Opinions divided on taxing tips
The Centre Party wants to exempt tips from taxes and social security contributions altogether. The hospitality industry supports the move but the Swiss government does not.
Under current rules, voluntary tips are generally exempt from tax and contributions. However, if a tip forms an integral part of an employee’s salary, it is treated as income and is therefore subject to tax and social security deductions. The law does not clearly define what constitutes a “substantial part” of salary.
The catering industry is one of those sectors in which service is actually included in the price. Nevertheless, some customers add a tip when paying for good service.
This lack of clarity creates legal uncertainty, says Beat Imhof, president of GastroSuisse.
“More payments are now made digitally. Tips are therefore more visible than when they were given in cash,” he says. “Businesses are asking themselves when digital tips must be taxed. This is causing difficulties for many of our members.”
Hospitality sector calls for full exemption
According to Imhof, the fact that some tips are subject to tax and contributions has financial consequences. Employees take home less pay, and employers must pay higher social security contributions.
He therefore supports a proposal by Centre Party Senator Beat Rieder to exempt tips entirely from tax and pension contributions.
Government focuses on pensions
The Swiss government is considering a different approach. Interior Minister Elisabeth Baume-Schneider wants to examine whether electronically paid tips should in principle be subject to tax and contributions.
There is plenty of tipping in Switzerland. The federal government estimates an immense amount: up to CHF1 billion ($1.29 billion) per year. But nobody knows exactly how much.
In a statement, the government described the current situation as unsatisfactory and said it intends to clarify the definition of a “substantial part of salary”. At the same time, it wants to close gaps in the contribution system, meaning more tips could become subject to social security payments.
“The main objective is to ensure employees’ social security coverage and to make sure that every franc earned is included in pension calculations, particularly in low-wage sectors,” the government wrote.
Whether tips should remain tax-free or become fully subject to contributions will now be decided by parliament. The proposal is scheduled to be discussed in the Senate in early March.
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