As one of the wealthiest countries in the world, Luxembourg is an excellent place to grow your operations. Once you’ve assembled your team, the next important step is setting up your Luxembourg payroll.
Instead of figuring out every aspect of payroll alone, G-P is here to guide you.
Taxation rules in Luxembourg
Luxembourg has a system that automatically adjusts wages and salaries as soon as cumulative inflation reaches 2.5% of the cost-of-living index (consumer prices).
When it comes to personal income tax, it is calculated in accordance with a progressive table, ranging from 8% on taxable income above EUR 11,265 to 42% on income above EUR 200,004.
Luxembourg also has a robust social security program that covers everything from parental leave to dependents insurance coverage. Both employers and employees contribute to the social security program at different rates. Employers give around 12.45%-15.45% of employees’ gross salary.
Employers and employees also contribute to the country’s healthcare system. This state-funded system gives basic medical coverage to all citizens and residents. Employers pay 12%-15% and workers pay 12%.
Luxembourg payroll options for companies
There are 3 main options when setting up payroll in Luxembourg:
- Internal: You can opt to run internal payroll from your Luxembourg subsidiary by hiring a full HR team. This option is more expensive and time-consuming.
- Luxembourg payroll outsourcing: If you lack the resources and bandwidth to operate your own payroll, you can outsource with a local company in Luxembourg. You will still be held liable for any compliance mistakes.
- G-P: Finally, you can work with an Employer of Record like G-P to manage your Luxembourg payroll needs. We ensure payroll is processed timely and compliantly.
How to set up a payroll in Luxembourg
You’ll need to meet various requirements to set up a Luxembourg payroll. First, you must register with either the Minister of Finance or the Inspectorate of Labor and Mines (ITM), depending on your type of business. You’ll then get a business permit from Luxembourg’s social security authorities that allows you to start operations.
You’ll also need a bank account. A company executive will need to set up a resident or non-resident bank account, provide a social security identification, proof of work status, and various payroll forms. You should complete this process within 8 days of arriving to Luxembourg.
Entitlement and termination terms
The best way to establish entitlement and termination terms is through an employment contract. Probationary periods are common in Luxembourg, so make sure you understand if a termination can proceed or if a severance pay is required during this time. Employers will typically need to pay severance to any dismissed employee who has worked 5 or more years at the same company.
Streamline global payroll management with G-P.
G-P streamlines each step of the payroll management process with our market-leading Global Growth Platform™. Pay your team with confidence anywhere in the world in 150 currencies with our 99% on-time automated payroll system — all with just a few clicks. Our products also integrate with leading HCM solutions, syncing employee payroll data across platforms automatically to create one reliable, convenient source of truth for HR teams.
Contact us to learn more about how we can support you.