How to Hire Remote Employees In 

Luxembourg

The Basics

Currency
Euro (EUR)
Employer Taxes
12.4%-14.64%
Payroll Frequency
Monthly
Official Language
Luxembourgish, German, French

Employment in 

Luxembourg

Hire Independent Contractors

Independent contractors or freelancers are self-employed individuals who provide services to companies as a non-employee. This is one of the most common ways companies tend to hire non-local designers, engineers, support reps, etc.

For legal and tax purposes, independent contractors are not classified as employees. They may work for multiple clients, set their own work hours, negotiate their pay rate, and decide how a job gets done.

For example, the IRS says that if an independent contractor or freelancer does work that can be controlled (what will be done and how it will be done) by an employer then they are, in fact, classified as an employee.

As you can imagine, hiring someone as an independent contractor versus an employee is a fine line to tread.

While there are benefits when you choose the contractor route, there are quite a few drawbacks to consider and you’ll need to weigh them carefully to determine the best fit for your company.

Benefits of Hiring Independent Contractors
Reduced overhead: Lower cost in expenses, payroll, benefits, and more.
Greater flexibility: Contractors can be brought on as-needed. If not a good fit, you simply don’t have to move forward with the contract.
Reduced legal risk: Contractors aren’t usually protected by employment anti-discrimination and workplace safety laws.
Disadvantages of Hiring Independent Contractors
Risk of Misclassification: Not only does this deny workers their proper protections, it can also result in steep penalties and damage to your company. If the IRS determines that employee misclassification has occurred, you will be liable for a percentage of the employees wages, FICA contributions, penalty fines, unpaid taxes, up to a year in prison, and more.
Lack of Control: Contractors are drawn to being independent because it gives them greater control over the work they perform and who they work with. Because they’re not employees, you can’t tell them what to work on and how it should be done.
Lack of Loyalty: Contractors come and go as-needed. Many companies hire contractors for short-term work, which makes it difficult to cultivate loyalty.
Increased Scrutiny: Using Independent Contractors typically leads to an increased risk of being audited.

Set up a subsidiary in 

Luxembourg

A foreign subsidiary is a company that operates overseas as part of a larger company who’s HQ is in another country.

Establishing a foreign entity is great for having an international presence and accessing new markets. Though, setting up a subsidiary in Luxembourg can be expensive, stressful, and time-consuming. It's not for the faint of heart.

To set up a subsidiary in Luxembourg, you have to:

  1. Register your business name and file articles of incorporation
  2. File for local bank accounts
  3. Learn and keep track of the local employment laws
  4. Set up local payroll
  5. Hire local accounting, legal, and HR people

If you're lucky, this process can take months. If you're not so lucky, it can take up to a year. And on average, it costs about $50k-$80k, all-in-all, to get setup. And that's just for Luxembourg.

Use an Employer-of-Record (EOR)

An employer-of-record (EOR) is a company that hires and pays an employee on behalf of another company.

An EOR is typically used to overcome the financial and regulatory hurdles that often come with employing remote workers.

Each country has its own payroll, employment, and work permit requirements for non-resident companies doing business in their jurisdiction. Meeting those demands can be a huge obstacle when it comes to hiring remotely.

At Panther, we help companies employ and pay people in over 160 countries, without having to set up a foreign subsidiary. Payroll, benefits, taxes, compliance, and more are all handled by us, at a fraction of the cost.

Outside of saving you months and tens of thousands of dollars, other advantages of using Panther are:

  • Ability to attract talented and motivated employees from all over the world.
  • Full legal compliance: There is no risk of violating local employment laws.
  • Transparency: Employees are still your employees. All the work, processes, operations and day-to-day business belong to you, the company, just like with any other employee. Panther just takes on all of the responsibilities, obligations and admin work related to your team's employment.
  • No risk of misclassification

Because you no longer have to set up your own subsidiary, you’ll save a ton of time and tens of thousands of dollars using Panther.

Paying Remote Employees

Paying employees in Luxembourg is not the same as paying workers in your own country. Employees have to be paid using Luxembourg’s employment and payroll standards.

This means that you have to know, understand, and keep up with 1) fluctuating currency changes, and 2) local payroll and tax laws in the countries you’re looking to hire in.

Outside of the laws and regulations around payroll, there may be different conditions surrounding leave, overtime, termination, and more. As you can imagine, maintaining this kind of regulatory knowledge can be challenging. But it is crucial and necessary to follow local legislation.

After, you’ll have to determine the best way to pay your international employees. This can be done in a number of ways, including but not limited to:

Pay through a local entity

One of the most challenging (and expensive) parts of paying international employees is setting up the infrastructure to do so.

Before you start to run payroll, you have to register your company as the local employer in the country the worker resides in. As you can see in the “Set up a subsidiary” section, this is a multi-step process that can take up to a year and put you on your way to bankruptcy.

Work with an EOR

Outside of EORs acting as the full admin employer, many also provide remote payroll.

For example, at Panther, in just 1-click, you’re able to pay your entire global team, anywhere in the world. We send you an invoice each month, charge you in US Dollars, and pay your employees the same amount in their local currency.

We factor in currency fluctuations and use the mid-market rate plus any applicable fee passed on by our provider at cost at the time of billing.

Luxembourg

 Specific Information

Working Hours

A full time workweek is 40 hours or 8 hours per day.

Overtime

There are strict rules on overtime as it is considered something that is considered abuse if the employer requests overtime work in excess and the employee can refuse.

An employee can work 2 hours of overtime per day and cannot exceed 8 hours per week. In addition to this, a pregnant woman cannot be forced to work overtime, and overtime for adolescents is forbidden.

Overtime can be compensated either through payment at the rate of 150% of the regular pay or time off.

Payroll Tax

Employer

Employer

  • Pension
  • Health Insurance
  • Accident at Work
  • Mutual Health Benefit
  • Health at Work

Minimum Wage

Luxembourg minimum wage policy is 2,201.93 EUR. For a skilled worker, the minimum wage is increased by 20% – to 2,642.32.

Payroll

Pay Cycle

Salaries are paid weekly or monthly depending on the company.

13th Salary

The 13th salary is the equivalent of one months’ salary and is paid out at the end of the year. 

It is common for employers to give their employees an additional half months’ salary as well.

Leave

Paid Time Off (PTO)

PTO is calculated by the:

Employees receive 26 working days of paid leave per year. In addition, certain employees automatically receive additional leave:        

  • Disabled persons or those who have suffered a work accident- Additional 6 days of leave  
  • Mining employees- Additional 3 days of leave  
  • An employee or apprentice who has not received a continuous rest period of 44 hours per week- 1 additional day for every 8 weeks in which the employee doesn’t receive the continuous rest.

Public Holidays

There are 11 public holidays.

Sick Days

The duration of sick leave entitlement provided to workers is dependent on how long they have been employed by their employer:

  • Maximum paid sick leave is 26 weeks. If an employee is sick for 1or 2 days, there is no need to provide a medical certificate.
  • If an employee is sick for more than 3 days, then a certificate is required. 

Maternity Leave

Maternity leave in Luxembourg is 20 weeks and can begin 8 weeks before the expected due date.

To be eligible, the woman must have been covered by the mandatory health insurance for at least 6 months within the last 12 months before maternity leave. 

In addition, the woman must notify their employer at least 12 weeks before the expected due date.   

Social insurance pays for maternity leave and cannot be lower than the minimum wage and is capped at 5 times the minimum wage.

Paternity Leave

Paternity leave is 10 days.  The father must notify their employer at least 2 months in advance of when the leave is intended to be taken, otherwise, this leave can be reduced to 2 days.

In addition, this leave does not have to be taken consecutively and can be taken within 2 months of the birth of the child.  

Parental Leave

There are 2 types of parental leave and each leave can be taken once per child: 

  • Following maternity or adoption leave– this leave must be taken immediately after the birth or adoption of a child, otherwise, this leave is forfeited.  
  • Before the child reaches the age of 6 or 12 for an adopted child  

Both leaves can be taken either in full, partially, or split with the other parent and are based on the number of hours in the employee’s contract:  

  • 40 hours per week- 4–6 months of full-time leave; 8-12 months of part-time leave (50% of regular working hours); 4 periods of 1 month leave within a 20–month period; 1-2 half days of leave per week within a 20–month period.  
  • At least 20 hours per week- 4-6 months of full-time leave; 8-12 months of part-time leave (50% of regular working hours)   
  • At least 10 hours per week- 4-6 months of full-time leave 

Split or partial leave is at the discretion of the employer.   

To be eligible:  

  • The parent must be registered with social security at the time of the birth or adoption of the child for at least 12 continuous months.
  • Salaried employees- must have worked at least 10 hours per week  
  • Have an employment contract during the leave   

Instead of wages, an allowance is given by the Children’s Future Fund.  

Other Leave

None.

Marriage Leave

None.

Bereavement Leave

None.

Termination

Termination Process

Termination in Luxembourg must be done in writing, however, no reason is required by either side unless the cause is immediate dismissal. However, this information must be provided upon request.  

For employers with more than 150 employees, a hearing must be conducted before the employee is dismissed.  For employees with at least 15 employees, the employer must notify the Economic committee of the dismissal.

Notice Period

The notice period depends on the length of employment:  

  • Less than 5 years of employment – 2 months’ notice  
  • 5-10 years of employment– 4 months’ notice  
  • 10+ years of employment- 6 months’ notice  

Notice starts:  

  • On the 15th of the month if the dismissal letter is provided before the 15th of the month  
  • On the 1st of the following month if the dismissal letter was provided between the 15th and last day of the month.   

It is also possible to pay in lieu of notice. 

Severance Pay

Severance pay is determined by the length of employment:  

  • Less than 5 years- No severance pay  
  • 5-10 years- 4 months’ severance pay or the notice period can be extended by 5 months for employers with less than 20 employees  
  • 10-15 years- 2 months’ severance pay or the notice period can be extended by 8 months for employees with less than 20 employees  
  • 15-20 years- 3 months’ severance pay or the notice period can be extended by 9 months for employers with less than 20 employees 
  • 20-25 years- 6 months’ severance pay or the notice period can be extended by 12 months for employers with less than 20 employees  
  • 25-30 years- 9 months’ severance pay or the notice period can be extended by 15 months  
  • 30+ years- 12 months’ severance pay or the notice period can be extended by 18 months.

Probation Period

The minimum probation period is 2 weeks and generally is determined by the employee’s salary and qualifications:  

  • If an employee receives a monthly salary of at least 4,474.31 EUR, the maximum probation period is 12 months.  
  • If an employee has a vocational skills certificate or equivalent, the maximum probation period is 6 months.  
  • If the employee does not have a vocational skills certificate or equivalent, the maximum probation period is 3 months.