Definitive Guide to Hiring in Luxembourg

Hiring in Luxembourg

Hiring employees compliantly in Luxembourg means doing it yourself or using an Employer of Record like Global Expansion. You should be careful using independent contractor agreements in Luxembourg so that you don’t run afoul of employment laws. To hire an employee compliantly and offer them mandatory benefits and compliant agreements, you can:

(a) Establish your own new legal entity, banking, accounting and payroll service in Luxembourg; or

(b) use an Employer of Record like Global Expansion who can handle all of the details for you.

Labor Laws in Luxembourg

Employment laws in Luxembourg are uniquely suited to the country’s way of life, and crucial to understand if you want to employ local talent in this country. Get the details on Luxembourg employment laws and Luxembourg policies here.

Employee Probation Period

• The minimum duration of the probationary period is two weeks
• The normal maximum probationary period is six months. 
• However, the maximum probationary period cannot exceed three months for employees who have a level of education inferior to the certificate of technical and professional capacity of the technical secondary school.

Annual Leave in Luxembourg

• In Luxembourg, at least 26 working days’ paid leave must be given per year

Holidays in Luxembourg

There are 10 official Luxembourg bank holidays

Maternity Leave Luxembourg

• Pregnant employees are entitled to paid maternity leave for between 16 and 20 weeks. 
• The leave period is equal to 8 weeks prior to the forecast date of birth and a maximum of 12 weeks after.
• This leave is paid by the Luxembourg social security authorities up to an amount equaling five times the minimum social wage, with the balance, if any, being the liability of the employer.

Paternity Leave Luxembourg

• Male employees are entitled to 10 days of paternity leave.

Sick Leave in Luxembourg

• Employees are entitled to 78 weeks of paid sick leave within a period of 104 weeks

Working Hours in Luxembourg

• Working hours in Luxembourg are legally limited to 40 hours per week and eight hours per day

Overtime in Luxembourg

• Hours worked beyond the legal working time (eight hours per day and 40 hours per week) when specifically requested by the employer, or when the employer is informed of these, are considered as overtime
• Overtime work may not be performed for more than two hours per day.
• Thus, the total working hours during a day cannot exceed 10 hours.
• In the case of financial compensation, workers are paid 140% of the normal wage rate for overtime hours (the premium is only 40%).

Termination of Employment in Luxembourg

• Employers can terminate an employee rapidly during the probationary period.
• The minimum duration of the probationary period is two weeks.
• Employers may terminate an indefinite employment contract given that the termination is based on real and serious reasons and adhering to the applicable notice periods (which may vary from 2 to 6 months).
• Employers are obligated to notify employees of the dismissal by registered letter. 
•  A severance payment is legally due to a dismissed employee who has completed at least 5 years of service. 

Notice Period in Luxembourg

• The statutory notice period (that applies to any dismissal) is:
  
  • two months for a length of continued services of less than five years;
  •  four months for a length of continued services of more than five years but less than 10 years; and. 
  • six months after a length of continued services of at least 10 years.

Severance in Luxembourg

• A severance payment is legally due to a dismissed employee who has completed at least 5 years of service.  
• The severance pay shall not be less than: -
  • 1 month salary after five years service
  • 2 months after 10 years service
  • 3 months after 15 years service
  • 6 months after 20 years service
  • 9 months after 25 years service
  • 12 months after 30 years’ continuous service
• Firms with less than 20 employees can choose between making severance payments or giving additional notice equivalent to the amount of severance pay.

Luxembourg Salary and Wages

13th / 14th Month Salary in Luxembourg

• Yes
• There is no statutory requirement to pay the 13th or 14th month salary.
• However, it is common for private companies to pay a Christmas Bonus.
• Some company also pay 50% salary in addition for the 14th month.

• Compulsory social security contributions for employees are listed below:
  • For sickness: 3.05% of gross periodic remuneration, which is limited to a monthly ceiling of EUR 11,566.88 (annual ceiling estimated at EUR 138,802.56 as of 1 April 2022).
  • For pension: 8% of gross remuneration, which is limited to a monthly ceiling of EUR 11,566.88 (annual ceiling estimated at EUR 138,802.56 as of 1 April 2022).
• The social security contributions have to be withheld by the employer from the employee's gross salary.
• Certain multilateral and bilateral social security agreements protect the interests of temporarily resident employees.
• The dependency contribution rate amounts to 1.4% (flat rate).
• Social security contributions (including for pension, illness, and accident insurance) apply to wages and salaries and are due from the employer at rates of 12.29% to 14.92%

Immigration Luxembourg

• Under Luxembourg law, nationals of EU member states, EEA states (Iceland, Liechtenstein and Norway) or Switzerland do not need a residence authorization to perform their professional activities in Luxembourg.
• Luxembourg immigration requirements vary depending on the citizenship of the individuals and the length of their stay
• After a continuous period of five years of legal residence in Luxembourg, citizens of the EU, EEA or Switzerland and their family members (regardless of their nationality) have the right of permanent residence (on request).

• Workers with employment contracts. 
  
  • A residence authorization allowing third-country nationals to work in Luxembourg is granted if the individual has entered into an employment contract and if several other conditions are met.
  • However, limited requirements apply to certain sectors of the economy experiencing substantial labor shortages. 
  • The residence authorization is valid for a period of one year in one profession and one business activity but it is valid for any employer.
  • It can be renewed for a two-year period. 

• Workers temporarily assigned for cross-border services. 
  
  • Companies established in another EU/EEA member state or in Switzerland can freely assign their workers (regardless of their nationality) to Luxembourg for the rendering of cross-border services (these are services provided in Luxembourg by workers for employers established in another EU/EEA member state or Switzerland) if these workers are authorized to work and stay in their home country for the duration of the assignment. 
  • Third-country nationals temporarily assigned to Luxembourg by companies established outside EU/EEA member states or Switzerland for the rendering of cross-border services must have a residence authorization that is issued on request of the home country company. 

• Workers temporarily assigned to a company group. 
  
  • On request of the host company, residence authorizations are granted to third country workers who are assigned between intragroup entities.
  
  

  Highly skilled workers. 

  • The Blue Card Directive for highly skilled workers (2009/50/EC) was transposed into Luxembourg legislation in February 2012. 
  • The EU Blue Card is granted to third country highly skilled workers for a period of two years (renewable on request) if they have concluded an employment contract of at least one year, have a higher education qualification or at least five years of higher professional experience and earn at least 1.5 times the Luxembourg average gross annual salary (EUR 73,998 since 11 December 2017). 
  • This amount is 1.2 times the Luxembourg average gross annual salary (EUR 59,198.40 since 11 December 2017) for certain professions.

• Self-employed persons. 
  
  

  Residence authorizations for a maximum period of three years (renewable) are granted to third-country self-employed persons if the following conditions are satisfied: 

  • They have the professional qualifications and hold a business license or any adequate professional authorization.  
  • They have sufficient resources and accommodation. 
  • The exercise of the independent activity benefits the economic interests of Luxembourg
  • Other categories of residence authorization. 
  
  

  Under certain conditions, residence authorizations are granted to, among others, the following persons: 

  • Third-country students 
  • Exchange students 
  • Unremunerated trainees 
  • Researchers
  • Sportspersons 
  • Inactive persons 
  • Other persons for exceptional reasons (for example, medical treatments)

Value Added Tax (VAT) in Luxembourg

• The standard VAT rate is 16%
• An intermediate rate of 14% applies, e.g., to the management and safekeeping of securities, the sale of certain wines, and printed advertising materials.
• A reduced rate of 8% applies, to the supply of some phytosanitary products, gas, and electricity; and a super reduced rate of 3% applies generally to food products, the supply of water, pharmaceuticals used for disease prevention and medical and veterinary treatment, periodicals (both electronic and hard copy), and radio and television broadcasting services.
• Certain goods and services are exempt.

Payments And Invoicing

• The tax year corresponds to the calendar year. 
• Taxpayers must file annual income tax returns by 31 March 2019 for income earned in 2018. 
• The filing deadline may be extended on the request of a taxpayer.
• Single nonresident taxpayers earning Luxembourg-source salaries and pensions must file tax returns if their taxable annual income exceeds EUR100,000 and if they have been employed continuously during nine months of the tax year. 
• Married nonresidents who are jointly taxable must file tax returns if their joint salaries and pensions exceed EUR36,000. 
• Under certain conditions, nonresident taxpayers can elect to be treated as Luxembourg resident taxpayers to qualify for the same deductions and allowances. 
• The request is made in the taxpayer’s income tax return. 
• Self-employed individuals must make quarterly prepayments of tax in amounts that are fixed by the tax authorities based on the individual’s most recent final assessment.

Payroll Accrual in Luxembourg

Country Accruals Additional Information

Description

In Luxembourg the registration with the social security authorities is compulsory for all employees. An exemption from paying Luxembourg social security contributions may be granted by the Luxembourg social security Code, a bi- or a multilateral social security agreement applicable to Luxembourg.

Payroll Accruals Additional Information

Accrued Benefits in Luxembourg

Why use Global Expansion to hire in Luxembourg

Establishing a branch office or subsidiary in Luxembourg can be time-consuming, expensive and complex. With such a robust labor market in place, one must pay great attention to detail when structuring employment because Luxembourg labor laws are complex.

The company also has a responsibility to comply with specific employment practices dictated by Luxembourg law to maintain its good standing as an equal opportunity employer.

Global Expansion makes it easy for you to expand into Luxembourg. We'll help you hire your candidate of choice, handle HR matters and payroll, and ensure that you comply with local laws without the burden of setting up a foreign branch office or subsidiary. In addition, you'll have complete control and direction over your employees.

We enable you to stay in control of everything. Our Luxembourg Global Professional Employer Organization (PEO) and Employer of Record (EOR) solution provides you with peace of mind to focus on running your company and the security to enter new markets.