G-P provides employer of record services for customers that want to hire employees and run payroll without first establishing a branch office or subsidiary in Luxembourg. Your candidate is hired via G-P’ Luxembourg PEO in accordance with local labor laws and can be onboarded in days instead of the months it typically takes. The individual is assigned to work on your team, working on your company’s behalf exactly as if he or she were your employee to fulfill your in-country requirements.
Our solution enables customers to run payroll in Luxembourg while HR services, tax, and compliance management matters are lifted from their shoulders onto ours. As a Global PEO expert, we manage employment contract best practices, statutory and market norm benefits, and employee expenses, as well as severance and termination if required. We also keep you apprised of changes to local employment laws in Luxembourg.
Your new employee is productive sooner, has a better hiring experience and is 100% dedicated to your team. You’ll have peace of mind knowing you have a team of dedicated employment experts assisting with every hire. G-P allows you to harness the talent of the brightest people in more than 185 countries around the world, quickly and painlessly.
With a land area of only 998 square miles, Luxembourg is a tiny country in Western Europe, about the size of Rhode Island, and is bordered by Belgium, Germany, and France. A representative democracy with a constitutional monarch, Luxembourg is headed by the only Grand Duchy in the world.
Hiring in Luxembourg
In Luxembourg, some companies’ wages are fixed by collective agreements. The collective agreements are the result of negotiations between trade unions and employers. Many other aspects of employment law will be stipulated by the collective bargaining agreement, if applicable, such as restrictions related to termination of employment.
When negotiating terms of an employment contract and offer letter with an employee in Luxembourg, it may be useful to keep the following standard benefits in Luxembourg in mind:
Employment Contracts in Luxembourg
In Luxembourg, employees nearly always have a written employment contract to document the existence of a formal work relationship.
There are three different kinds of employment contracts in Luxembourg.
- A limited time contract is one that ends after a set period of time, such as six months or a year
- Contracts for specific period when the work an employee been hired to do is project-based or finite
- Indeterminate contracts are those for ‘permanent’ jobs, which can only be terminated according to the terms of the contract regarding notice periods and severance pay.
In most cases, if an employee doesn’t have a written contract by the first day of employment, the employee is assumed to be a permanent employee and subject to the privileges and obligations of all other permanent employees.
It is best practice is to put a strong, written employment contract in place in Luxembourg, in the local language, which spells out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in Luxembourg should always state the salary and any compensation amounts in Euro rather than a foreign currency.
Working Hours in Luxembourg
Working hours in Luxembourg are legally limited to 40 hours per week with the payment of premiums for all overtime or work at ‘unusual hours’. Overtime rates vary according to the requirements and conditions of the extra hours worked. If an employee is a top executive or classified as a manager, these restrictions do not apply.
If work time limits are passed, each additional hour worked is 40% for all employees, except upper management, but the principle of one and a half hours’ compensatory rest per hour of overtime worked will continue under the law governing the payment of supplements. The additional hour is exempt from tax and social contributions.
Holidays in Luxembourg
Luxembourg celebrates 11 public holidays for which employees are given the day off, including:
- New Year’s Day
- Easter Monday
- Labour Day/May Day
- Europe day
- Ascension Day
- Whit Monday
- National Day
- Assumption of Mary
- All Saints’ Day
- Christmas Day
- Stephen’s Day / Boxing Day
Vacation Days in Luxembourg
In Luxembourg, at least 26 working days’ paid leave must be given per year. A longer period may be called for in the applicable collective agreement.
- Employees must be employed for a consecutive period of three months for the same employer before they are entitled to take a period of leave.
- Leave must be granted and taken during the calendar year, and if the employee has not been able to take all the entitled leave by the end of the calendar year due to requirements of the company or leave being taken by other employees, the remaining leave may be carried over and taken by the following March 31.
Luxembourg Sick Leave
Employees who cannot work because of an accident or sickness must inform their employer orally or in writing on the day of the accident or sickness. By the 3rd day, the employee must send a medical attest confirming the employee’s incapacity to work and the expected period of absence. If these procedures are followed, the employer may not dismiss the employee, even for gross misconduct, for a period of 26 weeks following the accident or illness.
During the month in which the accident occurred or illness began and the three following months, a white-collar worker keeps his/her right to full salary and all the advantages resulting from his/her employment contract. After this period, the employer has to pay the difference between the normal wage and what the employee receives as sickness allowance from the Luxembourg social security authorities for a maximum period of 12 months following the date of the accident or illness.
Maternity/Paternity Leave in Luxembourg
Pregnant employees are entitled to paid maternity leave for 20 weeks. The leave commences 8 weeks before the expected date of the child’s birth, and 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.
Male employees are entitled to ten days’ paid leave on the birth of their child. The leave can be taken consecutively or at separate intervals but must be taken within two months following the birth. The first two days of paternity leave are paid by the employer, with payment for the remaining period borne by the state.
Health Insurance in Luxembourg
Luxembourg’s healthcare system is one of the best in Europe. The country has a high standard of state-funded healthcare and the healthcare system provides basic medical coverage to all citizens. Additionally, all citizens have the right to choose their doctor, specialist and hospital. Luxembourg’s Union of Sickness Funds oversees the health service in Luxembourg.
All employed citizens and employees contribute to this system through healthcare taxes. There is a cap of 6,625 EUR. Employees and employers pay 50% each.
Luxembourg Supplementary Benefits
Many people in Luxembourg take out supplementary insurance with one of the non-profit health insurance agencies or mutual associations (mutuelles) affiliated with the Ministry of Social Security. Many employers offer supplementary cover as a benefit of employment. A mutuelle pays the portion of your medical fees that isn’t covered by the national health insurance, and may offer extended coverage for such things as hospitalization, eye care, dental treatment and medical services outside Luxembourg.
Generally, we recommend budgeting 15% for benefits on top of the gross salary to allocate the total employer’s cost including benefits in Luxembourg.
Bonuses
Many employers pay a 13th month ‘bonus’ to their employees and some add a half of a 14th month’s pay to that, typically payable at the end of the year. This year-end or Christmas bonus (prime de fin d’année/jaarpremie) should be incorporated into the employment contract. Within the first and last year of employment, the 13th month bonus (and any holiday bonus related to vacation time) is paid pro rata if the employee does not work a full calendar year.
This information is provided as generally accepted information and is not intended as advisory services.
Termination/Severance in Luxembourg
Employers can terminate an employee rapidly during the probationary period. The minimum duration of the probationary period is two weeks. The maximum duration depends on the employee’s salary and qualifications, and it could be 3, 6, or 12 months.
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. The severance payment due is based on the seniority within the company and may vary from 1 to 12 months.
In the case of an employee resignation, employees must give notice, which is half the length the employer would have to give. The employee has no right to a severance payment and no right to unemployment benefits.
The terminating party must respect a notice period that is dependent on the duration of the initial trial period stipulated in the employment contract (or by the collective agreement where applicable).
Paying Taxes in Luxembourg
Social Security in Luxembourg covers:
- sickness
- maternity
- disability
- hospitalization
- accident
- retirement
- unemployment
- family allowances
- widow’s pension
- dependents’ insurance
- guaranteed minimum income
Social security contributions are paid by both the employer and the employee. The total employer contribution rate is approximately 12.04 -14.99% of gross salary which is capped at € 143,243.76.
Why G-P
Establishing a branch office or subsidiary in Luxembourg to engage a small team is time-consuming, expensive and complex. Labor law in Luxembourg has strong worker protections, requiring great attention to detail and an understanding of local best practices. G-P makes it painless and easy to expand into Luxembourg. We can help you hire your candidate of choice, handle HR matters and payroll, and ensure that you’re in compliance with local laws, without the burden of setting up a foreign branch office or subsidiary. Our Luxembourg PEO and Global Employer of Record solution provides you peace of mind so that you can focus on running your company.
If you would like to discuss how G-P can provide a seamless employee leasing or PEO solution for hiring employees in Luxembourg, please contact us.