How to use an Employer of Record in Luxembourg

If you’re reading this, chances are that you’re on the verge of hiring a remote employee based in Luxembourg. With around 75% of the country’s workers being migrants from the neighboring countries of France, Germany, and Belgium, it’s no surprise that the country has a talented and diverse workforce worth tapping into.

To hire employees in Luxembourg, though, you’ll have to open a local entity in the country and figure out payroll taxes, and mandatory benefits, and maintain compliance with complex employment laws. You’ll also have to spend time and resources setting up admin processes to hire, pay, and manage your employees. 

Alternatively, you could use an employer of record to set up a legal entity on your behalf and handle all of these tasks for you. An employer of record has a team of employment experts that can help you hire employees in Luxembourg quickly and compliantly. 

This article will serve as a detailed guide to using an EOR to hire in Luxembourg, including advice on how you can vet potential EOR providers, the benefits they offer, and what Luxembourg’s general employment regulatory landscape looks like.

Six steps to hiring employees in Luxembourg using an employer of record

Before working with an EOR, you need to do your due diligence to ensure they have the legal and technical infrastructure to support your international hiring needs. Otherwise, it can expose your company to financial and legal liabilities in Luxembourg. Follow these six steps to find the right EOR to grow your business in Luxembourg.

Step 1: Weigh up the pros and cons of each potential partner

On a basic level, most EOR providers will offer you a registered entity that authorizes you to hire employees in your country of choice. But, it’s the add-ons they offer that will ultimately determine if they’re your best option. You need to compare the potential providers you’ve shortlisted using metrics such as:

• Pricing: How much does their service cost? Would you need to pay extra for payroll, benefits, and tax management? Does their pricing reflect the value they offer? Does their pricing scale linearly or exponentially as you add more employees? Can you get a discount if you’re a non-profit? Do they have different pricing scales for contractors and employees?

• Do they own their own local entities, or do they depend on third parties?

• How long have they been operating?

• What does their UX look like? Can you get a few employees to try out the product and rate it? How easy is it for employees to take paid leave, submit invoices, update their details, etc. on their platform?

• How easy is it to dismiss an employee and pay them their accrued severance without legal trouble?

• Do the contracts they enter with your employees (on your behalf) secure your rights to the intellectual property your employees produce using your company’s resources?

Step 2: Make sure your EOR partner owns its legal entity in Luxembourg

Some EOR providers don’t own their own local entities. Instead, they depend on a network of subsidiaries and locally-registered entities owned by their acquaintances or third parties, who let them use those services for a fee. But, those third parties can jack up their prices at will, even if you overlook the risk of being entangled in any illegal stuff the external companies may be involved in.

This is why you should check whether your EOR of choice owns their own local entities and confirm they have the certified documents to ensure they’re registered and in good standing before you use their services.

Step 3: Check the reviews, testimonials, and coverage of your shortlist of providers

When you’re reading client reviews of your potential EOR partner, check:

• How responsive your prospective EOR provider’s service is. Have they attempted to respond to negative reviews?

• How long does it take them to resolve issues with their product? It’s also helpful if you can ask existing customers what their experience using the EOR’s services has been like.

• Whether they comply with relevant local regulations, especially regarding employment taxes and benefits.

• If they’ve suffered security breaches in the past and any (if at all) changes they’ve made to prevent future attacks.

Platforms like Saasworthy, G2, Capterra, or Trustpilot have crowdsourced reviews of EOR providers like Remote (that’s us) and other global employment providers.

Step 4: Ensure that the EOR solution for Luxembourg will provide a best-in-class employee experience

You need to test run your EOR to see how seamlessly the employee experience is, including how long it takes to submit payroll details, get enrolled for benefits, get paid (every week or month), claim benefits, and apply for time off. A good EOR will have adequate provisions to:

• Generate payslips that show your employees’ compensation with a clear breakdown of any taxes, contributions, and deductions levied on their gross pay.

• Resolve employee issues through a reliable, responsive helpdesk.

• Onboard employees and collect their tax information, personal details, and account details securely.

• Offer a simple, straightforward user interface that makes it easy to upload invoices, update personal information, and apply for time off without jumping through hoops

Step 5: Work with your partner to make sure you always provide a fair and equitable compensation package

Since remote work has gone mainstream post-pandemic, an interesting question to ask is how do you determine how much to pay your remote workers?

Do you benchmark against the local rates for your company headquarters, or do you pay each employee just above the average compensation for their role and location (i.e., localized compensation)?

For example, a principal software engineer based in San Francisco, on the staff of tech giants like Meta, Stripe, or Databricks can easily clear $1M annually in basic comp and RSUs while a software engineer in Luxembourg would earn roughly $72,104 (€66,808) a year according to Glassdoor.

On the surface, it might seem unfair, but when you factor in the local cost of living and market competition, staff in Luxembourg are still earning a good salary. So, there’s no right or wrong way to slice it, as long as you pay enough to attract top-tier candidates.

An EOR should be able to help you figure out a compensation and benefits strategy by factoring in labor laws and the individual’s role, skills, and experience to make sure that employees are getting paid what they’re worth.

Step 5: Make sure your partner can guard your intellectual property and maintain data security for your business

An EOR operates as your outsourced (international) human resources arm that processes payroll, benefits, and deals with legal ops like taxes, occupational insurance, and social security contributions, on your behalf. This means the EOR will have access to sensitive information about your company, including the financial and personal information of your employees.

This is why it’s essential to ensure that the company has proper security measures in place to protect against potential risks or threats to your intellectual property and data security.

Among others, an EOR provider should demonstrate that they:

• Are SOC2 and GDPR-compliant,

• Undergo regular penetration testing exercises for security preparedness

• Monitor their systems to prevent breaches and unauthorized access

• Restrict access using 2-factor authentication and single sign-on

• Make sure their partners and vendors undergo due diligence to avoid third-party breaches.

In addition, the employment contracts that your EOR signs with your remote employees should specify that you reserve the right to the IP and inventions your employees are paid to create using your company’s resources.

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What are the benefits of using an employer of record in Luxembourg?

An EOR helps you focus on hiring foreign talent by not only acting as your legal entity but managing all the admin work of managing employees, including:

• Making sure your employees and contractors can get paid quickly.

• Managing benefits and perks such as PTO, stock options, retirement savings accounts, etc.

• Minimizing your legal liability by helping you employ workers through compliant local companies.

• Protecting your intellectual property with clear, legally admissible contracts that secure your rights to the IP your employees produce with your resources.

• Withholding and remitting contributions such as taxes, insurance, etc.

Employment contracts in Luxembourg

All employment contracts sealed under Luxembourgian law must be written down, and must contain the following elements:

• The identity of the parties (i.e., names, legal entities, etc.)

• The date the employment contract commences

• The location of employment 

• Nature of employment (description of the tasks, if necessary)

• Employee’s daily or weekly standard working hours

• Standard working schedule

• Employee’s remuneration and accessories, including pay, benefits, etc.

• Length of paid holiday or method for calculating it

• The length of paid notice both parties must provide before terminating their contract

• Length of probationary period

• Any complementary provisions

• Any collective bargaining agreement governing the employee’s working conditions

• Any supplementary pension scheme

How much does it cost to use an EOR in Luxembourg?

How much you end up paying for EOR services depends on the type of provider you opt for and how they operate (i.e., tech-enabled vs. legacy). For example, traditional employer of record providers will charge you a percentage (15% to 18%) of the total salary you pay your employees or a minimum fee of $1,600 per employee, per month, whichever is higher.

In comparison, smaller tech-enabled EOR startups may offer you significant discounts, but it’s probably because they don’t own their own entities.

In comparison, Remote’s extensive global employment services offer the full suite of services needed to hire abroad — onboarding, benefits, payroll, data security, taxes, and compliance at a low, flat rate. Check out our pricing page to see how we compare to the competition.

Hiring in Luxembourg

Under Luxembourg law, employment agreements must adhere to the principles laid down in legal statutes, such as:

• EU regulations and international conventions ratified by Luxembourg;

• The 1868 Constitution;

• Labour Code of 2006 (Code du travail);

• Regulations derived from the provisions of the Labour Code; and

• Collective bargaining agreements that apply to entire sectors of the economy.

Employment contracts and agreements in Luxembourg

In Luxembourg, all employment contracts must be in writing, and in a language both parties can understand.

Payroll and payroll taxes in Luxembourg

Employers are required to withhold mandatory social security contributions such as pensions (8%), health insurance (2.8% to 3.05%), and dependency contribution (1.4%), while income taxes range from €921 on €20k of income (4%) to €76,642 on €205,000 (37.3%) worth of income.

Luxembourg employee benefits and compensation

Employees in Luxembourg are generally entitled to the following benefits, unless a collective bargaining agreement (or the employment contract) provides for better terms.

• Annual vacation: Workers are entitled to at least 26 days of paid leave per year

• Public holidays: There are 10 official public holidays, and employees must be compensated with a day off if a public holiday falls on a weekend.

• Sick leave: Sick leave is capped at 26 weeks off, and employers must pay a worker’s full wages for the first 76 sick days off per year (and will be reimbursed 80% of that sum by Social Security). Starting on the 77th day of illness (in any consecutive 12-month period), any further incidence of illness is paid for by Social Security.

• Maternity leave: Maternity leave lasts 20 weeks and can begin eight weeks before delivery. Pregnant employees are expected to notify their employers at least 12 weeks before they’re due for delivery.

• Paternity leave: 10 days off, except if the employee is covered by a collective bargaining agreement that stipulates that the employee should get more days off.

• Bereavement: A day off upon the death of a relative to the second degree; five days off for the death of a minor child; and five days off for the death of a spouse, partner, or a relative to the first degree

• Marriage: Parents are entitled to one day off for the marriage of their children, while employees are entitled to three days off for their marriage or a day off for a declaration of civil partnership.

Severance pay and employee terminations in Luxembourg

The conditions upon which an employee can be dismissed in Luxembourg depend on whether they’re covered by a collective bargaining agreement, the type of contract they’ve entered into with the employer, the reason for the dismissal, and the size of the employer’s organization.

For instance, employers who have more than 150 employees need to hold a hearing before dismissing staff, while employers with at least 15 workers on staff must notify the economic committee before dismissing their employees.

Luxembourg —

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What are the risks of employee misclassification in Luxembourg?

Luxembourg’s labor laws clearly distinguish between full-time employees and independent contractors, using three measures. 

If you exercise significant control over a freelancer or contractor’s performance and process or give them direct orders, they legally qualify as contractors. You might be required to pay them back pay, plus any social security contributions the government deems you didn’t make on their behalf during the entire duration they were misclassified.

Check out Remote’s comprehensive guide to employee and independent contractor misclassification for more information about how you can avoid the risks of misclassifying employees as freelancers.

Get started with an employer of record in Luxembourg

It’s not easy hiring employees in Luxembourg. From onboarding procedures, taxes, and benefits to sorting out payroll and employee management  — you’ll need to spend a significant amount of time and resources trying to understand and comply with labor rules and regulations.

Instead of spending weeks (or months) flying across continents to set up local entities, bank accounts, and filing for the appropriate permits, you can skip the legal legwork and focus on finding the best workers, provided you find the ideal EOR for your business needs. 

Remote’s global employment services can make it quick and easy for you to hire in Luxembourg. Remote can help you:

• Onboard employees in less than a week

• Pay salaries and process invoices.

• Withhold taxes and contributions and remit them to the appropriate government offices.

• Offer localized benefits your employees can take advantage of, no matter where they’re located.

• Get access to our team of global employment experts to help you determine what’s a fair salary for your employees and the best benefits to offer them

• Secure the rights to your IP with clear contracts that assign them to your company

Ready to take your business to the next level? Learn more about Remote’s global employment services and hire international employees easily. Get started with Remote to onboard your new hires in Luxembourg today!