Background

In practice, it is not always easy to determine the social security jurisdiction for individual board members working in Switzerland for Swiss stock corporations, meaning that extensive investigations may be needed. This reflects the array of possible scenarios, which depend on the board member’s personal circumstances (e.g. place of residence, nationality, other mandates and activities).

Since the board of directors, as a company’s highest governing body, is on show to the outside world, it should take care that its own house is in order, including meeting all legal obligations. Board members also have a significant incentive for personal reasons – and in particular to avoid any unpleasant surprises in their pension or tax affairs – to ensure full compliance with the law.

Legal context

Social security law

Board members at a Swiss company enter into a governance relationship with it, simultaneously placing the director in the position of overseeing the company while also bearing similarities to an employee or contractor relationship.

However, for (Swiss) social security purposes, directors’ remuneration is considered income from employment and must be treated by the company as such, unless the director carries out this activity as an employee of a third party.

And although members of the board of directors are included in the scope of pillar 1 pension arrangements as employees, they generally cannot be included in the accident insurance cover of the company they govern. An exception applies if the member performs an operational role in the company as well as sitting on the board of directors. Depending on their circumstances, members of the board of directors may therefore consider taking out their own accident (and potentially health) insurance.

Pension situation for board members

Where members of a board of directors are subject to Swiss social security contributions, they must generally also be included in BVG insurance, as long as the other conditions (such as age and salary level) are met. An exception to mandatory BVG coverage is made if the board activity is only the member’s secondary occupation and they are already covered via their main occupational activity in Switzerland, or if their main occupation for the purposes of Swiss social security law is self-employment.
Mandatory BVG coverage and, crucially, the distinction between main and secondary occupation must be assessed on a case-by-case basis. In practice, the pension fund carries out this assessment, but it usually relies on information received from the company or employer. This can result in errors with regard to insurance underwriting, which in turn opens up financial risks for the employer or pension fund.

International complexities

Social security can also have an international dimension for companies based in Switzerland if, for example, a board member lives in another country or sits on other boards of companies domiciled abroad.

In such cases, the applicable social security requirements have to be determined based on national law or any superseding international law, i.e. EU regulations or bilateral social security agreements need to be taken into account, as applicable. The situation is made more difficult by the fact that individual countries can define board membership as either an independent activity or an employment relationship in their own laws.

Let’s take the example of a self-employed German doctor living in Germany. He is appointed to the board of directors of a Swiss company and travels to Switzerland to prepare for the role and attend five two-day board meetings. In this case, the rules on social security coordination generally mean that, from the date his mandate on the board of directors starts, all of his EU and Swiss income is subject solely to Swiss social security law. He therefore has to deduct Swiss social security contributions from his self-employed income which he earns as a doctor in Germany.

An individual’s circumstances should be analysed and plans made before accepting or rejecting a board mandate. This is because even a seemingly minor change, such as accepting an employed activity in Germany or preparing for and following up on board meetings from Germany, can affect which social security regime applies or produce a different assessment outcome.

What are your options?

Employers are responsible for ensuring that their employees and board members who are liable for social security/pension contributions are correctly insured. It is up to employers to make sure that they have the right information.

As a board member, it is in your interests to check that your situation is compliant with the law, to protect yourself and your relatives.

Particularly where cross-border considerations apply, it is wise to clarify questions of jurisdiction before accepting a directorship, in order to identify any adverse consequences at an early stage.