Loss of earnings insurance: common errors in contracts and exclusions

Loss of earnings insurance: common errors in contracts and exclusions

Loss of earnings insurance is not just an “HR” line item. It is a governance rule: it determines who pays, from when, on what salary basis, with what evidence, and how you handle disagreements in the event of incapacity for work.

By the end of this article, you will know:

• clearly distinguish between illness, accident, and continued salary payments in Switzerland

• identify the clauses that create the real discrepancies (waiting period, guaranteed salary, partial disability, exclusions),

• to put in place a simple method to avoid surprises in the event of a disaster.

1. The Swiss framework to know before proofreading a font

Illness: maintenance of salary and reference scales

In Switzerland, employers must pay wages "for a limited time" when an employee is unable to work through no fault of their own, particularly in cases of illness, provided that the employment relationship has lasted more than three months or was concluded for more than three months (Art. 324a of the Swiss Code of Obligations). The duration is then determined in practice using salary scales (such as the Bernese scale in French-speaking Switzerland).

Key point: loss of earnings due to illness does not eliminate your HR obligations. It simply reorganizes them. Hence the importance of reading the policy as a "procedure," not as a mere product.

Accident: a LAA base to coordinate

For accidents and occupational diseases, compulsory accident insurance (LAA) provides a daily allowance corresponding to 80% of the insured earnings, paid from the third day, and adapted to the degree of incapacity for work.

According to Suva, coverage for non-occupational accidents requires working more than eight hours per week with the same employer.

The LAA ceiling: a common "hole" if you have picture frames

The maximum amount of insured earnings in accident insurance is 148,200 francs per year, or 406 francs per day.

Decision to document: how do you treat the portion of salary above this ceiling (supplement, additional insurance, internal policy, contractual clauses)?

LAMal or LCA: two possible frameworks for daily allowances

The FOPH describes optional daily allowance insurance as coverage for temporary loss of earnings in the event of total or partial incapacity due to illness, pregnancy or accident.

Furthermore, an official source (Permanent Mission of Switzerland to the UNOG) points out that loss of earnings insurance can fall under LAMal or LCA, depending on the employer's choice.

2. The clauses of a loss of earnings insurance policy that change the exposure of an SME

Rather than starting with bonuses, start with your scenarios: long absence of a key employee, recurring absenteeism, gradual return to work, conflict over work capacity. Then “manage, document, monitor”.

The 5 parameters to decide (and record)

1. Circle of insured persons

Permanent contracts, fixed-term contracts, apprenticeships, part-time work, managers, executives, probationary periods. A grey area here becomes a dispute.

2. Guaranteed salary basis

It's not "salary" in general, but rather a definition: fixed salary, variable salary, 13th-month bonus, allowances, and benefits in kind. The City of Lausanne reminds employees, regarding salary maintenance (CO), that certain elements (e.g., a portion of the 13th-month bonus) can be included in the salary due, while expense allowances may be excluded depending on their nature.

3. Waiting time and “residual load”

The leave period cannot be chosen in isolation. It must be consistent with your employment contracts, your collective bargaining agreement (if applicable) and your capacity to absorb the internal cost of the start of the leave.

4. Definition of incapacity for work and residual capacity

In certain group insurance conditions, disability is described as a total or partial loss of the ability to perform, in one's profession or field of activity, the work reasonably required.

As a result, job adaptation and reintegration become contractual matters, not just HR issues.

5. Partial disability: threshold and pro-rata calculation

Some contracts stipulate a minimum level of disability to qualify for benefits. A Helsana fact sheet mentions, as an example, a medically certified disability of 25% or more.

To govern: how you organize phased reopenings, and how you document the degree of incapacity.

3. Exclusions and limitations: interpret them as implicit decisions

Your goal is not to learn "all the exclusions". It is to identify those that are probable and costly in your case, and then organize the evidence.

Three useful reading angles

1. Exclusions related to the cause

Request the "Exclusions/Limitations" section of the General Terms and Conditions and test it on your scenarios (psychological absences, relapse, pregnancy, pre-existing conditions, etc.). The wording varies, so never draw a general conclusion without reviewing your version.

2. Limitations related to evidence and procedure

For daily accident compensation, Suva indicates that entitlement depends in particular on information from the accident report and that no daily compensation should be paid without authorization.

In cases of loss of earnings due to illness, the operational idea is the same: an incomplete file slows things down, an inconsistent file is contested.

3. Limitations related to “reasonably required”

If the definition of disability includes what can reasonably be required, your organizational documentation becomes crucial: job description, requirements, proposed accommodations, follow-up.

4. Common mistakes and how to avoid them

Mistake 1: Confusing accident and illness in your processes

Accident: LAA framework, daily allowance from the third day at 80% of the insured earnings.

Illness: often a contractual arrangement (LAMal or LCA), therefore more variable.

How to avoid: a single internal notification procedure that quickly directs to the correct channel (LAA vs illness), with an appointed manager and a standard file.

Mistake 2: Choosing a deficiency without aligning your employment contracts

If you wish to replace continued salary payments with insurance, the benefits must be at least equivalent. The Permanent Mission of Switzerland to the UNOG reiterates the following cumulative conditions that are often applied: compensation for at least 720 or 730 days out of 900, coverage of at least 80% of salary, a premium paid at least half by the employer, and a waiting period of no more than 2 to 3 days.

How to avoid: document the “HR deficiency vs. obligation” trade-off and have it reviewed (management, HR, finance) before signing.

Mistake 3: discovering at the time of the claim that “insured salary” does not mean “salary paid”

How to avoid: freeze an internal definition and check the consistency of policy, CGA, and payroll practice (including variables and changes in activity rates).

Mistake 4: Underestimating partial disability and gradual recovery

If your contract includes a threshold or strict rules, a poorly documented gradual takeover becomes a point of contention.

How to avoid: a written recovery plan (adapted tasks, pace, success criteria), with an up-to-date job description.

Mistake 5: letting the evidence build itself “as it goes along”

How to avoid: a standard “sick leave” file prepared in advance (documents, roles, follow-up schedule, confidentiality rules).

Mini case study 1: Deficiency creates a governance gap

A small business wants to reduce its bonus and accepts a long waiting period. It has not aligned its employment contracts or its internal absence policy. During an extended absence, it discovers that the start of the absence is a direct cost, and that the approval process is unclear (evidence, decisions, communication).

The fix: align contracts, regulations and policy, then quantify the internal exposure over the uncovered period to make a conscious decision.

Mini case study 2: Partial disability and disagreement on job adaptation

An employee is gradually returning to work. The insurer questions the "reasonably required" tasks. Lacking a job description and documentation of the proposed adjustments, the discussion becomes tense and the compensation process is delayed.

The solution: document the position, adaptations, and follow-up. HR governance becomes the best way to prevent disputes.

5. Guidelines and checklist

Reference points

• Steering: starting with scenarios, deciding, then negotiating.

• Document: keep a dated version of the policy, the general terms and conditions and the amendments, and formalize your choices (waiting period, insured salary, circle of insured persons).

• Monitor: measure discrepancies (long absences, returns to work, disputes, HR workload) and adjust.

Annual checklist (actionable)

1. Up-to-date policy, general terms and conditions and amendments, archived (version)

2. Staff list aligned with the circle of insured persons

3. Definition of “guaranteed salary” aligned with your payroll

4. Deficiency consistent with employment contracts and collective bargaining agreements/employment contracts

5. Rules regarding partial incapacity and gradual return to work clarified

6. Exclusions reviewed based on several realistic scenarios

7. Claims procedure: deadlines, documents, contacts, escalation

8. Coordination of accident (LAA) vs. explicit illness (who does what)

What needs to be documented

• Employment contracts, internal regulations, any applicable collective bargaining agreements/employment contracts

• Policy, General Terms and Conditions, appendices, amendments, and change history

• Salary structure (fixed, variable, 13th-month bonus, other elements) and rules of evidence

• Up-to-date job description and key requirements

• Reporting and monitoring process (who reports, who collects, who decides)

• Sample “sick leave” file: certificates, exchanges, adjustments, reports

• Monitoring log: decisions, dates, actions, resumption, insurer exchanges

6. Questions to ask your insurer or broker (10 questions)

1. Does the contract fall under LAMal or LCA, and what are the concrete implications for the employer?

2. Who is insured, specifically, and what entry/exit rules apply?

3. What is the exact definition of insured salary and what documents are valid in the event of a claim?

4. What is the waiting period and how does this relate to our continued salary (CO) and our contracts?

5. What is the contractual definition of incapacity for work and how is “reasonably payable” interpreted?

6. Is there a threshold for partial disability and how is the pro-rata calculated?

7. What are the main exclusions and limitations, and how do they apply to our scenarios?

8. What are the employer's obligations in the event of a claim (deadlines, forms, information) and what are the consequences of an incomplete file?

9. How is coordination done with accident insurance (LAA) and, where applicable, other benefits?

10. What indicators and monitoring levers do you make available to manage (durations, returns to work, disputed cases)?

Conclusion

The value of loss of earnings insurance lies in making quick decisions, based on clear evidence, regarding sensitive human situations. The most effective method remains simple: manage your risk assessments using scenarios, document your decisions, and monitor any discrepancies. This three-pronged approach reduces unexpected exclusions and expedites claims processing.