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Employer of Record (EOR) services in Luxembourg enables an overseas company to employ staff within the country. The EOR acts as the primary employer on behalf of the client company and handles all local employment tasks such as payroll, taxes, and compliance with local labor laws, effectively removing the administrative burden from the client company. This is particularly useful for companies without a legal entity in Luxembourg or those looking to expand into the country without incurring the costs of setting up their own infrastructure. The EOR also manages employment contracts, benefits, and termination procedures, ensuring everything is compliant with Luxembourg's strict labor regulations. By collaborating with EOR services, companies can focus on their core operations while mitigating legal risks.
A Luxembourg Employer of Record (EOR) allows foreign businesses to simplify the hiring process and navigate the country's stringent employment laws and regulations efficiently.
Luxembourg has a comprehensive set of laws regarding employment. The Luxembourg employment law is based on the Labour Code, EU regulations, case law, collective bargaining agreements, Grand-Ducal regulations and certain employers’ practices. Hence, one must be familiar with the laws to ensure 100% compliance.
Gloroots’ Luxembourg EOR can help you with the legal compliance. The legal expert team can navigate through the local laws and generate employment contracts and collective bargaining agreements aligning with the Grand-Ducal regulations. Further, EORs can also handle the employee benefits regulations. For instance, under the Labor Code amendment in 2019, employees have the right to claim their benefits for 78 weeks of sickness. Thus, the employment contract will expire automatically by law after 78 weeks of sickness.
EORs can take the responsibility for compliance with these regulations, reducing risk for foreign employers. It can handle payroll, tax, benefits administration, and regulatory paperwork. This allows businesses to focus on their core operations, accelerate market entry, and rapidly onboard local talent in Luxembourg.
Most Luxembourg EOR providers charge a percentage of the employee's gross salary, typically ranging from 5% to 20%. This fee generally covers services such as payroll, tax administration, and compliance with local labor laws.
The EOR pricing in Luxembourg can vary depending on the number of employees, the complexity of the employment arrangements, and the specific services required. Moreover, additional services, like benefits administration, recruitment, or HR support, may be charged separately. However, note that while EOR fees might seem like an added expense, they can often save companies money in the long run.
Gloroots’ has a fairly transparent pricing model that’s easy-to-understand and provides optimum investment value. We manage admin tasks and legal compliances associated with employment. Also, we offer a live dashboard that helps you track your Luxembourg workforce expenses in real time. It also offers HR support and benefits management to the employees hired through EOR.
Key Metrics For Foreign Employers
Luxembourg ranks 11th in INSEAD’s Global Talent Competitiveness Report. Bagging top places for ICT infrastructure (ranks 8th globally), people with digital skills (12th) and workforce with tertiary education (ranks 6th), the country proves to be an unignorable talent market for foreign employers.
The table below depicts key indicators from the Global Talent Competitiveness Report for employers wishing to hire from Luxembourg.
Source: The Global Talent Competitiveness Index 2022
Through the Gloroots’ Recrew platform, you can discover amazing talent in Luxembourg.
Establishing a successful team in Luxembourg involves hiring the right talent at the right time and ensuring compliance with local employment regulations. Navigating the complexities of labor laws, payroll, tax, and benefits management can be challenging for companies expanding into Luxembourg. However, with Gloroots' comprehensive global Employer of Record (EoR) service, you can streamline these processes and concentrate on nurturing your team and business growth. Gloroots takes care of payroll, tax compliance, benefits administration, and other administrative tasks, ensuring a smooth expansion into the Luxembourg market and supporting you in building a strong and thriving team in this strategic European hub. With Gloroots as your trusted partner, you can confidently navigate the intricacies of the Luxembourg business landscape, empowering your team to flourish and succeed in this dynamic and promising location.
Misclassification of employees in Luxembourg can pose significant legal and financial risks for employers. Incorrectly categorizing workers as independent contractors or exempting them from certain employment regulations may lead to legal disputes, fines, and potential lawsuits. Such misclassification can result in the denial of essential rights and benefits to employees, including social security, paid leave, and protection under labor laws.
To mitigate these risks, companies can partner with a reputable PEO/EOR in Luxembourg. By leveraging the expertise of these professionals, employers can ensure accurate employee classification, proper payroll processing, and adherence to Luxembourg's labor laws and regulations. The PEO/EOR takes on the responsibility of managing employment-related tasks, enabling businesses to focus on their core objectives with confidence in their workforce's legal compliance and the safeguarding of employees' rights and benefits. Working with a trusted PEO/EOR in Luxembourg ensures a smooth and compliant employment experience, reducing the risks associated with misclassification.
Employment Contract
In Luxembourg, employment contracts are typically established for an indefinite duration. Fixed-term contracts are allowed but subject to strict regulations under the Luxembourg Labor Code. Both fixed-term and indefinite contracts require a written form. The language of the contract is not specified, as long as it is comprehensible to both parties.
Contracts must include essential information about the employment relationship, covering:
- Identification of both parties
- Commencement date
- Workplace
- Job description and responsibilities
- Basic salary and other compensation, payment terms
- Working hours and schedule
- Total holidays
- Notice periods for termination
- Probation period
- Mention of additional agreed clauses
- Reference to applicable collective bargaining agreements
This might sound overwhelming—but it doesn’t have to be. A solution like Gloroots eliminates the barriers for you. With Gloroots’ Employer of Record offering, hiring and managing employees globally is a piece of cake.
Working time
In Luxembourg, the regular working week comprises 8 hours per day, totaling 40 hours per week.
Overtime
Any working hours exceeding the standard weekly hours are classified as overtime and subject to regulations set forth in employment contracts or collective agreements. Before commencing any overtime work, mutual agreement between the employee and employer must be reached and reported to labor authorities.
In general, overtime is limited to a maximum of 2 hours per day and 8 hours per week. Overtime hours are compensated at 150% of the regular salary rate.
Working on Sundays is generally prohibited, except for specific situations or particular sectors, in which case additional compensation is required to be paid.
Public Holidays
When public holidays occur on a weekend, workers must be compensated by providing a replacement day off within three months of the holiday.
Payroll cycle
In Luxembourg, payroll is typically processed on a monthly basis, although some companies may choose to pay their employees weekly. Wages for work performed between the first and last day of the month or week are usually disbursed on the last day of the respective period.
Minimum Wage
Skilled employees aged 18 and above receive a gross monthly minimum wage of 3,009.88 EUR.
Sick Pay
The maximum duration of paid sick leave is 26 weeks. Employers provide full salary payment up to the 77th day of sickness leave within a 12-month consecutive period, whether the days are consecutive or not. The employers' mutual scheme insurance reimburses 80% of this pay. After the 77th day, Social Security covers the further sick leave expenses.
Maternity and paternity leave
Maternity leave starts 8 weeks before the anticipated birth date, verified by a recent medical note. Should the baby arrive earlier than this date, any unused pre-birth leave gets added to the post-birth leave period. Nonetheless, the combined leave cannot surpass 20 weeks. If the baby is born after the expected date, the pre-birth leave gets extended up to the birth date, but this won't shorten the 12-week post-birth leave, which still follows the actual birth date.
Annual leave
Employees receive 26 working days of annual leave each year, irrespective of their age. While this is the standard, both collective and individual agreements between the employer and employee can potentially increase the leave duration. Disabled war veterans, individuals affected by occupational accidents, and employees with disabilities are eligible for an extra 6 working days of leave per year, provided specific criteria are met.
Income tax
Single taxpayer
Single taxpayer (Class 1a)
Employee Income Tax (Class 2) for a married taxpayer in Luxembourg
EMPLOYER PAYROLL CONTRIBUTION
EMPLOYEE PAYROLL CONTRIBUTION
Employment Termination and Severance
Termination
The termination process in Luxembourg varies depending on the type of employment agreement and collective agreement in place, as well as the reason for termination.
For companies with more than 150 employees, a hearing must be conducted before dismissing an employee. Similarly, for companies with at least 15 employees, the employer is required to inform the economic committee about the dismissal.
Severance
Collective agreements may include provisions regarding the amount and calculation of severance pay. If the severance pay process specified in the collective agreement differs, both the employer and the employee must adhere to the process outlined in the collective agreement.
The amount of severance pay is determined based on the length of employment:
Notice period
Collective agreements may include provisions regarding notice periods. If the notice periods specified in the collective agreement differ from the statutory notice periods, both the employer and the employee must adhere to the notice periods outlined in the collective agreement.
According to labor laws, the length of the notice period depends on the employee's length of service:
The notice period begins on the 15th of the month if the dismissal letter is given on or before the 1st of the month. If the dismissal letter is issued between the 15th and the last day of the month, the notice period begins on the 1st day of the following month.
Employers also have the option to make a payment in lieu of notice.
Probation period
In Luxembourg, the probation period, which is the initial period of evaluation for new employees, has a minimum duration of two weeks. The length of the probation period is generally based on the employee's salary and qualification status:
- For employees earning a monthly salary of at least 4,586.12 EUR, the maximum probation period is one year.
- If the employee possesses a vocational skills certificate or an equivalent qualification, the maximum probation period is six months.
- If the employee does not have a vocational skills certificate or equivalent, the maximum probation period is three months.
When hiring globally, ensuring compliance comes with its own set of battles. Employers must ensure all hiring and onboarding activities adhere to employment laws, payroll procedures, DE&I compliance, GDPR and similar data protection, etc. If you think it is hard to set up local entities and start hiring, keeping up with a dynamic compliance landscape is far harder.
Gloroots helps you minimize all these efforts by providing a single window to manage all these tasks. Our in-house experts fully shield you from cross-border employment and payroll compliance risks. We do this by helping you with generating employment contracts, on-time payments, compliant benefits, while you focus only on screening talent.
Our promise is a stress-free global employment experience for both you and your employee.
Contact our experts today to kickstart your global hiring campaign.
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