Loss-of-earnings compensation (IPG/EO)

Loss-of-earnings compensation (IPG in Italian, EO in German) is a first-pillar benefit that offsets lost income when a person interrupts their activity for reasons provided by law: service (military, civil, civil protection), maternity, paternity and caring for a seriously ill child. For the employer it is a matter of advancing, accounting and recovering the benefit; for the employee, of guaranteed income during periods of absence.

What the loss-of-earnings scheme covers

The scheme currently covers several situations:

• service: anyone performing military, civil or civil protection service receives compensation for the days of absence;
• maternity: a working mother is entitled to compensation in the weeks following childbirth;
• paternity: the other parent is entitled to a compensated leave to be taken within a defined period from the birth;
• care leave for looking after a child with a serious health problem.

The common logic is to replace, within certain limits, the income lost during the absence, so that the interruption does not fall entirely on the employee or the employer.

How it is calculated

The benefit is calculated as a percentage of average income earned before the event, up to a maximum daily amount set by law. This means that:

• low and medium incomes are covered proportionally;
• high incomes see the benefit capped at the maximum, and therefore only partly covered.

For maternity and paternity periods, the benefit is paid as a daily allowance for a set number of days. An employer who continues to pay the full salary during the absence covers the difference between the benefit and the salary, where the contract or company practice provides for it.

Who advances and who recovers

In the employment relationship the typical mechanism is:

1. the employer continues to pay the salary to the employee during the absence;
2. the employer claims the benefit from the compensation fund;
3. the fund pays out the compensation, which as a rule is collected by the employer to offset the salary advanced.

In this way the employee suffers no interruption in payment and the employer recovers the benefit due. That is why it is essential to file the claims and supporting documents correctly (service certificates, birth certificates).

Accounting for the loss-of-earnings contribution

The scheme is financed by a contribution collected together with the AHV/IV (state pension and disability insurance), shared equally between employer and employee. In the payroll accounting the loss-of-earnings contribution is included in the overall first-pillar rate; the employer withholds the employee’s share and pays it, together with the other contributions, to the compensation fund.

On the salary certificate and in the annual statement, the benefits paid and the contributions withheld must be shown consistently. A benefit collected by the employer and not correctly booked is a classic point of misalignment.

Practical points of attention

• File the claims with complete documentation and within the deadlines.
• Distinguish whether the employer pays the full salary and collects the benefit, or whether the benefit goes directly to the employee.
• Check the interaction with other insurances (sickness benefit, UVG accident insurance) to avoid double coverage or gaps.
• Keep track of the days compensated, especially for paternity and care leave, which can be taken within defined periods.

Managed in an orderly way, loss-of-earnings compensation does not weigh on the employer: it is an advance that comes back. Managed poorly, it generates unrecovered benefits and statements that need correcting.

How we help you

The Payroll division of SIH ONE manages loss-of-earnings claims, salary advances and contribution accounting, coordinating employer, employee and compensation fund. Entrust us with your payroll.