Employee benefits in Luxembourg: All you need to know

Hiring managers considering skilled talent across Europe will find a little slice of top-shelf expertise living (or commuting to) the beautiful climes of Luxembourg. Nestled between France, Belgium, and Germany – this haven of globally fluent talent pulls together nationals and expats to support a thriving banking and professional services hub that’s been built off the back of employer-friendly taxation laws.

Around 45% of the workforce in Luxembourg are commuters from nearby countries, but nationals and foreign residents are open and actively pursuing roles from progressive international companies that can provide a strong work-life balance.

Traditionally, salaries in Luxembourg are high, tax rates are low, but employees are expected to work hard and deliver long hours. This culture is slowly changing as more employees are seeking better conditions. The acceleration of fully-remote roles opens up new possibilities for the highly-skilled professionals in Luxembourg who are ready to claim back more control of their lifestyle.

If you’re considering hiring a Luxembourger, you’ll need to develop a compliant and competitive benefits and compensation package to give your company the best chance of attracting top talent. Standards are high in this small European financial powerhouse, so low-balling candidates will likely see your time wasted.

How do you develop a strong benefits package for Luxembourgers?

There’s a significant list of statutory benefits you must provide according to local employment legislation. We’ve also pulled together a collection of additional perks that will incentivize Luxembourg workers to favor your offer over that of a competitor.

In this guide to managing benefits and compensation in Luxembourg, we’ll walk you through:

• How to classify workers correctly to determine who is entitled to what benefits in Luxembourg

• The statutory benefits you must provide

• Additional perks that’ll help you get a new candidate over the line

• How to develop a compensation package to compete in the local market

• When and why you need to start using an employer of record

Who is entitled to benefits in Luxembourg?

The labor market in Luxembourg is regulated by the Labor Code of 2006, and a number of related European and international statutes.

Luxembourg’s workforce of over 487,000 enjoys solid protections against discrimination based on age, religion, sexual orientation, gender expression, and racial background.

Any employee working in Luxembourg and registered with the social security authorities for at least one month is eligible for the benefits.

This includes employees from other EU countries and non-EU citizens who have valid work permits. Family members of employees are also eligible for some benefits, such as family allowances and healthcare coverage.

Luxembourg, like many other European countries, treats self-employed individuals or contractors and full-time workers differently.

Independent contractors are not entitled to the same mandatory entitlements as employees, so it’s important to understand the category your employment relationship falls into in order to avoid the risks of misclassification and any subsequent fines or penalties.

It’s important to understand this delineation. With the exception of social security contributions, the majority of benefits stated in local legislation only apply to full-time employees.

Regardless of whether you view a worker as an employee or a contractor, legislators will make the only determination that matters. If you’re found to have an employee relationship and you’ve neglected to provide statutory benefits, you’ll open your company up to the serious risks of misclassification and subsequent fines or penalties.

For more detailed information about understanding this concept, be sure to read our dedicated guide to misclassification.

Statutory and Common Employee Benefits

Leave Entitlements

Employees in Luxembourg can take a minimum of 25 days of paid leave per year according to the law of 25 April 2019. Depending on the employee’s preference, they can use it in one block or split it into two blocks. Employees can only take a paid leave for the first time, having worked for the same employer for three uninterrupted months.

Also, employees should only take paid leave within the calendar year. If the employee must take the leave before March 31, they can postpone it to the subsequent year. The labor code has also established 11 statutory public holidays.

If a public holiday falls on a non-working day, a compensatory day off can replace the day, which employees should take three months after the public holiday.

Sick Leave

Employees who cannot work due to illness or injury are entitled to up to 104 weeks of paid sick leave. The amount of time allowed for sick leave depends on the employer’s agreement and how long an employee has been working for a company.

Maternity and Paternity Leave

Employees in Luxembourg are eligible for maternity leave of 20 weeks with 100% pay, and paternity leave of six months with 100% pay. These are comparatively progressive entitlements in a global context, and set a solid benchmark for global employers to consider as a base for equity.

The amount of parental leave that an employee can take may also depend on the agreement with the employer.

To apply for maternity, paternity, or parental leave, an employee must have been working for their current employer for at least three months before they can start taking this type of leave. The length of time employees can spend on these types of leaves varies depending on how long the employee has been working for their current employer.

Other key considerations of parental leave in Luxembourg

• The maternity benefits are paid during the antenatal and postnatal leave

• The benefits amount to the highest salary paid in the time before the employee takes leave

• Financial maternity benefits should be between 1-5 times the social minimum wage maximum wage

• Only parents who have children below six months are eligible for parental leave

• There have been recent changes in parental leave legislation to allow employees working full time to stop working for 4-6 months

• Employees working part-time can now stop working for 8-12 months with the employer’s consent

Pension Plans/Retirement Contributions

Employers should deduct 20% of their employees' salaries for pension plans. This percentage can go down if the employer decides it is in its best interests but cannot go below 15%.

The employers must also pay an additional contribution every month which goes towards state healthcare coverage and other social security benefits. That depends on how many employees they have.

Employees in Luxembourg have the option to make voluntary contributions to their pensions. They can make these contributions with after-tax money but this will become subject to deduction from the employee's taxable income.

The employer cannot contribute any money to the pension plan, but they can match employee contributions up to a certain limit.

Minimum wage

The government-mandated minimum wage in Luxembourg is fixed to match the general price level. This is reviewed every two years. Following the latest review, the Luxembourgish minimum wage has been increased by 2.8% and is currently set at:

• € 2,201.93 per month for non-graduate workers

• € 2,642.32 per month for graduate workers with appropriate certifications

Overtime

The legal working hours in Luxemburg are eight daily, translating to 40 hours per week. If an employee works more than eight hours, they are eligible for overtime pay at a rate of 50% for the first two hours and 100% after that.

Employees who work Sundays or public holidays are also entitled to overtime payments at a rate of 140%. The employer must keep an accurate record of all the hours worked by their employees.

This mandated overtime provision is difficult to monitor and legislate, and it’s fair to say that salaried employees in Luxembourg (particularly in the financial services industry) are often expected to work much longer hours.

Prorgressive employers have an opportunity to offer more flexible working hours. If you can demonstrate a commitment to afford your employees solid work-life balance, you’ll find it easier to lure top-quality local talent from more traditionally-minded employers.

Insurances

Employees in Luxembourg are under social security cover, including medical and hospital insurance.

The employer must contribute to this insurance and unemployment and pension plans. This mandatory healthcare insurance provides for the reimbursement of medical costs and compensation for sick leave, maternity leave, adoption leave, and family leave. Accident insurance is also financed by the employer’s contributions.

Employers may wish to offer premium health insurance, life insurance, or even specific dental and optical cover. This benefit will be appreciated but isn’t expected in Luxembourg.

Supplemental Benefits to Consider for Luxembourgers Employees

Annual bonus

Employees who have been working for their employers for over three months are eligible for an annual bonus. These bonuses should be payable at least once a year, and the amount varies depending on how long an employee has been working for their current employer.

The maximum amount that employees can get is twice the employee’s monthly salary, including the overtime payments made.

Travel allowance

Employees in Luxembourg can get a car allowance from their employers every month. The amount varies depending on how many days an employee has been working during that month or week.

It can also be part of the salary payment system where companies charge employees for using cars within certain hours, which is cheaper than paying them separately.

Meal Vouchers

Some companies in Luxembourg offer their employees meal vouchers. This is money the employee can use to buy food from approved restaurants. The voucher system is a common incentive for good performance or a reward for employees working extra hours.

Take-home Car

This is an additional benefit that some companies decide to offer to their employees. The employee can use a company vehicle for specific hours of the day and will not have to pay any extra fees charged by their employer, unlike when using their cars during working hours. This system works well in large cities where people have long commutes to and from work.

However, this benefit is more commonly used as an incentive for the large proportion of commuters who live outside of Luxembourg’s borders.

With this context, local residents won’t place as much value on this benefit. As this perk is a particularly expensive one, international employers will likely be better served by offering an alternative benefit to entice Luxembourgers.

Gym or health club memberships

Many companies in Luxembourg offer their employees a company gym. This is usually at no extra cost to the employee and gives them access to all the equipment they need to stay fit.

A commitment to health and wellness demonstrates your care to your employees. There are many gyms and health clubs in the city you could consider, or a simpler option may be to provide a stipend for the employee to spend on things like yoga classes, meditation classes, home gym equipment, or local club membership.

Paid Vacation

Employees in Luxembourg are eligible for a minimum of 20 days of paid vacation per year. This is in addition to the public holidays throughout the year. The amount of vacation days an employee can take increases with each year of service until it reaches 30 days. The vacation also motivates the employees to keep working and meet their targets.

Dental and Vision Insurance

Many employers in Luxembourg offer their employees dental and vision insurance. These services are expensive for the employee, so provisions here have a high perceived value.

Additional paid time off

Luxembourg consistently ranks high on ratings of average compensation rates. But with high expectations and long hours culturally entrenched in Luxembourg, smart employers can differentiate themselves by offering employees additional paid time off.

This benefit will open access to a wider pool of skilled local professionals who are exclusively looking for businesses that genuinely care about affording a strong work-life balance.

Our soft benefits guide outlines a number of relatively inexpensive but highly valued perks. This could include things like:

• additional annual leave

• personal learning and development budget

• therapy or coaching allowance

• mentorship programs

• volunteering days

• flexible working hours

These relatively inexpensive benefits demonstrate your commitment to your employees' welfare and should give you an edge in a labor market where you’re not just competing with German, French, Swiss, and Belgian employers – you’re competing with companies from all corners of the globe.

Our small business benefits guide will help with suggestions about cost-effective benefits that your remote employees are going to love — without eating into your bottom line.

Doing the bare minimum for your employees just won’t cut it any longer, especially in the red hot market for skilled talent in Luxembourg.

You need to develop a strategy that’ll help you offer competitive international benefits to attract top talent and Remote can help you get proactive to develop the type of package you need to hire and retain the best of the best.

Want to see a full breakdown of employment costs for new hires in Luxembourg? Check out our free Employee Cost Calculator tool.

Benefits & Leave —

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[Webinar Recording] Managing a global benefits plan

In this one-hour webinar, you’ll get a crash course on all things global benefits, as well as a lively Q&A with real questions from business owners hiring around the world.

How to set up and manage benefits for international employees

The complexity of preparing compliant contracts, onboarding, and managing payroll for a globally distributed team is significant. Building your own legal entity in each new country you hire is too expensive and time-consuming for all but the biggest global enterprises.

An employer of record (EOR) can take away the burden of all the time-consuming manual work involved with international hiring. Rather than partnering with multiple local payroll providers, legal advisors, and HR specialists – an EOR offer you a fast, straightforward, and scalable alternative.

By partnering with Remote as your global EOR, you can focus on growing your business without worrying about any of the challenges and complexities.

Our team of HR specialists are on the ground in every continent. We become your own team of local experts, building culturally fluent employment packages that will separate you from the competition.

When should you use an employer of record?

The answer is simple:

An EOR will provide specialist expertise to keep you compliant whenever you are considering an international hire.

As we explain in our guide to when you should use an EOR, the following situations are common trigger instances for you to reach out for support:

• Creating compliant employment contracts for cross-border candidates

• Developing benefits packages catering for local requirements and expectations

• Onboarding new international employees and contractors

• Setting up payroll for international team members

• Handling terminations, dismissals, and redundancies

• Managing the nuances of IP & patents produced by your remote employees

How to set up and manage benefits for international employees

Whether you’re hiring a CFO based in Luxembourg, a sales enablement manager from the Philippines, or an HR executive from Chile, you need to understand how compensation and benefits fit in with your global team and the specific local context.

And that’s why we built Remote.

• Our people are on the ground in every continent, building culturally aware employment packages that help you build trust with everyone in your team

• We have in-house experts in every region to keep you compliant with ever-changing regulations

• Remote’s internal expertise allows you to compete and grow in the global market and build strong and meaningful connections across borders

An employer of record like Remote manages the complicated aspects of global hiring so your team doesn’t have to worry. Managing your HR needs in Luxembourg is just the start of the world of opportunities we can help you explore.

You can learn more about how Remote simplifies global HR to help you develop a more connected, motivated, and powerful global team.

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