Could tips soon be taxed in Switzerland?

All tips could soon be subject to more tax, under plans announced by the Federal Council. The government argues that subjecting tips to social security contributions will help staff in the long term, while opponents fear that it would mean the end of tipping in Switzerland.

Tips could help pay for Swiss pensions under new plans

According to a discussion paper acquired by the media, Federal Councillor Elisabeth Baume-Schneider (SP) plans to enforce a new law requiring that all tips be subject to social security contributions. The change is part of wider plans to reform the Swiss pension system to make it more sustainable, through measures which also include incentivising people to work longer, and penalising people who retire early.

Under the current rules, workers are required to pay pension contributions on their tips, if income from them constitutes a “significant” part of their salary. However, the definition of “significant” is vague at best, meaning very few people actually declare their tips.

However, Baume-Schneider argued that with more and more people using cards and mobile payments to pay tips, it allows the authorities to trace them more effectively. Therefore, the Federal Council proposed that all tips now be subject to pension contributions.

Making tips subject to AHV contributions would boost pensions

Although there is no exact data on the subject, the government estimates that between 600 million and 1 billion francs worth of tips are given in Switzerland every year. Therefore, subjecting them to contributions would boost first-pillar pension (AHV) finances by between 20 and 50 million francs a year.

In the paper, Baume-Schneider noted that while employees would receive less income in the short term, "Given the low wages in the affected sectors, the additional contributions would lead to higher pension entitlements…In the medium term, these would at least offset the additional income."

Opponents fear the end of tipping in Switzerland

In opposition, Swiss People’s Party State Councillor Esther Friedli told Blick that the plans were “absolutely misguided”. "Instead of striving for a reform that serves intergenerational equity in the AHV and focuses on long-term security, the Federal Council simply wants to impose a higher burden on the working population everywhere and make them pay more."

"Employees will be the primary victims if the federal government were to subject tips to wage deductions in the future," argued the interim head of industry association Gastrosuisse, Patrik Hasler-Olbrych. He noted that the system would require employers to keep track of all tips given to staff, creating a bureaucratic nightmare that could lead some restaurants to bar customers from leaving tips altogether.

Unions are also not pleased, with Unia spokesperson Philipp Zimmermann telling Blick that tips are “not an essential component of wages”. He cautioned against changing the current system, as "anything else would involve disproportionate expense and ultimately be to the detriment of employees, as their already modest income would be further reduced".