Luxembourg compensation and benefits management is no easy task. Employers must strike a balance between providing competitive compensation and adhering to Luxembourg’s statutory requirements. Plus, if a Collective Bargaining Agreement (CBA) applies, then companies will have to manage an extra level of compliance.
In the following sections, we’ll explain key aspects you should know about compensation and benefits in Luxembourg.
Luxembourg compensation laws
Luxembourg law does not stipulate a minimum wage (known as Salaire Social Minimum or SSM). Instead, rates depend on the employee’s age and qualifications. In 2023, the SSM was EUR 3,009.88 for skilled workers over 18 years old and EUR 2,508.24 a month for unskilled workers over 18 years. To be considered a skilled worker in Luxembourg, the individual must have an official certification, or proof of a minimum number of years of professional experience. Workers under 18 years old get 75-80% of the SSM, depending on their age.
Luxembourg compensation laws specify overtime rates based on the conditions of the extra hours worked. Overtime is generally compensated with time off but can also be credited to a time savings account or paid financially. 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.
Guaranteed benefits in Luxembourg
A Luxembourg benefits management plan should include both required and supplemental benefits. In Luxembourg, guaranteed benefits cover time off during the country’s 11 public holidays and at least 26 working days of paid vacation each year. Time off also depends on any applicable CBAs, which can mandate additional vacation days.
Guaranteed benefits also include health insurance under the state-funded healthcare plan — basic medical coverage that allows Luxembourg employees to choose their doctor, specialist, and hospital. Both employees and employers pay into the program.
Other statutory benefits include:
- Parental leave
- Health insurance
- Paid annual leave
- Paid sick leave
- Paid holiday leave
Luxembourg benefits management
Another aspect of Luxembourg benefits management is providing supplemental benefits that meet local employees’ expectations. For example, while the country doesn’t mandate a 13th-month bonus, employers customarily offer one. In fact, most employers will include half of a 14th-month’s pay on top of this year-end bonus.
Other common supplemental benefits include:
- Additional insurance through a non-profit health insurance agency or mutual association
- Extended vacation time
- Performance awards
Providing supplemental benefits to help employees cover significant life events, manage work responsibilities, and meet other needs will help your company improve retention rates and attract top talent.
Restrictions for benefits and compensation
A CBA could have restrictions separate from Luxembourg’s compensation laws. Companies need to check both before drafting an employment contract to ensure the agreement represents the correct amounts.
Luxembourg competitive benefits planning
Employee benefits planning in Luxembourg calls for careful consideration. You need to balance your company’s resources with what your employees need and what the national labor laws require.
How to design your employee benefits program
Every company’s benefits program may look a bit different. That said, the following steps can be helpful as you begin planning.
1. Evaluate your company’s resources and objectives.
Start by examining your current resources, factoring in employee contributions and operating expenses as part of your budget.
Setting goals for your company can help you make the most out of your budget. For example, if you want to start with a large team to support your growth, you may consider keeping supplemental benefits to a minimum so you can dedicate your resources to other expansion requirements.
2. Complete a needs assessment.
To create an effective benefits plan, you need to factor in employees’ expectations. You can learn about their needs by interviewing local talent, sending out questionnaires, and researching economic conditions in the area.
Complete a comparative benefits analysis to prioritize employee concerns. You’ll want to identify and select the most high-impact benefits for your team.
During this phase, you may also consider researching competitors. Your open positions will stand out more if you can meet or exceed the benefits offerings of other companies in your industry and area.
3. Develop your benefits plan.
Use the information you’ve gathered to build your benefits program. It’s best practice to factor in the required benefits first and then add extras as your budget allows.
Average cost of benefits per employee
Each company has a unique budget, and employee expectations will vary across industries. Rather than basing your expenses on a national average, you can create a sustainable benefits program with strategic planning. Develop a program that prioritizes top employee needs and allocates resources at a rate your business can manage over time.
How to calculate employee benefits
Like the average cost, calculations will vary depending on the benefits you offer. For any mandatory benefits, you can refer to national labor codes to determine appropriate compensation and contribution rates.
How are employee benefits taxed in Luxembourg?
Taxable income in the country includes regular wages, pensions, and annuities. Any benefits that fall under the categories of employee income but do not qualify for specific exemptions must be included in the calculation of employee withholding taxes.
Several benefits have special tax exemptions, including legal severance payments, social security benefits, specific life insurance annuities, and gifts from seniority valued up to EUR 4,500. Employees can deduct EUR 540 yearly from their professional expenses, which may exempt some benefits with a lesser monetary value from taxation.
International employees who meet qualifications for working in Luxembourg may receive special tax exemptions for benefits such as moving assistance, accommodation stipends, or home leave.
Employee health benefits plans
The standard employer contribution to the country’s social services system is 2.8% of gross income. This social system includes state-sponsored healthcare for employees.
Companies may choose to offer supplemental benefits that enhance employees’ mental and physical wellbeing, such as gym memberships or access to additional mental health services.
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