How to hire and pay independent contractors in Luxembourg

Luxembourg is ranked among the richest countries in the world. So, it's unsurprising that it's considered a goldmine for businesses looking to expand operations in Europe. The country has a highly skilled and multicultural workforce, thanks in part to recent education programs and proximity to neighboring countries such as France, Belgium, and Germany. Hiring independent contractors in Luxembourg is a solid option for companies who want to grow their teams in Europe.

Global contractors can offer a lot for your business, but you must take care to ensure that you do not misclassify them. Misclassification of workers can lead to heavy fines and penalties, or get your company banned from the country. While hiring from Luxembourg, you also have to comply with local labor laws and make sure you're paying your contractors compliantly.

Our helpful guide will outline what you need to consider before you decide to hire and pay contractors in Luxembourg. From tax compliance to employment law, we’ll explain what you need to know about managing contractors abroad.

What are the labor laws in Luxembourg?

When hiring independent contractors, it's essential to be familiar with the labor codes and general employment guidelines in Luxembourg. The Labor Code of 2006 regulates labor relations in Luxembourg and unifies all previous legislation related to employment law. 

The country's laws protect employees from discrimination based on sexual orientation, religion, race, gender expression, and age. Here’s an overview of labor laws in Luxembourg:

• Minimum wages: The government has mandated the minimum wage for skilled workers above age 18 to be €2,936.48.

• Payroll cycle: Employees in Luxembourg are paid monthly, either on the first day of the month or before it.

• Paid time off: Employers have to offer 2.167 days off every month to their employees. When calculated annually, this adds up to 26 paid leaves. 

• Public holidays: Employees in Luxembourg can take 11 public holidays. If you require your employee to work on a public holiday, you may have to give them up to 300% of their standard wage. For instance, if you usually pay €15 an hour, you will be required to pay €45 if your employee has to work on a public holiday. 

• Sick leave: Employees are entitled to their full wages for 77 sick days. 

• Maternity leave: Female employees get maternity leave of up to 20 weeks. The leave begins eight weeks before the due date and lasts for 12 weeks after childbirth. 

• Paternity leave: Employers are required to provide ten days of paid paternity leave to their male employees. 

• Adoption leave: If an employee adopts a child under the age of 16, they are entitled to the same leave duration as a biological parent. 

• Training leave: If an employee is taking a course for career development, they can take 80 days off at their full pay rate. They can also split this leave throughout their employment at the company.

• Benefits: Since the country has a high GDP and is economically strong, employees enjoy several benefits including supplemental dental insurance, life insurance, flexible work schedule, and supplementary vision insurance. 

When hiring from Luxembourg, you’ll need to draw up an employment contract — which can be indefinite or fixed term — outlining the working relationship between both parties. However, independent contractors in Luxembourg are not protected by the above labor laws.

A contractor management service like Remote can help you develop localized contracts that are compliant with Luxembourg’s employment laws and policies. Our team of experts has the local HR knowledge and expertise to help you manage the process of hiring and paying contractors in Luxembourg.

What are the risks of misclassifying Luxembourgian independent contractors as employees?

Many companies make the mistake of misclassifying their contractors incorrectly. Companies who don’t have the experience of hiring abroad, may not be able to clearly differentiate between employees and independent contractors, or even understand the consequences of misclassification. 

Luxembourg, like most other countries, treats employees and contractors differently.

An employee works exclusively for your company for a set duration decided by you. You have more control over their day-to-day operations and performance. Plus, you have to offer more benefits to them and provide the required materials or equipment for the job. 

Meanwhile, independent contractors are self-employed individuals who may work for multiple clients. They don't usually have predetermined working hours unless agreed upon by both parties. They set their own work schedule, and use their personal equipment and tools to do the job. Employers are not required to offer benefits to their independent contractors.

Many employers misclassify their employees as independent contractors to cut back on costs since they are often not required to pay unemployment insurance and other benefits to independent contractors. 

Whether you intentionally or unintentionally misclassify your workers, it can hurt your business and lead to legal problems. Countries have misclassification penalties to protect their workers since employees wrongfully labeled as independent contractors do not get any benefits, such as medical leave, overtime pay, etc.  

But monetary penalties are not the only risk of misclassification. You may also lose your right to intellectual property if you misclassify an employer as an independent contractor and the classification is challenged in court. 

Hiring independent contractors shouldn’t be stressful. That’s why you should partner with a contractor management solution like Remote, which is designed to help you navigate the murky waters of contractor management. Remote can ensure your contractors are categorized correctly, giving you the peace of mind that comes with hiring compliantly.

Tax and compliance practices for hiring independent contractors from Luxembourg

When you’re employing remote contractors, it's essential to make sure you understand the local taxation laws. Independent contractors have to file and submit their tax returns, so you don’t have to worry about withholding payments. 

However, US companies hiring independent contractors in Luxembourg have to comply with US tax laws. For instance, you’ll have to get your contractors to fill out the W-8BEN Form, as required by the Internal Revenue Service. In some cases, you’ll also need to fill out the 1096 form, which gathers details about the payments you have made while conducting trade or business outside the country.

Filing these tax forms and staying compliant with IRS regulations can get tricky, especially if you don’t have the resources to manage the paperwork on your own. That's when Remote’s services can make your life easier. When you onboard contractors with Remote, they’ll be directed to fill out the relevant tax forms and submit them to you — saving you the time and hassle of handling it all yourself.

How do I convert an independent contractor in Luxembourg to an employee?

Many companies tend to work with independent contractors because it's easier than hiring employees. But there are times when employers might want to convert an independent contractor into an employee. Here are some ways it can benefit employers:

• When a worker becomes a permanent member of your team and organization, it can lead to employee engagement and a greater sense of job satisfaction.

• It might lead to cost-savings for your business in the long run.

• It can save you the time and the hassle of hiring and onboarding new contractors.

• It can protect you from losing your IP and invention rights.

At the end of the day, you have to decide whether you want to hire employees or independent contractors based on your business needs. When you’re ready to convert your contractors to employees, Remote can manage the process for you.

How do I pay an independent contractor in Luxembourg?

Employers are required to pay their independent contractors in Luxembourg in euros after they submit an invoice. Some common ways to pay your contractors include:

• Bank transfer 

• Money order

• Paper checks

• Direct deposits

• Virtual wallets

• Digital payment platforms (PayPal or Wise)

Alternatively, you could use Remote’s global payroll system, which handles the payments process for you quickly and easily. When you use Remote, you can automate payments, manage invoices, and pay your contractors in the local currency with no hidden fees.

The best way to hire independent contractors in Luxembourg 

Employers looking for skilled talent across Europe can find what they’re looking for in Luxembourg. The country is home to a thriving banking and professional services workforce, thanks to Luxembourg’s low taxation and social security costs.

However, when you’re hiring independent contractors in Luxembourg, you’ll need to make sure you’re classifying your workers correctly. Otherwise, you may have to pay heavy fines or penalties. You’ll also have to comply with local tax and labor laws and pay your contractors on time.

But, don’t let the challenges stop you from hiring contractors abroad. Partnering with a global contractor management service like Remote can save you time, money, and the hassle of hiring, onboarding, and paying contractors on your own. With Remote, you can:

• View and manage all your contractors in one place

• Onboard contractors in minutes with localized contracts

• Pay your team of global contractors quickly

• Automate invoice approvals and payments

• Stay compliant with employment laws in Luxembourg

If you’d like to find out more about how you can hire independent contractors in Luxembourg, contact our friendly team who are waiting to help you. If you’re ready to start onboarding contractors with Remote, sign up and get started in minutes!