As one of the wealthiest countries in the world, Luxembourg is an excellent place to grow your operations. Once you’ve assembled your team, the next important step is setting up your Luxembourg payroll.

Instead of figuring out every aspect of payroll alone, G-P is here to guide you.

Taxation rules in Luxembourg

Luxembourg has a system that automatically adjusts wages and salaries as soon as cumulative inflation reaches 2.5% of the cost-of-living index (consumer prices).

Personal income tax is calculated using progressive rates, from 0% on adjusted taxable income up to EUR 13,230 to 42% on amounts above EUR 234,870.

Luxembourg also has a robust social security program that covers everything from parental leave to dependents insurance coverage. Both employers and employees contribute to the social security program at different rates. Employers contribute 13–15.5% of gross pay.

Employers and employees also contribute to the country’s healthcare system. This state-funded system gives basic medical coverage to all citizens and residents. Employers and employees each pay 3.05% for statutory health insurance. Employees also pay 1.40% for long-term care insurance.

Luxembourg payroll options for companies

There are 3 main options when setting up payroll in Luxembourg:

  • Internal: You can opt to run internal payroll from your Luxembourg subsidiary by hiring a full HR team. This option is more expensive and time-consuming.
  • Luxembourg payroll outsourcing: If you lack the resources and bandwidth to operate your own payroll, you can outsource with a local company in Luxembourg. You will still be held liable for any compliance mistakes.
  • G-P: Finally, you can work with an Employer of Record like G-P to manage your Luxembourg payroll needs. We ensure payroll is processed timely and compliantly.

How to set up a payroll in Luxembourg

You’ll need to meet various requirements to set up a Luxembourg payroll. First, you must register with either the Minister of Finance or the Inspectorate of Labor and Mines (ITM), depending on your type of business. You’ll then get a business permit from Luxembourg’s social security authorities that allows you to start operations.

You’ll also need a bank account. A company executive will need to set up a resident or non-resident bank account, provide a social security identification, proof of work status, and various payroll forms. You should complete this process within 8 days of arriving to Luxembourg.

Entitlement and termination terms

The best way to establish entitlement and termination terms is through an employment contract. Probationary periods are common in Luxembourg, so make sure you understand if a termination can proceed or if a severance pay is required during this time. Employers must pay severance to any employee dismissed with notice after five or more years of continuous service. If you have fewer than 20 employees you can choose to extend the notice period instead of paying severance (unless dismissal is for serious misconduct).

Streamline global payroll management with G-P

Hire and pay your team anywhere in the world with our agentic Global Employment Platform. Vetted labor law intelligence is embedded directly into your workflows to ensure 99% payroll accuracy wherever you hire.

Our platform is designed to integrate with the systems you already use. Sync employee payroll data automatically to create one reliable source of truth for your HR team.

Book a demo to hire and pay teams in 150+ currencies today.