I had the same requirement. I checked Android code and found that
- switch ignores any vertical margin/padding applied to a thumb shape drawable (thus thumb always touch the top and bottom of the track)
 
- the width of the thumb is calculated by taking the horizontal paddings + the max width of the on and off texts.
 
This makes really hard to make a circle thumb.
But if you specify the thumb drawable as a layer drawable for the sole reason to be able to specify padding for the single layer of the drawable, you can get the desired effect.
Thumb selector:
<?xml version="1.0" encoding="utf-8"?>
<selector xmlns:android="http://schemas.android.com/apk/res/android">
    <item>
        <!--
        NOTE
        We want a thumb with padding around it inside the track.
        Sadly, a switch draws its track and thumb with the same height ignoring
        any padding of the drawable, so using a shape with padding does not work.
        To overcome, we apply a trick. We create layer list because the
        LayerListDrawable draws itself with taking the top, left, right, bottom
        values into account.
        -->
        <layer-list>
            <item
                android:top="@dimen/switch_thumb_padding"
                android:left="@dimen/switch_thumb_padding"
                android:right="@dimen/switch_thumb_padding"
                android:bottom="@dimen/switch_thumb_padding">
                <!--
                NOTE
                No need to specify size because:
                  - The thumb fills the track in height.
                  - The thumb width is determined from thumb max(on, off) text +
                    text padding + drawable padding.
                -->
                <shape android:shape="oval">
                    <solid android:color="@color/switch_thumb"/>
                    <!-- NOTE did not work, had to set Switch's thumbTextPadding to the radius -->
                    <!--
                    <padding android:right="@dimen/switch_thumb_radius"
                             android:left="@dimen/switch_thumb_radius"/>
                    -->
                </shape>
            </item>
        </layer-list>
    </item>
</selector>
I set the on and off text of switch to empty (actually to "" to prevent warning about empty resource).
track:
<?xml version="1.0" encoding="utf-8"?>
<selector xmlns:android="http://schemas.android.com/apk/res/android">
    <item android:state_enabled="false">
        <shape android:shape="rectangle">
            <size android:height="@dimen/switch_track_height"/>
            <corners android:radius="@dimen/switch_thumb_radius"/>
            <solid android:color="@color/switch_track_off"/>
        </shape>
    </item>
    <item android:state_checked="true">
        <shape android:shape="rectangle">
            <size android:height="@dimen/switch_track_height"/>
            <corners android:radius="@dimen/switch_thumb_radius"/>
            <solid android:color="@color/switch_track_on"/>
        </shape>
    </item>
</selector>
Switch style:
<style name="CustomSwitch">
    <!-- NOTE this way the switch will be as width as required minimally -->
    <item name="android:switchMinWidth">0dp</item>
    <item name="android:track">@drawable/switch_track</item>
    <item name="android:thumb">@drawable/switch_thumb</item>
    <item name="android:textOff">@string/switch_thumb_off</item>
    <item name="android:textOn">@string/switch_thumb_on</item>
    <!-- NOTE if set to 0dp, the thumb was not visible even with padding
              of the thumb drawable set to -->
    <item name="android:thumbTextPadding">@dimen/switch_thumb_radius</item>-->
    <!--<item name="android:thumbTextPadding">0dp</item>-->
</style>
And finally, the dimens:
<dimen name="switch_track_height">30dp</dimen>
<dimen name="switch_thumb_radius">15dp</dimen>
<dimen name="switch_thumb_padding">2dp</dimen>
So the only 'tricky' thing is to keep height = radius * 2.