Understanding Payroll in Luxembourg: What Global Companies Need to Know About Luxembourg Payroll
Sep 12, 2017
One of the richest countries worldwide, Luxembourg is a popular choice for companies with a global payroll seeking to expand operations. Nestled in the heart of Europe between Belgium, Germany, and France, the nation’s five million-plus citizens all generally speak French, German, and English, providing companies with a versatile, skilled, and well-educated workforce.
Officially known as The Grand Duchy of Luxembourg, the country’s capital city of Luxembourg City is one of the EU’s three official capitals. In recent years, Luxembourg has evolved into a fast-growing financial capital under the OECD umbrella. Indeed, in the new post-Brexit Europe, Luxembourg is proving to be an attractive alternative for UK-based, international banks and is widely seen as a wealthy Euro haven and an international financial center, Besides financial organizations, Luxembourg attracts companies working in energy, shipping, biotechnology and logistics. Benefits for these companies include a relatively low corporate tax rate, a stable political scene, a desirable Central European location, and an emerging understanding of work-life balance.
To set up or expand operations in Luxembourg, companies must first register with either the Minister of Finance, for banking and financial services firms, or the Inspectorat of Labour & Mines (ITM) for other types of businesses. These businesses must receive a business permit (autorisation d'établissement or autorisation de commerce) from Luxembourg social security authorities to commence operations.
Company executives can set up either resident or non-resident bank accounts in their name, along with social security identification, proof of work status, and payroll forms. These steps should be completed within eight days of arrival in Luxembourg. Due to the strict requirements, it can be helpful for global companies to outsource a global payroll provider for assistance with Luxembourg’s payroll regulations and employee payment processes.
Employment Law & Employee Rights
Workers in Luxembourg are well-protected under current employment laws, with employees receiving extensive protections around job hours, payments, and job stability. These employment protections are explained in detail on the Chamber of Salaries website. Employers in Luxembourg must announce a job vacancy to the National Employment Administration prior to soliciting a candidate or offering a contract. Foreign workers coming from other countries can choose to work under Luxembourg’s laws or their own country’s employment laws, whichever is more favorable to the worker. The general work week in Luxembourg is 8 hours a day, Monday to Friday, with an hour break for lunch. The work week is generally limited to 40 hours.
Compensation & Severance
Luxembourg increased its minimum wage by 2.5% from the start of 2017, making the current monthly minimum wage €2.398,30 ($2,869, £2,178) for qualified employees and €1.998,59($2,391, £1,815) for unqualified adult workers.
Compensation details for foreign workers in Luxembourg can involve costs for employee relocation, home rent and utilities, school fees, annual home leave, ongoing expenses, and tax equalization. Companies are eligible for tax exemptions from the Luxembourg government on this form of compensation for an international payroll.
Tax Requirements & Withholding
Luxembourg is pro-trade on taxes for resident and non-resident companies, and operates on the principle of territoriality for tax withholdings. A company headquartered or registered in Luxembourg is taxed on its worldwide income, while non-resident companies are taxed only on their local income in Luxembourg. Global companies operating in the country pay about 21% corporate tax rate. Recent government agreements will reduce this to about 18% by 2018.
Foreign companies in Luxembourg should register their company and employees with the Luxembourg social security administration. Withholding tax can go up to 40%, depending on the employee’s marriage and family status. Company contributions to social security are set at 11%, while employee contributions range from 12% to nearly 15%, depending on salary levels.
Time Off & Paid Leave
Luxembourg employees receive 10 public holidays on the country’s calendar. In addition, salaried workers are entitled to up to 25 paid vacation days per year. Workers can take time off for sickness or injury by informing the employer verbally or with a written note, and supplying a medical note about the worker’s condition. If the employee follows these formal steps and stays out on sick leave indefinitely, he or she is protected by Luxembourg’s laws and cannot be dismissed for a length of 26 weeks after the sickness or injury. New mothers benefit from paid maternity leave of 16-20 weeks. If both parents are working, they are eligible for either six months of full-time parental leave or one year of part-time parental leave.
As a post-Brexit world comes into effect, Luxembourg is bound to see an increase in the number of global companies setting up operations within its borders. To ease concerns for compliance with Luxembourg’s employment laws, these firms may do well to seek help from a global payroll solution provider.
|Date||Luxembourg's Public Holiday Schedule|
|January 1st||New Year's Day|
|Monday after Easter Sunday||Easter Monday|
|May 1st||Labor Day|
|40 Days after Easter||Ascension Day|
|7th Monday after Easter||Whit Monday|
|June 23rd||Grand Duke's Official Birthday|
|August 15th||Assumption of Mary|
|November 1st||All Saint's Day|
|December 25th||Christmas Day|
|December 26th||St. Stephen's Day|
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.