Payroll Set-up: Challenges With Short-term Project Assignments

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Short-term project assignments have become an integral part of modern working structures in an increasingly dynamic and ad hoc business environment. Companies use them to respond to fluctuating order situations, specialized requirements, or the need for additional expertise within tight time frames.

While this flexibility offers numerous opportunities—such as rapid scaling of teams or access to international specialists—it also poses significant organizational, legal, and administrative challenges.

One challenge here is payroll processing. Proper implementation requires an assessment of the project assignment in terms of tax and social security law. This is complicated by the fact that project assignments are not usually preceded by a long planning and review period and that they generally last from a few days to a few months, and in some cases even several years.

Accordingly, there is no single type of payroll processing. The various options can be most easily illustrated with examples, so here are two different examples:

Project assignment for a period of 5 months to a client

José Garcia (Spanish national) was assigned to Switzerland by his employer, the Spanish consulting firm Managio S.A., based in Barcelona, for a 5-month project assignment from May 1, 2025, to September 30, 2025.

The aim of his assignment was to optimize the HR and payroll processes of a client, a large pharmaceutical company based in Basel, and adapt them to a new group-wide HR information system.

José Garcia did not give up his apartment in Barcelona during his assignment in Basel. During his assignment in Basel, he flies back to Barcelona every month for a weekend.

In addition to his base salary, he receives the following payments:

• A daily allowance representing the difference between the Spanish and comparable Swiss salaries
• Meal allowance
• Reimbursement of travel expenses within Switzerland
• Reimbursement of travel expenses from Barcelona to Basel at the beginning of the assignment and back at the end of the assignment, as well as once a month for round-trip flight expenses
• Hotel costs
• Mobility allowance

Due to the fact that the assignment takes place at the client's premises, the first step in determining tax liability is to establish José Garcia's tax residence. As he is not giving up his residence in Spain, his tax residence is in Spain.

To determine in which country his earned income is taxed, the double taxation agreement between Switzerland and Spain and, in particular, the 183-day rule must be examined.

The result of the examination will be that José Garcia has spent less than 183 days in Switzerland and is therefore not liable for tax in Switzerland.

In addition, the assignment takes place at the client's premises, so his employer is not obliged to deduct withholding tax in Switzerland. This means that his earned income continues to be taxable in Spain.

José Garcia remains subject to social security contributions in Spain and can be exempted from Swiss social security obligations in all insurance branches.

This results in the following payroll setup:

• Maintaining a payroll in Spain for salary payments, social security contributions, and taxes.

To illustrate the different assessment options, here is a second example, this time with the difference that the assignment took place at the Managio subsidiary in Basel instead of at the cleint's premises in Basel.

Project assignment for a period of 5 months at a subsidiary

José Garcia (Spanish national) was assigned to Switzerland by his employer, the Spanish consulting firm Managio S.A., headquartered in Barcelona, for a 5-month project assignment from May 1, 2025, to September 30, 2025. The aim of his stay was to optimize the HR and payroll processes at the subsidiary from Managio based in Basel and adapt them to a new company-wide HR information system used by the globally active consulting firm Managio.

José Garcia did not give up his apartment in Barcelona during his assignment in Basel. During his assignment in Basel, he flies back to Barcelona every month for a weekend.

In addition to his base salary, he receives:

• A daily allowance, which represents the difference between the Spanish and comparable Swiss salaries
• A meal allowance
• Reimbursement of travel expenses within Switzerland
• Reimbursement of travel expenses from Barcelona to Basel at the beginning of the assignment and back at the end of the assignment, as well as once a month for round-trip flight expenses.
• Hotel costs
• Mobility allowance

The costs are passed on to the Swiss subsidiary.

Tax residency remains in Spain, but income tax is payable in Switzerland. This is due to the fact that the costs are charged to the Swiss subsidiary. In addition, this situation means that the Swiss subsidiary is responsible for paying Swiss withholding tax.

Social security contributions remain payable in Spain, and José Garcia is exempt from social security contributions in Switzerland for all insurance branches.

The payroll setup in this example would be:

• Spain: Maintaining a payroll for salary payments and paying Spanish social security contributions
• Switzerland: Maintaining a shadow payroll for the payment of Swiss withholding tax

In order for both payroll accounting systems to be managed correctly and in compliance with the law, good coordination between the payroll accounting departments in both countries is required.

Conclusion

The biggest challenge with these assignments, which usually cannot be planned (far in advance) and are often very short-term, is the legally compliant processing of payroll.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.