G-P’s Employer of Record (EOR) model allows your company to start hiring talent in minutes via our global entity infrastructure. Unlike a Professional Employer Organization (PEO), G-P allows your company to expand your global footprint without the hassle of entity setup and management.
Our global employment products, including G-P Meridian Prime™ and G-P Meridian Core™, are backed by the largest team of HR and legal experts in the industry. We handle the growing complexities of compliant global expansion — so you can focus on opportunities ahead.
As a global EOR expert, we manage payroll, employment contract best practices, statutory and market norm benefits, employee expenses, as well as severance and termination. You’ll have peace of mind knowing you have a team of dedicated employment experts assisting with every hire. G-P allows you to harness the talent of the brightest people in 180+ countries around the world, quickly and easily.
Hiring in Luxembourg
In Luxembourg, some wages are fixed by Collective Bargaining Agreements (CBAs). The CBAs are the result of negotiations between trade unions and employers. Many other aspects of employment law will often be stipulated by CBAs, if applicable, such as restrictions related to termination of employment.
Employment Contracts in Luxembourg
While Luxembourg labor law acknowledges the legitimacy of a verbal employment agreement, it is highly recommended to have a written contract that outlines the nature of the employment relationship as well as its terms and conditions. An employment contract in Luxembourg should always state the salary and any compensation amounts in euros rather than another currency.
There are different types of employment contracts in Luxembourg, including:
- Permanent employment contract: This is the standard contract if there is an ongoing need for specific work within the company.
- Fixed-term employment contract: This type of contract is only allowed for tasks or projects with predetermined durations. Luxembourg law imposes restrictions on the consecutive use of fixed-term contracts — they can be renewed a maximum of 2 times, with a total duration not exceeding 24 months (including renewals). Termination is generally not allowed before contract completion, except during a trial period, by mutual agreement, or in cases of gross misconduct.
If an employee doesn’t receive a written contract by the first day of employment, they will be considered a permanent employee, subject to the corresponding privileges and obligations.
In Luxembourg, there are 3 official languages: French, German, and Luxembourgish. However, the country’s labor law doesn’t require any specific language to be used when creating employment contracts.
Working Hours in Luxembourg
In Luxembourg, the standard working schedule consists of 8-hour days, 40 hours per week. Alternatively, workdays can extend up to 9 hours per day, as long as the weekly work hours do not exceed 40 hours. The provisions concerning working time do not apply to employees in managerial or executive positions.
Overtime for full-time employees is limited to a maximum of 2 hours per day and 8 hours per week. Overtime is generally compensated with paid leave, where employees receive 1 hour and 30 minutes of paid leave for every hour of overtime worked. Alternatively, overtime can be credited to a time savings account, often referred to as a CET account. Employers also have the option to compensate overtime financially, rather than with paid leave or time credits.
When employers opt for financial compensation or if an employee leaves the organization before using their earned leave, overtime is paid at a rate of 140% of the regular hourly wage per hour of overtime.
In some cases, specific CBAs may establish different conditions and higher compensation rates, especially in sectors like banking.
Holidays in Luxembourg
Luxembourg celebrates 11 public holidays for which employees are given the day off, including:
- New Year’s Day
- Easter Monday
- Labor Day/May Day
- Europe Day
- Ascension Day
- Whit Monday
- National Day
- Assumption of Mary
- All Saints’ Day
- Christmas Day
- Saint Stephen’s Day/Boxing Day
Vacation Days in Luxembourg
In Luxembourg, employees are granted at least 26 working days of paid leave per year. Workers must be employed for a consecutive period of 3 months with the same employer before they are entitled to take leave.
Such leave must be granted and taken during the calendar year, but if the employee hasn’t taken all the entitled leave by the end of the calendar year, then the remaining days may be carried over and taken by the following March 31.
Luxembourg Sick Leave
Employees who cannot work due to an accident or sickness must inform their employer on the day of the accident or sickness. The employee then has 3 days to send a medical certificate confirming their incapacity to work and the expected period of absence. If these procedures are followed, the employer may not dismiss the employee, even for gross misconduct, for a period of 26 weeks following the accident or illness. After this 26-week period, employers have the right to dismiss the employee providing there are legitimate and severe grounds for such action.
In the event of an employee’s incapacity for work, employers must continue to pay the worker until the end of the month in which the 77th day of incapacity is reached, calculated over a reference period of 18 consecutive months. The following month after the 77th-day mark, the National Health Fund (Caisse Nationale de Santé or CNS) is responsible for paying sickness benefits to the employee on leave.
Any employment agreement will be automatically terminated if the employee accumulates a total of 78 weeks of sick leave within a 104-week timeframe.
Parental Leave in Luxembourg
Pregnant employees are entitled to 20 weeks of paid maternity leave. The leave commences 8 weeks before the expected due date and ends 12 weeks after. The Luxembourg social security authorities pay this leave up to an amount equaling 5 times the minimum social wage.
Non-birthing employees are entitled to 10 days’ paid leave. In principle, the leave may be distributed as the employee wishes, unless it conflicts with the company’s operational needs. If the employee and the employer fail to reach an agreement, the leave must be taken all at once immediately after the birth or adoption of the child. The first 2 days of this parental leave are paid by the employer, and the government pays for the 3rd day onwards.
Parental leave is also provided to each parent, under certain conditions, for the birth or adoption of 1 or more children. This leave allows employees to take time off or reduce their working hours. Although unpaid, the Fund for the Future of Children (Caisse pour l’Avenir des Enfants) provides an allowance during this period. Each parent is entitled to 6 months of leave and can choose among flexible leave models (full-time, part-time, split) to better accommodate their professional situation.
Health Insurance in Luxembourg
Luxembourg has a robust state-funded healthcare system that provides basic medical coverage to all citizens and residents. Additionally, individuals have the right to choose their doctor, specialist, and hospital. Luxembourg’s Union of Sickness Funds oversees the health service in the country.
Both employees and employers contribute to this system through healthcare taxes. Employers give around 12.45%-15.45% of employees’ gross salary.
Luxembourg Supplementary Benefits
Many people in Luxembourg take out supplementary insurance with a non-profit health insurance agency or mutual associations (mutuelles) affiliated with the Ministry of Social Security. Many employers offer supplementary coverage as a benefit of employment. A mutuelle pays the portion of medical fees that the national health insurance doesn’t cover and may offer extended coverage for things such as hospitalization, eye care, dental treatment, and medical services outside Luxembourg.
Generally, we recommend budgeting 15% for benefits on top of the gross salary to allocate the total employer cost including benefits in Luxembourg.
Bonuses
Many employers pay a 13th-month bonus to their employees, and some add half of a 14th-month pay to that, which is typically granted at the end of the year. This year-end or Christmas bonus (prime de fin d’année/jaarpremie) should be outlined in the employment contract. The 13th-month bonus — and any holiday bonus related to vacation time — is paid pro rata if the employee does not work the full calendar year.
Termination and Severance in Luxembourg
Employers can terminate employees with relative ease during the probationary period. The minimum duration of the probationary period is 2 weeks, but the maximum duration depends on the employee’s salary and qualifications. However, during the first 2 weeks of the probationary period, it is prohibited to unilaterally terminate the employment contract except in cases of gross misconduct, which must be explained in detail in the dismissal letter.
Employers may terminate an indefinite employment contract as long as the termination is based on real and serious reasons, such as gross misconduct. In this case, employers must adhere to certain procedures and the applicable notice periods, which may vary from 2 to 6 months. For employers with more than 150 employees, a preliminary meeting must be conducted with the employee prior to giving notice of dismissal. Employers are obligated to notify the dismissal by registered letter, and employees who have completed 5+ years of service are legally entitled to a severance payment.
In the case of resignation, employees must give notice equivalent to half the duration required from the employer. Resigning employees are not entitled to a severance payment nor unemployment benefits.
Paying Taxes in Luxembourg
Social security in Luxembourg covers:
- Sickness
- Parental leave
- Disability
- Hospitalization
- Accidents
- Retirement
- Unemployment
- Family allowances
- Widow’s pension
- Dependents’ insurance
- Guaranteed minimum income
Social security contributions are paid by both the employer and the employee. The total employer contribution rate is approximately 12.04% to 14.99% of gross salary, which is capped at EUR 143,243.76.
Why G-P
At G-P, we help companies unlock the power of the everywhere workforce through our industry-leading Global Growth Platform™. Let us handle the complex and costly tasks involved in finding, hiring, onboarding, and paying your team members, anywhere in the world, with the speed and guaranteed global compliance your business needs.
Contact us today to learn more.