By Globalization Partners
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The Grand Duchy of Luxembourg is one of the world’s smallest countries with a population of just 626,000. Yet, this tiny country attracts international companies looking to expand. Luxembourg has repeatedly ranked first on the Open for Business list of the world’s most market-oriented countries. Some factors that contribute to this distinction are the country’s reasonableness in bureaucracy, taxes, and manufacturing costs, as well as its transparent, honest government practices. Luxembourg may fall under some companies’ radars, but it’s undoubtedly worthy of consideration for expansion.
If you’re looking to start hiring in the Grand Duchy, you must first understand some hiring practices in Luxembourg. Get started with this guide to hiring employees in Luxembourg.
What to Know Before Hiring in Luxembourg
Before you begin hiring in this business-friendly country, you need to understand the customs, laws, and features of the workforce that will impact the way you recruit and employ Luxembourgers. Let’s look at some of the most important things international employers should know before they start hiring new employees in Luxembourg.
1. The Luxembourgish workforce
Despite its small size, Luxembourg is a diverse country — especially when it comes to its workforce. That’s because around 200,000 workers in Luxembourg commute to work there from the neighboring countries of France, Belgium, and Germany, where they reside. These cross-border workers, also called frontier workers, comprise about 45 percent of domestic employment in Luxembourg. There is also a significant population of immigrants in the workforce. Altogether, about 70 percent of the workforce in Luxembourg is made up of cross-border commuters and immigrants, making native Luxembourgers the minority in the workforce.
The workforce in Luxembourg is also impressively skilled. In the World Economic Forum’s (WEF) 2017 Global Human Capital Report, Luxembourg’s overall ranking placed it in the top quarter out of the 130 countries included in the report. The four thematic dimensions the WEF focused on were each country’s capacity, deployment, development, and know-how. Luxembourg excelled most in the know-how category due to the level of education and skills in the country’s workforce.
According to the Luxembourg government, some of the country’s most significant business sectors include:
- Finance and fintech
- Space technologies
- Life sciences
- Clean technologies
Some other significant industries include steel, agriculture, and tourism.
2. Language diversity
Luxembourg’s diversity is evident in its linguistic variety and multilingualism. Luxembourgish is the national language, but according to the Ministry of National Education, only 77 percent of the population speak Luxembourgish, while 98 percent speak French, 80 percent speak English, and 78 percent speak German. French and German are also identified as administrative languages alongside Luxembourgish. Other common languages in the country include Portuguese and some Slavic and Nordic languages.
The Luxembourg government notes that in the workforce, the language you can expect to hear all depends on the context. French is most common, especially in the trade and the hospitality industries, followed by Luxembourgish, German, English, and Portuguese. English has become a dominant business language since it functions as a lingua franca, a common language between speakers whose native languages differ. It is most common in the banking and industrial sectors, as well as in European institutions in the country.
If your company is used to communications being in any of the languages that are common in Luxembourg, you should enjoy a relatively seamless experience communicating with job candidates in the Grand Duchy. However, you may need a translator to assist you in translating your incorporation deed — including the articles of association — to one of Luxembourg’s administrative languages.
3. Taxes and social security
Luxembourg ranks second in the world for its favorable tax environment, which contributes to its positive reputation as a business-friendly country. However, that doesn’t mean calculating employees’ taxes is always simple. The high percentage of Luxembourg employees who are citizens of other countries adds a layer of complication for employers, who are responsible for withholding employees’ taxes and social security contributions.
Luxembourg residents pay income tax and social security. Tax rates are progressive and take into account an employee’s income bracket and factors like marital status and dependents. When it comes to mandatory social contributions, both parties contribute to health and pension insurance. Employees alone pay into long-term care insurance. Employers cover contributions to accident insurance, occupational health services, and employer’s mutual insurance, which provides partial refunds for remuneration paid to absent employees.
Cross-border workers pay income tax for any income they earn in Luxembourg, but not on income earned elsewhere, as that income would be taxed in their home country. If someone lives and works in Luxembourg for at least 182 days in a 12-month period, they are considered a resident and will be taxed on their worldwide income.
As for social security, frontier employees pay into the Luxembourg system unless they are seconded by a parent company in a neighboring country and have been working in Luxembourg for less than two years. In this case, they can choose to pay into either country’s social security scheme.
Luxembourg’s national currency is the euro (€). The country does have minimum wage rates in place, but these rates differ depending on the worker’s age and job position. The minimum wage, or Salaire Social Minimum (SSM), has increased 10 times in 10 years, making it one of the highest minimum wage rates in Europe. The SSM is the rate unskilled adult workers must be paid. Skilled adult workers must be paid 120 percent of that rate. The rate is lower for employees under the age of 18.
In addition to their salary, many employees are used to receiving a 13th-month bonus in Luxembourg. This bonus is equal to one month’s wages, and employers customarily pay it close to the Christmas holiday. Some employers even give their employees the equivalent of an extra 1.5 months of wages.
Collective bargaining agreements (CBAs) are common in Luxembourg. These agreements may set a higher minimum wage requirement for certain workers and impact other relevant terms, such as time off policies.
5. The workweek and time off
The official workweek in Luxembourg is 40 hours, divided into five, eight-hour days. Employees may work overtime in some cases, which typically comes with an increased rate of pay. However, Luxembourg employment law stipulates that pregnant employees should not work overtime.
Employees are entitled to paid time off from work. This holiday entitlement is currently set at 26 days per year, or 2.167 days for every month worked. Employers can use this number to calculate part-time employees’ holiday entitlement on a pro-rata basis. Employees can begin to request time off after they’ve been with a company for three months. In addition to annual leave entitlements, the Grand Duchy has 11 public holidays throughout the year.
The cost of hiring an employee in Luxembourg
Hiring employees comes with costs, and, even if your company has experience hiring in new countries, those costs will likely differ from what you’re used to. In Luxembourg, the cost of labor is relatively high compared to other European countries. The average hourly labor cost for the EU as a whole is €27.7, and for Luxembourg, the average is €41.6. In addition to the cost of labor, you must also consider the expenses involved in the recruitment process itself. For international employers hiring in Luxembourg, these costs might include:
- Hiring lawyers and accountants to assist in following employment, business, and tax laws
- Setting up your business entity in Luxembourg
- Publishing job ads on networking sites and job boards
- Partnering with a hiring agency to recruit employees
- Employing new HR staff to handle hiring in Luxembourg
- Working with a translator to produce documents in Luxembourgish, German, or French
- Paying a third-party background check service for pre-employment screenings
- Traveling to Luxembourg to conduct interviews or set up your business
What does a company need to hire employees in Luxembourg?
To hire employees in Luxembourg, you need an entity in the country. Most international companies choose to form a Société á Responsabilité Limitée (S.a.r.l.) for their subsidiary. The S.a.r.l. is one of several corporation structures and is similar to a private limited liability company. The basic requirements for setting up a business in Luxembourg take at least 17 days to complete.
The steps to set up a Luxembourg subsidiary include:
- Verifying your company name is available through the Luxembourg trade register
- Drafting a deed of a commercial corporation, including its articles of association, and submitting it to a notary
- Setting up a bank account in the country and depositing the necessary capital
- Procuring a registered office in Luxembourg
- Applying for a business license
- Registering your company with the Trade and Companies Register
- Registering with the tax authorities
Depending on the industry you are in, you may also need to apply for specific business licenses.
If you want to hire Luxembourg employees without establishing a subsidiary or branch, you can do that by partnering with an Employer of Record (EOR), also known as a professional employment organization (PEO). An EOR in Luxembourg will technically be the employer for your Luxembourgish workers but will allow you to manage these employees and benefit from the work they do for your company. An EOR will handle HR tasks like payroll and ensure your employees receive everything they’re entitled to under Luxembourg employment law.
Using an EOR is an excellent solution when you want to start hiring quickly. Even if time isn’t a concern, you may prefer to outsource the complexities of international employment to an organization that is familiar with the local laws and customs.
Steps to hiring in Luxembourg
If you have an entity in place or have partnered with an EOR, then you’re ready to start hiring. The basic steps for how to hire in Luxembourg may differ in some ways from the hiring practices you’re used to in your home country. We’ve included some tips for hiring in Luxembourg, along with these basic steps.
1. Register positions and advertise them
You must register your vacant position with the National Employment Administration before hiring someone in Luxembourg. Then, you can focus on recruiting professionals to fill these positions.
Networking is an excellent way to find employees in Luxembourg. However, if you’re new to the market, you may not have connections in Luxembourg. One way to form connections and meet candidates who are interested in working with your company is through an employment fair.
Advertising jobs online is another popular option. Websites like www.jobs.lu and www.jobfinder.lu along with industry-specific sites are good places to post job ads so qualified job seekers will see them. You may want to post job ads on LinkedIn, as well, since Luxembourg has a LinkedIn user base of 280,300. Considering the total population is approximately 626,000, that means close to 45 percent of Luxembourgers are on LinkedIn.
2. Choose your top candidates
Luxembourgers are used to applying for jobs with their curriculum vitae (CV) and a cover letter. The exceptional level of diversity in the workforce, though, means you may see CVs come through in several styles.
Generally, applicants will default to submitting application materials in the same language as the job posting. If you post your ad in more than one language but want applicants to submit their application materials in a specific language, specify that in the job posting.
3. Conduct interviews
Schedule interviews with your top candidates. You can conduct these interviews in-person if you have an office in Luxembourg. If you’re hiring remote employees in Luxembourg, you may prefer to conduct interviews virtually. With a 98 percent internet penetration rate in Luxembourg, job applicants should have no problem joining you for a video call.
During interviews, be careful to avoid questions that may be deemed discriminatory. This includes personal questions regarding a person’s political or religious beliefs, age, sexuality, ethnicity, or other personal topics that don’t pertain to their professional abilities. At the conclusion of the interview, allow candidates to ask their own questions about the position or your company.
Employers in Luxembourg often put job candidates through multiple interviews before making job offers, so don’t hesitate to invite candidates back for additional interviews if needed before making job offers.
4. Write employment contracts and send job offers
When you’re ready to extend job offers, draft employment contracts to share with prospective hires. Luxembourg law requires employers to create a written employment agreement by the time employees begin their roles with the company. This agreement must identify the employer and employee and specify employment details, including:
- Employee’s start date
- Work location
- Job duties
- Typical working hours and schedule
- Paid annual leave allowance
- Notice period, if there is one
- Length of the trial period, if there is one
- Reference to the relevant CBA, if one exists
- Explanation of the pension scheme, if there is one
If the contract is for a fixed term, then employers must include additional items in the agreement.
In offer letters, you should let employees know if the offer is subject to the results of a background check. Background checks are allowed in Luxembourg as part of the pre-employment screening process, but you must follow laws regarding data protection and anti-discrimination.
5. Onboard new employees
Once prospective hires agree to the terms of their contract and sign it, you can begin onboarding them. This involves basic tasks all employers in Luxembourg must undertake, such as obtaining employees’ tax cards to set up payroll and registering employees with the Social Security Common Center (CCSS). You may also have onboarding processes for introducing employees to your company and to their new roles.
Hire employees in Luxembourg with help from Globalization Partners
If you’re interested in hiring employees in Luxembourg and want to partner with an EOR, consider choosing Globalization Partners. We offer an EOR solution to companies expanding to Luxembourg and 186 other countries across the globe. Our local team in the Grand Duchy has the expertise to handle legal compliance, payroll taxes, compensation and benefits, and other HR tasks. Meanwhile, you can enjoy a strong working relationship with your employees in Luxembourg.
Globalization Partners makes global expansion simpler and more accessible for companies all over the world. Learn more about our EOR solution in Luxembourg.