Employer of Record in Luxembourg

An Employer of Record (EOR) in Luxembourg is a company that legally hires employees on your behalf. This means you can build a team in Luxembourg without setting up a local entity. An EOR handles all the legal and HR responsibilities that come with employment. This includes payroll, taxes, benefits, and compliance with Luxembourg's labor laws. If you are looking to hire in Luxembourg, a provider like Rivermate can simplify the process for you.

How an Employer of Record (EOR) Works in Luxembourg

Using an EOR in Luxembourg streamlines the process of hiring employees. Here is how it typically works:

1. You Find the Candidate. You recruit and select the talent you want to hire in Luxembourg.
2. The EOR Hires Your Candidate. The EOR legally hires the employee through a local, compliant employment contract.
3. The EOR Manages HR and Payroll. The EOR handles all administrative tasks. This includes processing salaries, taxes, and social security contributions according to Luxembourg's regulations. You can find more information on these regulations on the official government website for public services in Luxembourg (https://guichet.public.lu/en.html).
4. The Employee Works for You. Your new team member performs their daily tasks and reports directly to you and your company.
5. You Manage Your Team. You focus on managing your employee's work and integrating them into your company culture, while the EOR takes care of the legal and administrative burdens.

Why use an Employer of Record in Luxembourg

An Employer of Record simplifies your expansion into Luxembourg. It saves you time and money. You avoid the complex and costly process of setting up a legal entity in a new country. An EOR ensures your hiring practices are fully compliant with local labor laws, which can be difficult to navigate on your own.

Here are some key benefits:

• Faster Market Entry. You can hire employees and start operating in Luxembourg much faster than if you were to establish your own company.
• Reduced Costs. You avoid the significant expenses associated with legal entity setup, including registration fees and legal consultations.
• Compliance Assurance. EORs are experts in local labor laws. They ensure that all employment contracts, payroll, and benefits meet Luxembourg's legal requirements. The Inspectorate of Labour and Mines (ITM) oversees labor law in Luxembourg (https://itm.public.lu/en.html).
• Simplified HR. You offload all administrative HR tasks, including payroll processing, tax withholding, and benefits management.
• Access to Local Expertise. You gain access to local knowledge on everything from standard employment practices to mandatory social contributions.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Luxembourg includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Luxembourg.

Hiring in Luxembourg means tapping into a diverse and highly skilled workforce. The country's strong economy, particularly in the financial sector, attracts talent from all over the world. Nearly half of the workforce is international. This creates a multilingual and multicultural business environment. French, German, and Luxembourgish are the official languages, with English widely used in business.

Employment contracts & must-have clauses

When you hire an employee in Luxembourg, you must provide a written employment contract. This should be done by the employee's first day at the latest. The two main types of employment contracts are:

• Indefinite-term contract (CDI): This is the standard contract for permanent positions.
• Fixed-term contract (CDD): This contract is for a specific period and cannot exceed 24 months, including renewals.

Your employment contracts must include the following information:

• Names and addresses of both the employer and employee
• The employee's start date
• The place of work
• The nature of the job and a description of the work
• The employee's daily and weekly working hours
• The basic salary
• The duration of paid annual leave
• The notice period for termination
• The duration of the trial period, if there is one

Probation periods

A probation period allows you and the employee to see if the job is a good fit. It must be stated in the written contract to be valid. The minimum probation period is two weeks. The maximum duration depends on the employee's qualifications and salary.

During the first two weeks of the probation period, neither you nor the employee can terminate the contract without a serious reason. After the first two weeks, either party can end the contract with a notice period. The length of the notice period depends on the length of the probation period.

Working hours & overtime

Standard working hours in Luxembourg are 8 hours a day and 40 hours a week. The maximum working time, including overtime, cannot exceed 10 hours a day or 48 hours a week.

Any work done beyond the standard hours is considered overtime. You must compensate employees for overtime in one of two ways:

• Paid time off: 1.5 hours of paid time off for every hour of overtime worked.
• Extra pay: At least 140% of the employee's regular hourly wage.

Public & regional holidays

Luxembourg has 11 official public holidays. If a public holiday falls on a weekend, you must give your employees an extra day of leave within the next three months.

The public holidays are:

• New Year's Day (January 1)
• Easter Monday
• Labour Day (May 1)
• Europe Day (May 9)
• Ascension Day
• Whit Monday
• National Day (June 23)
• Assumption Day (August 15)
• All Saints' Day (November 1)
• Christmas Day (December 25)
• St. Stephen's Day (December 26)

Hiring contractors in Luxembourg

Hiring independent contractors in Luxembourg can offer flexibility and access to specialized skills. Contractors are not covered by the same labor laws as employees. This means they are not entitled to minimum wage, paid leave, or protection against unfair dismissal.

It is very important to classify workers correctly. If a worker is treated like an employee but classified as a contractor, you could face serious penalties. This is known as misclassification. The authorities in Luxembourg look at how much control you have over the worker's tasks and schedule. If you have a high degree of control, the worker is likely an employee.

An Employer of Record (EOR) can help you avoid misclassification risks. An EOR acts as the legal employer for your workers in Luxembourg. They handle all the legal and administrative tasks, including:

• Creating compliant employment contracts
• Managing payroll and taxes
• Ensuring compliance with local labor laws

Using an EOR allows you to hire talent in Luxembourg without setting up a legal entity in the country. This saves you time and reduces your risk.

In Luxembourg, your compensation involves more than just your base salary. The system is built on a foundation of mandatory social security contributions from both you and your employer. These contributions fund health insurance, pensions, and other social programs. Your final take home pay is your gross salary minus these contributions and income tax.

Payroll cycles & wage structure

Most companies in Luxembourg pay employees once a month. This payment typically happens on the last day of the month.

• Employment Contract: Your gross salary is the amount agreed upon in your employment contract.
• 13th Month Salary: It is common practice for employers to pay a "13th month" salary. This is an extra month's pay, usually paid at the end of the year. Some employers may also provide an additional half month's salary.

Overtime & minimums

The standard workweek is 40 hours, based on an 8 hour day.

• Overtime Pay: If you work more than the standard 40 hours, your employer must pay you for the extra time. The overtime pay rate is typically 150% of your regular salary.
• Minimum Wage: Luxembourg has a social minimum wage that changes based on your age and skill level. As of early 2024, the monthly minimum for skilled workers over 18 was €3,085.11, while the rate for unskilled workers over 18 was €2,570.90. Rates are adjusted for younger workers.

Employer taxes and contributions

Your employer pays several social security contributions on your behalf. These are calculated based on your gross salary and are not deducted from your pay.

Employee taxes and deductions

You also contribute to social security from your gross salary. In addition, you pay income tax.

Beyond these deductions, you will pay income tax. Luxembourg uses a progressive tax system with 22 different bands, ranging from 0% to 42%. The amount of tax you pay depends on your total income and your tax class, which is determined by your personal situation, such as being single, married, or a single parent.

In Luxembourg, you'll find a strong system of employee benefits and leave. This is a key part of the country's work culture. It helps you attract and keep great talent. The government sets minimum standards for many benefits. This ensures everyone gets fair treatment.

Statutory leave

The law in Luxembourg requires employers to provide several types of paid leave.

• Annual Leave You must give employees a minimum of 26 working days of paid leave per year. To be eligible for vacation days, employees need to have worked for you for three consecutive months.
• Sick Leave If an employee is sick, they can take up to 26 weeks of sick leave. You pay their full salary for the first 77 days. After that, the social security system takes over.
• Maternity Leave Pregnant employees get 20 weeks of maternity leave. This is split into eight weeks before the due date and 12 weeks after. Social insurance pays for this leave.
• Paternity Leave Fathers are entitled to 10 days of paternity leave. They must take this within two months of the child's birth.
• Parental Leave Both parents can take parental leave. The length of this leave depends on their work contract and hours. The Children's Future Fund provides an allowance during this time, not the employer.
• Adoption Leave If an employee adopts a child under 12, they are entitled to 12 weeks of adoption leave.

Public holidays & regional holidays

Luxembourg has a number of public holidays each year.

Typical supplemental benefits

Many companies offer extra benefits to attract and retain employees. Here is a look at both required and common optional benefits.

How an EOR can help with setting up benefits

Setting up employee benefits in a new country can be complex. An Employer of Record (EOR) simplifies this process for you.

An EOR already understands the local laws and common practices in Luxembourg. They handle the administration of all statutory benefits. This ensures you are compliant with all regulations.

An EOR can also advise you on competitive supplemental benefits. They can help you create a benefits package that attracts top talent in the local market. This saves you time and reduces risk. You can focus on your business goals while the EOR manages the details of employee benefits.

Let's walk through the process of termination and offboarding in Luxembourg. It's a structured process with clear rules for both employers and employees. When ending an employment contract, you must provide a written termination letter. This letter needs to clearly state the reason for the termination. In Luxembourg, you need a valid reason for dismissal, which can be related to the employee's conduct or for economic reasons.

Notice periods

When terminating an employee, you must give them a notice period. The length of this period depends on how long the employee has worked for your company.

For companies with more than 150 employees, you must invite the employee to a preliminary interview before dismissal. If your company has fewer than 150 employees, you can provide the dismissal notice directly.

Severance pay

Employees in Luxembourg may be entitled to severance pay. This also depends on their length of service.

If you do not provide the correct notice period, the employee is entitled to compensation.

How Rivermate handles compliant exits

Navigating employee exits in a different country can be complex. We make it simple. At Rivermate, we handle the entire offboarding process to ensure you comply with all of Luxembourg's labor laws.

• Documentation: We prepare and manage all necessary termination documents.
• Compliance: Our team ensures that notice periods and severance pay meet legal requirements.
• Final Payroll: We process the final payroll, including any outstanding salary, benefits, and severance.

We take care of the details so you can focus on your business. Our process ensures a smooth and compliant exit for both you and your employee.

Navigating the visa and work permit process in Luxembourg is a key step to hiring talent from outside the European Union. If you're looking to employ non-EU nationals, you will need to engage with the country's immigration system. The process involves multiple steps, starting with an application for a temporary authorization to stay, followed by a visa application if required, and finally, a residence permit upon arrival.

Employment visas & sponsorship realities

An Employer of Record (EOR) can be a practical solution for hiring and sponsoring foreign workers in Luxembourg. An EOR has a registered legal entity in the country and can sponsor work visas for your employees. This is often the most common path for companies that want to hire full-time foreign talent.

However, there are some realities to consider:

• EOR Sponsorship: An EOR can sponsor work permits, which is a necessary step for employing non-EU nationals. They can help you navigate the complexities of the application process.
• Visa Quotas: The ability to sponsor a foreign employee may be affected by visa quotas that can limit the number of available permits.
• Employer Obligations: As the employer, you or your EOR must provide a valid job offer and justify the need to hire a foreign national. This often involves proving that no suitable candidates were found within the EU.

Here are the common visa types an EOR can typically help you with:

Business travel compliance

For short-term visits to Luxembourg for business purposes, you need to follow specific compliance rules. These visits are generally for activities like meetings, negotiations, or conferences and are covered by a short-stay visa (Visa C) for those who require one.

Key compliance points for business travelers:

• Visa Requirements: Citizens of many non-EU countries need a Schengen Visa (Type C) to enter Luxembourg for business.
• Duration of Stay: The short-stay visa allows for a maximum of 90 days within a 180-day period.
• Declaration of Arrival: Upon entering Luxembourg, non-EU citizens must declare their arrival at the local administrative office of their place of residence within three days.
• Required Documents: Business travelers should be prepared to present documents that prove the purpose of their visit. This can include:
  • An invitation letter from a company in Luxembourg.
  • Proof of accommodation, like a hotel reservation.
  • Evidence of sufficient financial means for the stay.
  • Health insurance valid for the Schengen area.