employee to defer their occupational pension premium and therefore save on risk premiums.
Optional additional protection
In all areas, the insurance contract may be tailored to meet the specific needs of the employee and employer, and additional protection can be provided. This may be in the form of shorter waiting periods, higher benefits, and longer benefit payout periods. Naturally, with each addition in protection, the premium increases accordingly.
Who pays the premium?
The requirement for equivalence which was previously discussed also requires that the employer pays at least half of the insurance premium. Therefore, the standard is at least a 50/50 split in premium contribution between the employer and employee. Of course, it may be agreed that the employer pays more than 50% of the premium.
Book a free initial consultation with our experts.
Book a callAdvantages of daily sickness allowance insurance
Daily sickness allowance insurance is often seen as an attractive benefit for employees, as it provides more extensive protection against the loss of income in the event of extended illness. However, the employee is not the only party who benefits from this arrangement, and there are many reasons why an employer might consider insuring their employees. Here we explore some of the advantages of daily sickness allowance insurance for both employees and employers alike:
Advantages for employees
It should be obvious that a situation where an employer covers at least half of an employee’s insurance premiums is advantageous for the employee in question. Employees get piece of mind that 80% of their wages are covered for at least 1 – 2 years in the event of unexpected and extended illness or incapacity to work. They can also rest assured that the employer will have to cover their wages during the insurance waiting period, usually to the value of 100%. If the insurance contract is for 730 days, they may be eligible for the added benefit of exemption from pillar 2 contributions.
Daily sickness allowance insurance must always put the employee in at least an equivalent or better position compared to having no insurance coverage, so this requirement alone ensures that such a policy is of benefit to the employee.
Advantages for employers
What about the benefits to the employer? Taking a daily sickness allowance insurance for employees can in fact benefit the employer in many ways too:
- Attracts quality employees: providing daily sickness allowance insurance for employees can be seen as an attractive salary benefit which can help in attracting top quality employees and in negotiating the employment agreement.
- Protects the employer from undue risk: collective labour agreements may require the employer to cover employee wages in the event of illness beyond the minimums set by regulations. Furthermore, even the statutory minimums for employees who have been working for many years are quite lengthy. Taking out insurance can protect the employer from having to pay wages to employees for an extended period.
- Positive employment relationship: covering an employee with sickness allowance insurance can help ensure a long-lasting and positive employment relationship. Employees are grateful to know that they are protected, and in the event that they are incapacitated for a lengthy period, they will at least be financially protected and able to again return to work once the illness is over relatively easily.
Book a free initial consultation with our experts.
Book a callThe role of prevention and health maintenance of employees
It is also important that an employee takes steps to help prevent employee illness from occurring in the first place. This can be achieved through health workshops and wellness programs, offering rewards for fitness targets, encouraging (and even paying for) regular medical screenings, and contributing to employee medical insurance. All this can help prevent the need to have to pay wages in the event of illness and lead to a healthy and productive workplace environment.
Book a free initial consultation with our experts.
Book a callConclusion
Daily sickness allowance insurance is not mandatory but can be advantageous for both employers and employees alike. Employers are obligated by law to continue paying wages for a limited period if an employee is unable to work due to illness, but this minimum obligation may not be enough to cover the risk of prolonged illness. This is where daily sickness allowance insurance can protect both the employer and employee from undue risk.
It is important to remember that the employer is required to pay at least half of the insurance premium, and the insurance benefit must be at least equivalent to the mandatory illness pay without insurance. Employers should therefore consider their options carefully and ensure that they understand the terms and conditions of any insurance policy they choose to take out.
In doing so, it can be helpful to seek the expert guidance of a professional service like that of Nexova AG. We can help you understand your obligations as an employer, whether it is worth taking out daily sickness allowance insurance for your employees, and the specifics of the policy you should consider setting in place.
Trusted by over 250 companies
Discover the diversity of our customers
Jan LichtenbergCEO, InSphero AGAs an internationally active biotechnology company that stands for innovation and the highest quality, we work exclusively with partners who meet our high standards. Nexova consistently impresses us with exceptional service quality, robust processes, and an impressive pace. The professional, solution-oriented, and efficient collaboration allows us to fully focus on our core business. Additionally, we would like to highlight the remarkable cost savings of 35% compared to in-house accounting. We particularly appreciate how Nexova quickly understands, develops, and promptly implements complex requirements – both within Switzerland and at our international subsidiaries. We can wholeheartedly recommend the Nexova team.
Pascal Willoughby-PetitCEO, TheLearning LAB GmbHNexova AG offers highly professional accounting services that have significantly enhanced our financial management at Learning Lab. Their team is precise and reactive, always delivering accurate and timely reports while promptly addressing our queries. With Nexova AG’s support, we manage our clients’ accounts and finances more efficiently. We highly recommend Nexova AG for their exceptional accounting services.
Marco BurgerCEO, Le Café Bar GmbHFor us as a new catering company, it is essential that our trustee understands our specific needs and responds flexibly to our requirements. In Nexova AG, we have found the ideal partner who supports us competently in all fiduciary matters and actively promotes our growth.
Jörg BuckmannManaging Director, BUCKMANN GEWINNT+Uncomplicated or serious? Or is it and? A young, clever team is at work here, offering excellent services, highly uncomplicated and competent. Instead of a prestigious reception, expensive offices and chocolates, there are fast services and competent services. For me as a one-man company, this is exactly what I need.
Florian JauchCo-Founder, Arvy AGArvy AG has found an exceptional partner in Nexova AG. Their very high level of expertise in FINMA-regulated industries ensures that our financial transactions are in safe and competent hands. What sets Nexova apart is their flat-rate pricing structure, which has helped us greatly with budgeting and financial planning. As a company committed to long-term success and integrity in investments, we are very satisfied with the services provided by Nexova AG.
Patrick RissiCo-Founder, Brainiegroup GmbHFor us as an EdTech startup, it is very important that our trustee is as digital and agile as we are. With Nexova AG, we have found the perfect partner who can actively support us in our growth.
That’s what our customers say
Your feedback matters
5.0 stars
- Marc Perren
Mr. Merz has a very broad knowledge and was able to help me with all my questions. The conversation was very pleasant and very informative for me. Thank you for your support.
- Jörg Buckmann
Uncomplicated or serious? Both here. A young, smart team is at work here, offering excellent services, highly uncomplicated and competent. Instead of a prestigious reception area, expensive offices and a few small gifts, you offer fast and competent services. For me as a one-man company, this is exactly what I need.
- Martin Gerber
I have been a Nexova customer for some time now and so far I am very satisfied! Thanks to the digital working methods and high responsiveness of the client managers, little time is lost in the daily process in particular. The prices are also very fair. Nexova handles the annual financial statements for me, including the tax balance sheet. The processes are standardized, which is a great advantage for audits (AHV and taxes). The two founders are two young, innovative guys and very serious.
- Florian Kreidler
The friendly and competent Nexova employee was able to answer my questions about company car taxation quickly and specifically. Thank you very much for this!
- Reto S
When I founded my company a year ago, I needed a reliable fiduciary partner. In addition to pure accounting, Nexova also offers me very good advice on all aspects of labor law. Thanks to the E-Post solution, I no longer even have to worry about my company mail and can focus purely on my service activities. My contacts at Nexova are always very friendly and pleasant to deal with. The complete package is simply TOP and I can only recommend Nexova!
- Pascal Zumstein
Top company & friendly owners. A highly recommended trustee.
- Seb Ur
Very good and competent advice!
- Louis Revel
Very satisfied with the work done and the service provided in terms of quality and price. I highly recommend
- David Leu
Professionally at a very high level. They are very good with Excel and could also support us with automation of processes.
- Stefan Burgener
I had a few questions about remote work and was advised super and free of charge. Thank you very much!
- Luca Märki
Very good service. Good and competent advice with friendly staff. I can definitely recommend
- Edward Buchanan
The Nexova team is very professional and I felt they always had my best interests at heart. I highly recommend Nexova and will continue to refer my clients to them and trust them with my business.
- Juliam Pantano
I am impressed with their outstanding service, especially in the field of accounting services, they demonstrate a professional approach and exceptional attention. As a lawyer, I have found Nexova to be a valuable partner in the financial world.
- Marie Ospina
I had an excellent consultation with Nexova AG regarding withholding tax. Their expertise is remarkably extensive and their guidance was invaluable, I highly recommend their services. A first class experience.
- Alan SchuetzFebruary 8, 2023
The Nexova Team is an important partner to our startup, enabling us to pass all of our accounting, tax and payroll duties. We specially value their expertise with Startups and flexibility, which allows us to plan and manage our financials effectively and to focus on the bottom line of our operations.
- Raphael H.April 7, 2023
We are very satisfied with Nexova as our trustee. Thanks to the Teams group chat, I can always count on very fast response times (of a few minutes). The Teams Chat group is great. With our old trustee, we had to write mails and always had to wait a long time for an answer and on top of that we were charged for every little question. Fortunately, this is not the case with Nexova.
- Philip ReckFebruary 25, 2023
Nexova solved my problem with a non-paying tenant quickly and efficiently. I was simply overwhelmed with the situation and glad for the competent legal advice. Nexova handled everything from the reminder with threat of termination, to representation in court, to the police eviction quickly, efficiently and also inexpensively. Many thanks for the valuable help.
Independence Statement: Nexova AG is an independent private fiduciary firm. We are not a government agency or authority, and we are not affiliated with any government department or official register. All official acts, registrations, and approvals are carried out solely by the competent Swiss authorities and notaries.
Read our full Independence Statement