Taxes and payrolls: the labour market in Luxembourg
Each labour market has some peculiarities. It may be tricky for foreigners to understand fully the payment methods, the taxes and other benefits related. In TalentUp we are starting a series of different blog articles, one for each country. This article analyses the labour market in Luxembourg.
General data about the Luxembourger labour market
| Minimum wage | 3,009.88 |
| Payment basis | Usually monthly, but weekly is also common |
| Payment | Must be paid by the last day of the month |
| Maximum working hours a week | 40h |
| Maximum overtime hours a week | 8h |
| Working hours compensation | Paid at 150% rate. |
In Luxembourg, it is customary to pay the 13th salary.
Work on Sunday is prohibited unless under certain circumstances or for specific sectors; specific compensation should be paid.
Payroll taxes in Luxembourg
Social security contributions are made by the employer and the employee and are used for funding unemployment, pension, maternity/paternity leave, and sickness or injury.
| Contingencies | Employer % | Employee % |
| Pension | 8.00% | 8.00% |
| Health Insurance | 2.80% to 3.05% | 2.80% to 3.05% |
| Accident at Work | 0.68% to 1.13% | |
| Mutual Health Benefit | 0.60% to 2.98% | |
| Health at Work | 0.14% | |
| Dependency Contribution | 1.40% | |
| Total | 12.22% to 15.30% | 12.20% to 12.45% |
Contributions can be up to a maximum of 11,284.77 EUR per month.
Once contributions are paid, employees need to pay an income tax that varies depending on their gross salaries. It depends on whether the taxpayer is married or single. There are many salary bands and the tax is not a share, is an established amount of euros.
Contingencies from self-employees
Self-employed have to pay communal business tax (6.32%), personal income tax and property tax. The withholding tax scheme does not apply to them.
Example of net salary in Luxembourg
As a reference, we use the average salary of a software engineer. In Luxembourg, on average, software engineers earn annually 53,700€.
| Employer | Employee | |||
| % | € | % | € | |
| Gross salary (annually) | 53,700 | |||
| Pension | 8.00% | 4,296 | 8.00% | 4,296 |
| Health Insurance | 2.80% to 3.05% | 1,503 to 1,637.85 | 2.80% to 3.05% | 1,503 to 1,637.85 |
| Accident at Work | 0.68% to 1.13% | 365.16 to 606.81 | ||
| Mutual Health Benefit | 0.60% to 2.98% | 322.2 to 1,600.26 | ||
| Health at Work | 0.14% | 75.18 | ||
| Dependency Contribution | 1.40% | 751.8 | ||
| Total | 12.22% to 15.30% | 6,562.14 to 8,216.1 | 12.20% to 12.45% | 6,551.4 to 6,685.65 |
| Income tax* if single | 13,081 | |||
| Net salary (annually) | 33,933.35 to 34,067.6 |
The employer contributes 6,562.14 to 8,216.1€ to social security and the employee 6,551.4 to 6,685.65€.
After paying the income tax, the employee has a net salary of 33,933.35 to 34,067.6€ coming from a gross salary of 53,700€.
Unemployment regulation in Luxembourg
For employers with more than 150 employees, a hearing must be conducted before the employee is dismissed. For employers with at least 15 employees, the employer must notify the economic committee of the dismissal.
The amount of notice is dependent on the length of service:
| Time worked | Notice period |
| Less than 5 years | 2 months |
| Between 5 and 10 years | 4 months |
| More than 10 years | 6 months |
Notice begins on the 15th of the month if the dismissal letter is provided before or on the 1st of the month. Notice begins on the 1st day of the following month if the letter of dismissal was sent between the 15th and the last day of the month.
The amount of severance pay is dependent on the length of service:
| Time worked | Severance pay* |
| Less than 5 years | No severance pay |
| Between 5 and 10 years | 1 month or 5 months |
| Between 10 and 15 years | 2 months or 8 months |
| Between 15 and 20 years | 3 months or 9 months |
| Between 20 and 25 years | 6 months or 1 year |
| Between 25 and 30 years | 9 month or 15 months |
| More than 30 years | 1 year or 18 months |
*The long period is only if the employer has less than 20 employees.
The probation period can be defined by various things:
- If an employee receives a monthly salary of at least 4,586.12 EUR, the maximum probation period is one year
- If an employee has a vocational skills certificate or equivalent, the maximum probation period is six months
- If the employee does not have a vocational skills certificate or equivalent, the maximum probation period is three months
Different kinds of leaves in Luxembourg
Employees receive a minimum of 26 working days of paid leave per year. Disabled persons or those who have suffered a work accident have an additional 6 days, and mining employees have an additional 3 days.
They have 11 public holidays.
The maximum duration for paid sick leave is 26 weeks. During the first 77 days of sickness leave within a 12-month consecutive period, employers provide full salary coverage, regardless of whether the leave is continuous or intermittent. Employers can seek reimbursement for 80% of this salary expense from their mutual scheme insurance. After the 77th day, Social Security takes over the responsibility for covering additional sick leave.
Paid parental leave
Maternity leave in Luxembourg is 20 weeks and can begin 8 weeks before the expected due date. it is paid by social security and it ranges from the minimum wage to 5 times the minimum wage.
Paternity leave lasts up to 10 days. To maintain the full duration, fathers must notify their employer at least two months in advance. Failing this notice, the leave can be limited to 2 days, and it can be taken non-consecutively within two months of the child’s birth.
Parental leave is also allowed. it depends on the hours worked by each parent and it is unpaid.
Other common Luxembourger benefits
| Benefit | % of companies with this benefit |
| Cutting Edge Technology | 16.7 |
| Diversity | 16.7 |
| health Insurance | 16.7 |
| Professional Development | 12.5 |
| Company Car | 8.3 |
How to employ a Luxembourger worker
If you plan to hire employees, you’ll need to register as an employer with the Luxembourg Social Security and Tax Authorities. And you need to register your business for taxation purposes. You will obtain a business identification number (n° d’identification fiscale, NIF).
Some platforms (Papaya Global among them) offer the Employer of Record (EoR) service helping companies hire countries where they do not have any office.
Follow TalentUp on LinkedIn and subscribe to our newsletter to get our latest articles!
