Why full cost matters more than gross salary
At the start of each year, many Swiss SMEs face the annual salary review with a seemingly simple question: how much can we increase salaries? The correct answer, however, is not measured against the gross salary agreed with the employee, but against the total employment cost borne by the company — including OASI/DI/IC, unemployment insurance, cantonal social insurance, occupational pension (LPP), allowances and other ancillary charges.
A common mistake is to translate a 3% budget allocation into nominal 3% increases for all employees. In reality, with the same budget, the net increase received by the employee is lower, while the burden on the company exceeds the simple salary delta. This gap, multiplied across a team of ten, fifteen or thirty people, directly affects liquidity, operating margin and investment capacity.
This guide explains how to structure the annual salary review in an SME, calculate the full cost of each increase and integrate it into the company budget with the precision required by Swiss accounting and tax management.
Components of employment cost in Switzerland
When gross salary increases, the calculation bases for almost all employer-side charges rise as well. Here is an overview of the most relevant items for an SME:
| Item | Paid by | Order of magnitude (2026) | Calculation base |
|---|---|---|---|
| OASI / DI / IC | Employer + employee (equal shares) | 5.3% each | OASI salary (full amount, no ceiling) |
| Unemployment insurance (ALV) | Employer + employee | 1.1% each | Salary up to ALV ceiling (CHF 148'200) |
| Accident insurance (LAA) | Employer (occupational) + employee (non-occupational) | 0.5–3% depending on risk | Insured payroll (max. CHF 148'200) |
| Daily sickness benefits (KTG) | Employer (if mandatory or contractual insurance) | 0.5–1.5% | Insured salary |
| OASI compensation fund (FAK) | Employer | 1.0–3.5% (varies by canton) | OASI salary |
| Occupational pension (LPP, 2nd pillar) | Employer + employee (min. equal shares) | 7–18% of coordinated salary | Coordinated salary (subject to age and plan) |
| Fund administrative fees | Employer | up to 5% of contributions | OASI/DI/IC contributions |
| 13th salary / contractual bonuses | Employer | Variable | Percentage of base salary |
Employer-side ancillary costs typically range from 13% to 22% of gross salary, depending on canton, pension plan and accident risk profile. For SMEs, this range often makes the difference between a sustainable increase and a commitment that erodes operating margin.
OASI and LPP: where the multiplier effect concentrates
Two institutions deserve specific analysis, because they respond non-linearly to salary increases:
OASI / DI / IC and unemployment insurance contributions
OASI/DI/IC contributions are calculated on the full OASI salary, with no ceiling. Unemployment insurance and accident insurance (LAA), however, apply only up to the maximum insured salary, indexed annually (CHF 148'200 in 2026). Above this threshold, a solidarity contribution of 0.5% remains payable on the excess portion by the employer (and the employee). An increase that brings an employee close to the ALV/LAA ceiling therefore produces a diminishing marginal effect on these items: beyond the threshold, the base no longer grows.
For most SME employees on average salaries, however, every gross increase translates into an almost proportional increase in contributions. With 5.3% OASI and 1.1% unemployment insurance on the employer side, every CHF 1'000 of monthly increase generates approximately CHF 64 in additional mandatory social charges, before FAK, LAA and LPP.
LPP: thresholds, coordination and age classes
Occupational pension is mandatory for annual salaries above the LPP entry threshold (CHF 22'680 in 2026). Coordinated salary is obtained by subtracting the annual coordination deduction (CHF 26'460 in 2026) from insurable salary, up to a maximum coordinated salary of CHF 64'260.
LPP contribution rates depend on age class and the pension fund regulations. For an employee aged 35 to 44, the minimum legal rate can be around 10% of coordinated salary, half of which is borne by the employer. An increase that brings an employee into LPP — or significantly raises coordinated salary — therefore produces a cost jump greater than the simple OASI percentage.
Practical calculation: from gross increase to company cost
The most reliable method for budget planning is to calculate the full cost for each employee, then aggregate the results. Here is a concrete example for a Ticino SME with a FAK rate of 2.2% and a standard LPP plan.
Scenario: CHF 400 gross monthly increase for an administrative employee
| Item | Calculation | Additional annual cost |
|---|---|---|
| Gross salary increase | CHF 400 × 12 | CHF 4'800 |
| OASI / DI / IC (5.3% employer) | 4'800 × 5.3% | CHF 254 |
| Unemployment insurance (1.1% employer) | 4'800 × 1.1% | CHF 53 |
| Cantonal FAK (2.2%) | 4'800 × 2.2% | CHF 106 |
| Occupational accident insurance (0.8%) | 4'800 × 0.8% | CHF 38 |
| Daily sickness benefits (1.0%) | 4'800 × 1.0% | CHF 48 |
| Employer LPP (5.0% on coord. salary) | 4'800 × 5.0% | CHF 240 |
| Additional full annual cost | — | CHF 5'539 |
An increase of CHF 400 per month costs the company CHF 462 per month, i.e. 15.5% more than the gross delta. If the same pattern applies to 12 employees, the additional annual cost exceeds CHF 66'000 — a full CHF 8'700 more than the CHF 57'600 of aggregated gross increase alone.
Quick estimate formula: full annual cost = annual gross increase × (1 + employer ancillary charge rate). For a typical SME, a multiplier between 1.14 and 1.20 provides a prudent estimate; for profiles with high LPP rates or cantons with higher FAK, use 1.22.
For accurate budgets, calculate person by person: LPP thresholds, part-time arrangements, employees near the ALV/LAA ceiling and the presence of a 13th salary or contractual bonus significantly alter the result.
Impact on margins, budget and accounting
The salary review is not just an HR decision: it is a cost item that runs through the balance sheet, income statement and cash flow forecast. Here is how to integrate it correctly:
Income statement
Increases typically take effect on 1 January or the month following the agreement. Under ordinary Swiss accounting, personnel cost is recorded when the work is performed. A retroactive increase to January, communicated in March, requires adjustment and correction of social security deductions.
Operating margin
If personnel cost accounts for 45% of revenue and ancillary charges add 17% to the salary delta, a 3% budget on personnel cost absorbs approximately 0.35% of revenue. On CHF 2 million in revenue, that is CHF 7'000 — manageable if planned, critical if discovered at year-end.
Liquidity and cash flow
OASI contributions and, generally, FAK are paid quarterly to the cantonal compensation fund. LPP contributions follow the periodicity set out in the pension fund regulations (usually monthly). Planning the salary review means simulating social security payments for the first quarter after the increase, to avoid treasury strain in SMEs with marked seasonality.
Salary review process: timeline and criteria
An effective review combines internal equity, market benchmarks and financial sustainability. The typical timeline for a Swiss SME:
September–October: analysis and budget
Extract current personnel cost by cost centre from the accounting system. Define the maximum allocation (e.g. 2.5% of total gross personnel cost). Simulate scenarios using the ancillary charge multiplier.
November: individual assessment
Cross-reference performance, seniority, position within the salary band and cantonal indices (FSO, sector surveys). Document decisions to ensure equal treatment and traceability in case of audit.
December: communication and contract update
Formalise new remuneration in writing. Update contracts or addenda, notify the LPP fund of new insured salaries and adjust parameters in payroll software.
January: first payroll run and accounting
Verify that social security contributions match the new OASI salary. Record updated personnel cost in accounting and reconcile with the approved budget.
Pay equity considerations (Art. 611 para. 1 CO)
The employer must pay the customary remuneration for work of equal value. During the annual review, verify that no unjustified gaps linked to gender or other protected criteria have emerged. An internal audit before final approval reduces the risk of disputes and strengthens consistency in the remuneration system.
Alternatives to a fixed increase: same budget, different effects
When margin is limited, options exist that modulate full cost without giving up on retention:
- →One-off bonus: paid once a year, it affects OASI contributions for the year in question but does not permanently structure fixed cost — useful for rewarding performance without durably raising the LPP base.
- →Non-salary benefits: training, transport or supplementary insurance may receive different tax and contribution treatment; evaluate case by case with your tax adviser.
- →Merit-based differentiated increases: concentrating the budget on critical profiles rather than applying a uniform increase reduces aggregate full cost for the same allocation.
- →Part-time or reduced hours: for non-strategic roles, reducing the employment percentage can contain labour cost without losing the employee.
Checklist for business owners and administrative managers
| Check | Action |
|---|---|
| Current personnel cost | Export gross payroll and full cost from the accounting system |
| Per-employee simulation | Calculate OASI, FAK, LAA, sickness benefits and LPP charges on each planned increase |
| LPP thresholds and ALV/LAA ceilings | Check whether any increase changes age class, coordinated salary or insured base |
| Approved budget | Compare simulated full cost with the allocation approved by the board or partners |
| Documentation | Archive criteria, decisions and written communications for each employee |
| Payroll and LPP update | Notify the pension fund of new insured salaries within contractual deadlines |
| Accounting reconciliation | At end of Q1, verify that actual personnel cost matches the simulation |
Conclusion: plan with full cost, not gross salary
The annual salary review is one of those moments when accounting precision translates directly into business sustainability. Treating increases as a simple rise in gross salary systematically underestimates financial commitment and overestimates budget capacity.
By integrating a simulation of OASI contributions, LPP and cantonal charges into the process, the business owner gains a solid decision-making basis: they know what each franc of increase will really cost, can distribute the available allocation fairly and maintain control over operating margins.
With accounting software like Accountex, personnel cost remains visible in real time by cost centre and expense item — a concrete advantage when the salary review must move from the HR table to the budget forecast with consistent, verifiable figures.