One employee in Luxembourg means registering with six different government agencies, mandatory works councils for companies over 150 employees, and 13th-month salary payments that catch most companies off-guard. Most companies don't find out about Luxembourg's unique requirements until they're already non-compliant and facing penalties.
Here's the reality: you've got three ways to hire in Luxembourg legally, and each comes with trade-offs you need to understand upfront.
Option 1: Set up your own entity
- Cost: €15,000-40,000 upfront, €8,000-15,000 annual maintenance
- Timeline: 4-6 months minimum
- Complexity: Chamber of Commerce registration, tax registration, social security setup, payroll infrastructure
- Makes sense when: Hiring 15+ people long-term, permanent market presence
Option 2: Hire contractors
- Cost: None upfront, but limited control over work
- Timeline: Immediate
- Risks: Misclassification fines up to €25,000, back social security contributions, employment law disputes
- Makes sense when: Short projects under 6 months, specialized consulting work
- Note: Hire with Columbus also handles compliant contractor agreements and payments
Option 3: Use an employer of record (Recommended for most)
- Cost: $179/month per employee
- Timeline: 2-3 days to hire
- Complexity: None - we handle all registrations and compliance
- Makes sense when: 1-20 employees, testing the market, multi-country expansion
If you're hiring 1-5 people, entity setup costs more than 4-5 years of EOR fees ($179/month = $2,148/year per employee vs €15,000+ setup). An EOR like Hire with Columbus handles employment contracts, payroll processing, tax filings, social security contributions, and keeps you compliant with Luxembourg's frequent labor law updates.
Ready to hire in Luxembourg without the compliance headaches? Get started with Hire with Columbus and have your team member onboarded within days.
What employment types can you use?
You've got three ways to bring someone onboard in Luxembourg, and the cost difference is pretty dramatic. Here's how they stack up in real numbers.
How can you hire in Luxembourg?
| Approach | Upfront Cost | Timeline | Monthly Cost (5 employees) | Best For |
|---|---|---|---|---|
| Set up entity | €25,000-35,000 | 4-6 months | €3,000-5,000 ongoing | 20+ employees, permanent presence |
| Hire contractors | €0 | Immediate | Variable | Short projects, misclassification risk |
| Use EOR (Hire with Columbus) | €0 | 2-3 days | $895/month | 1-50 employees, market testing |
Setting up your own entity means you're looking at serious upfront costs. Incorporation alone runs €1,500-3,000, but that's just the start. You'll need a registered office (€2,000-4,000 annually), legal setup (€5,000-8,000), accounting systems (€3,000-5,000), and ongoing compliance that'll cost you €30,000+ per year.
The timeline's the real killer though. Four to six months from decision to first paycheck, assuming everything goes smoothly. It rarely does.
Hiring contractors looks tempting because you can start tomorrow. But Luxembourg's labor authorities don't mess around with misclassification. If someone works like an employee (fixed hours, company equipment, integrated into your team), they legally are an employee. Fines start at €2,500 per violation and can hit €25,000 for repeat offenses.
The real risk? Back taxes and social contributions. We've seen companies get hit with €50,000+ bills for what they thought were legitimate contractor relationships.
Using an employer of record like Hire with Columbus means we become the legal employer while you manage the day-to-day work. At $179/month per employee, you're looking at $895/month for five people versus that €25,000+ entity setup.
We handle everything: employment contracts, payroll processing, tax filings, social security contributions, and compliance with Luxembourg's labor laws. Your employee gets paid correctly and on time, you stay compliant, and you can focus on actually running your business.
Employment contract types in Luxembourg
Once you've decided how to hire (and hopefully chosen the EOR route), you need to pick the right contract type. Luxembourg recognizes several employment arrangements, each with specific rules.
Permanent contracts (CDI - Contrat à Durée Indéterminée) are your go-to for core team members. No end date, full benefits, and the strongest job protection. Most Luxembourg employees expect permanent contracts for full-time roles.
These contracts require a probation period (2-6 months depending on the role) and give you the most flexibility for performance management. Notice periods range from 1-6 months based on tenure, which we'll handle when the time comes.
Fixed-term contracts (CDD - Contrat à Durée Déterminée) work for specific projects or temporary needs. Maximum 24 months total, including renewals. After that, the contract automatically converts to permanent.
You can only use fixed-term contracts for legitimate temporary needs: covering maternity leave, seasonal work, or specific projects. Using them to avoid permanent employment obligations will get you in trouble with labor authorities.
Part-time contracts give employees the same rights as full-time workers, just prorated. Minimum 3 hours per week, and you can't require availability outside their scheduled hours without paying overtime.
Part-time employees get proportional vacation days, sick leave, and benefits. If they consistently work more than their contracted hours, you might face claims for full-time status.
Temporary work through agencies is possible but heavily regulated. The agency remains the employer, you pay a markup, and there are strict limits on duration and renewal.
With Hire with Columbus, we draft compliant contracts for any of these arrangements. We know which clauses Luxembourg courts scrutinize and how to structure agreements that protect both you and your employee. No guessing about probation periods, notice requirements, or termination procedures.
How does payroll and taxation work?
Your €60,000 employee actually costs €83,400 per year in Luxembourg. That's a 39% markup once you factor in employer social security contributions, occupational accident insurance, and mandatory chamber of commerce fees.
Luxembourg's tax system hits employees with progressive income tax rates from 8% to 42%, plus a 7.5% solidarity surcharge on higher earners. As the employer, you're looking at hefty social contributions that'll seriously impact your payroll budget.
Tax brackets for employees
Luxembourg uses progressive tax rates that climb quickly. Your employees pay these rates on their gross salary in 2025:
| Annual Income Range | Tax Rate |
|---|---|
| €0 - €11,693 | 8% |
| €11,694 - €13,173 | 10% |
| €13,174 - €15,739 | 12% |
| €15,740 - €18,821 | 14% |
| €18,822 - €22,906 | 16% |
| €22,907 - €28,122 | 18% |
| €28,123 - €34,746 | 20% |
| €34,747 - €43,189 | 22% |
| €43,190 - €53,904 | 24% |
| €53,905 - €68,507 | 26% |
| €68,508 - €87,630 | 28% |
| €87,631 - €113,106 | 30% |
| €113,107 - €148,216 | 32% |
| €148,217 - €197,728 | 34% |
| €197,729 - €269,322 | 36% |
| €269,323 - €392,253 | 38% |
| €392,254 - €783,004 | 40% |
| €783,005+ | 42% |
Employees earning over €150,000 pay an additional 7.5% solidarity surcharge. It adds up fast for higher earners.
Social security breakdown
This is where your payroll costs really balloon. Luxembourg splits social contributions between employer and employee, but you're covering the bigger chunk:
| Contribution Type | Employee Rate | Employer Rate | Total Rate |
|---|---|---|---|
| Pension insurance | 8.0% | 8.0% | 16.0% |
| Health insurance | 5.15% | 5.15% | 10.3% |
| Long-term care insurance | 1.4% | 1.4% | 2.8% |
| Unemployment insurance | 1.0% | 1.0% | 2.0% |
| Occupational accident insurance | 0% | 1.02% | 1.02% |
| Total Social Contributions | 15.55% | 16.57% | 32.12% |
You'll also pay chamber of commerce fees (around €29-58 per employee annually) and potentially contributions to joint committees depending on your sector.
Payment schedule and bonuses
Luxembourg employees get paid monthly, typically on the last working day of the month. What catches most employers off guard: many collective agreements require a 13th-month bonus paid in December.
The 13th month isn't legally mandated for all employees, but it's so common that candidates expect it. If your sector has a collective bargaining agreement, you're probably locked into it.
Holiday allowances are separate and usually amount to an extra half-month's salary paid before summer vacation. This depends on your collective agreement, but you should budget for it.
Total employment cost example
Let's break down what that €60,000 salary actually costs you annually:
Employee gross salary: €60,000 Your employer social contributions (16.57%): €9,942 Occupational accident insurance (1.02%): €612 Chamber of commerce fees: €58 13th month bonus (if applicable): €5,000 Holiday allowance (if applicable): €2,500
Total annual cost: €78,112 (without bonuses) or €85,612 (with typical bonuses)
That's a 30-43% markup on the base salary, depending on your sector's requirements.
Payroll cycle and deadlines
You'll file monthly payroll declarations by the 15th of the following month. Miss this deadline and penalties start at €250, growing based on how late you are and how much you owe.
Annual tax declarations are due by March 31st for the previous year. The tax administration takes late filers seriously. Expect penalties and interest charges that compound quickly.
Social security contributions get paid monthly along with your declarations. You'll need to register with multiple agencies: the Centre Commun de la Sécurité Sociale (CCSS), the tax administration, and your relevant professional chamber.
Common payroll mistakes
Most companies trip up on collective agreement requirements. Luxembourg has sector-specific agreements that can mandate everything from meal vouchers to transportation allowances. Miss these and you'll face employee complaints and potential labor disputes.
Another frequent mistake: miscalculating the solidarity surcharge for high earners. It applies to the total tax due, not just income over €150,000, and catches many payroll systems off guard.
Currency fluctuations also bite international companies. If you're paying from outside the eurozone, budget for exchange rate impacts on your monthly payroll costs.
Setting up payroll in Luxembourg yourself:
- Local accounting firm: €800-1,200/month per employee
- Payroll software: €150-300/month
- Compliance risk: Fines up to €25,000 for serious violations
- HR expertise needed: €65,000+ salary for someone who knows Luxembourg law
With Hire with Columbus: $179/month per employee, fully compliant, zero setup headaches, and we handle all the collective agreement research for you.
Okay, that's a lot of legal jargon.
Here's the thing: you don't actually need to remember any of this. That's literally what we're here for. We'll handle the compliance while you focus on building your team in Luxembourg.
No lawyers required. Promise.
What benefits and leave are required?
Luxembourg employees get 25 days minimum vacation annually, and they accrue from day one of employment. You can't just let unused days disappear either – employees can carry over up to 12 days to the following year, and any remaining must be paid out at termination.
Here's what gets expensive fast: beyond the base salary, you're looking at roughly 40% additional costs for mandatory benefits and contributions. Miss these requirements and penalties start at €2,500 per violation, with labor inspectors who actually show up unannounced.
Annual vacation leave
The legal minimum is 25 working days per year for full-time employees. Part-time workers get prorated vacation based on their hours.
Vacation accrues monthly at 2.08 days per month (25 ÷ 12). New employees can use vacation as it accrues – no waiting periods required.
Carryover rules:
- Maximum 12 days can roll to the next year
- Remaining days above 12 must be taken or paid out
- All unused vacation gets paid at termination
- You can't force "use it or lose it" policies
Sick leave
Employees get unlimited sick leave, but the payment structure changes over time. No doctor's note needed for the first three days, but anything longer requires medical certification.
Payment breakdown:
- Days 1-77: Full salary paid by employer
- Days 78+: 100% salary paid by social security (Caisse Nationale de Santé)
- Chronic conditions: Different rules apply with potential employer relief after 77 days
You'll also pay a "continued salary" contribution of 0.25% of gross wages to help fund this system.
Parental leave
Maternity leave:
- 20 weeks total (8 weeks before birth, 12 weeks after)
- 100% salary paid by social security
- Job protection guaranteed
- Can extend with doctor recommendation
Paternity leave:
- 10 days within first two months after birth
- 100% salary paid by social security
- Must be taken in blocks of at least one day
Parental leave (additional):
- 4-6 months per parent depending on family situation
- Flat rate payment of €2,202 per month (2025 rate)
- Can be split between parents
- Job protection continues
Public holidays 2025
Luxembourg has 10 public holidays where you either give time off or pay double wages:
| Date | Holiday | Type |
|---|---|---|
| January 1 | New Year's Day | National |
| April 21 | Easter Monday | Religious |
| May 1 | Labour Day | National |
| May 29 | Ascension Day | Religious |
| June 9 | Whit Monday | Religious |
| June 23 | National Day | National |
| August 15 | Assumption of Mary | Religious |
| November 1 | All Saints' Day | Religious |
| December 25 | Christmas Day | Religious |
| December 26 | St. Stephen's Day | Religious |
If employees work on these days, they get 200% pay (normal wage plus 100% premium). Most businesses just close.
Mandatory benefits
Three benefits are non-negotiable in Luxembourg: health insurance, pension contributions, and unemployment insurance. Here's who pays what:
Social security contributions (2025 rates):
| Benefit | Employee Rate | Employer Rate | Total |
|---|---|---|---|
| Health Insurance | 2.8% | 2.8% | 5.6% |
| Pension Insurance | 8% | 8% | 16% |
| Unemployment Insurance | 0.5% | 0.5% | 1% |
| Accident Insurance | 0% | 0.91% | 0.91% |
| Total | 11.3% | 12.21% | 23.51% |
You'll also pay into the mutual insurance association (1.4% of gross wages) and dependency insurance (1.4% split equally).
Additional mandatory costs:
- 13th month salary (Christmas bonus) – legally required
- Sometimes 14th month (vacation bonus) depending on sector
- Occupational accident insurance
- Chamber of Commerce membership fees
Optional competitive benefits
Beyond legal requirements, Luxembourg companies often offer:
- Company car or mobility allowance (very common)
- Meal vouchers (€10.80 per working day, tax-free)
- Additional life insurance
- Private health insurance supplements
- Flexible working arrangements
- Professional development budgets
The company car thing is huge here – about 60% of employees get one due to favorable tax treatment.
Common benefit mistakes
Mistake 1: Forgetting the 13th month salary Every employee gets an extra month's pay in December. It's not a bonus – it's legally required. Budget for 13 months of salary, not 12.
Mistake 2: Miscalculating vacation accrual New employees accrue 2.08 days per month from their start date. Don't prorate based on calendar year – base it on their actual employment period.
Mistake 3: Ignoring continued salary obligations You pay full salary for sick leave up to 77 days. That's over three months of potential sick pay per employee annually. Factor this into your employment costs.
Mistake 4: Missing social security deadlines Contributions are due by the 10th of the following month. Late payments incur 0.6% monthly penalties plus administrative fees of €25-250.
Penalty costs:
- Missing social security registration: €2,500-12,500
- Late contribution payments: 0.6% monthly penalty
- Incorrect vacation calculations: €1,250-6,250
- Missing 13th month payment: Full back pay plus penalties
Administering these benefits correctly requires local HR expertise (€65,000+ annual salary), benefits software (€300-500/month), and constant legal updates. Miss something and those penalties add up fast.
Hire with Columbus handles all benefit administration, social security filings, and compliance monitoring for $179/month per employee. We calculate the 13th month automatically, track vacation accruals, manage sick leave payments, and file all social security contributions on time. Your employees get their benefits, you avoid the penalties, and you don't need a Luxembourg HR expert on payroll.
What are the compliance requirements?
Written contracts are mandatory in Luxembourg. Verbal agreements don't count and expose you to claims. Miss one mandatory contract clause and the entire employment agreement can be voided, leaving you liable for back payments and penalties.
Employment contract requirements
Every employment contract in Luxembourg must be written in French, German, or Luxembourgish. English contracts require an official translation attached. The contract must include specific mandatory clauses or it's considered invalid.
Required contract elements include:
- Employee's full identity and residence
- Employer's complete legal details
- Job description and workplace location
- Start date and contract duration (if fixed-term)
- Salary amount and payment frequency
- Working hours and rest periods
- Vacation entitlement details
- Notice periods for termination
Contracts must be signed within 30 days of the employee's start date. Late contracts trigger automatic penalties of €500-2,500 depending on company size. You'll also need to register the employment with Luxembourg's social security system within 8 days of hire.
Probation periods
Standard probation in Luxembourg runs 6 months for most positions. Senior management roles can extend to 12 months maximum. During probation, either party can terminate with just 2 weeks' notice.
After probation ends, full employment protections kick in immediately. This means longer notice periods, severance requirements, and potential consultation obligations. Most companies use the full 6-month period to properly evaluate fit.
Working time regulations
Maximum working time is 40 hours per week, with daily limits of 8 hours. Overtime requires employee consent and can't exceed 2 hours daily or 48 hours weekly including regular time.
Overtime pays 150% of regular salary for the first 25% above normal hours, then 200% after that. Employees need 11 consecutive hours of daily rest and 44 consecutive hours weekly (typically Saturday evening to Monday morning).
You must maintain detailed working time records for each employee. Missing or incomplete records result in €1,250-5,000 fines per violation during labor inspections.
Notice periods
Notice periods depend on length of service and who initiates termination:
| Years of Service | Employee Notice | Employer Notice |
|---|---|---|
| 0-5 years | 1 month | 2 months |
| 5-10 years | 2 months | 4 months |
| 10+ years | 3 months | 6 months |
Notice periods double during certain protected periods like pregnancy, sick leave over 26 weeks, or within 2 years of workplace accidents. Employees over 50 with 10+ years of service get additional protection requiring 12 months' notice.
Termination process
You can't fire someone in Luxembourg without documented cause and proper procedure. "Just cause" includes serious misconduct, repeated performance failures after warnings, or economic redundancy with consultation requirements.
For misconduct dismissals, you need written warnings, improvement periods, and documented evidence. Economic layoffs require consultation with employee representatives and government notification 2 months in advance for groups of 10+ employees.
Immediate dismissal without notice requires severe misconduct like theft, violence, or serious breaches of confidentiality. Even then, you must document everything and follow disciplinary procedures.
Severance pay
Severance applies to involuntary terminations without serious misconduct:
| Years of Service | Severance Amount |
|---|---|
| 1-5 years | 1 month salary |
| 5-10 years | 2 months salary |
| 10-15 years | 3 months salary |
| 15-20 years | 6 months salary |
| 20+ years | 9 months salary |
Employees over 50 with 20+ years of service receive 12 months' severance. This is in addition to notice period payments, not instead of them. Voluntary resignations and dismissals for serious misconduct don't trigger severance obligations.
Data protection
Luxembourg follows GDPR strictly. Employee data collection requires explicit consent and clear business justification. You can't process personal data beyond what's necessary for employment purposes.
Mandatory data protection measures include:
- Written privacy policies in employee language
- Secure data storage with access controls
- Data breach notification within 72 hours
- Employee rights to access and delete personal data
GDPR violations carry fines up to €20 million or 4% of global revenue, whichever is higher. Luxembourg's data protection authority actively investigates employee complaints and conducts surprise audits.
Common compliance mistakes
Invalid employment contracts happen when companies skip mandatory clauses or use English without translations. This voids the entire agreement and triggers back-payment claims for benefits and overtime.
Wrong termination processes cost the most. Firing someone without proper consultation, documentation, or notice periods results in reinstatement orders plus compensation. Even "mutual" separations need careful documentation to avoid claims.
Missing social security registration within 8 days of hire triggers automatic penalties. Late or incorrect filings compound quickly, especially with multiple employees.
Penalties for violations
Common compliance failures in Luxembourg:
- Invalid employment contract: €2,500 fine plus contract void, back payments owed
- Wrong termination process: 6-12 months' salary compensation plus legal fees plus potential reinstatement order
- Missing mandatory clauses: Contract deemed invalid, full severance and notice payments required
- Improper dismissal: €15,000-50,000 in compensation plus reinstatement rights
- Late social security registration: €500-2,500 per employee plus interest on unpaid contributions
- Working time violations: €1,250-5,000 per violation plus overtime back-payments
- GDPR breaches: €20 million or 4% of global revenue maximum
Hire with Columbus ensures every contract and termination follows Luxembourg law exactly. Our legal team handles all documentation, registration requirements, and compliance monitoring so you avoid these costly mistakes entirely.
What has changed recently?
Luxembourg's job market went through some significant shifts in 2025, and honestly, most of them make hiring there more attractive for international companies.
The biggest change? Luxembourg finally streamlined its work permit process for non-EU nationals in March 2025. What used to take 3-4 months now typically wraps up in 6-8 weeks, and they've digitized most of the paperwork. If you've been hesitant about hiring talent from outside the EU, this removes a major headache.
New minimum wage rates
Luxembourg bumped its minimum wage again in January 2025. The new rates are:
| Employee Type | Hourly Rate | Monthly Rate (40 hours) |
|---|---|---|
| Skilled workers (18+) | €17.85 | €3,085 |
| Unskilled workers (18+) | €14.88 | €2,571 |
| Workers 17-18 | €11.90 | €2,057 |
That skilled worker rate makes Luxembourg's minimum wage one of Europe's highest, but given the cost of living there, it's pretty much necessary.
Remote work legislation gets clearer
The remote work rules that were a mess during the pandemic finally got sorted out in February 2025. Luxembourg employees can now work from other EU countries up to 34 days per year without creating tax complications for your company. Before this, even a few days could trigger complex tax obligations.
For non-EU remote work, it's still capped at 25 days annually, but at least the reporting requirements are clearer now.
Digital nomad visa launches
Luxembourg introduced its digital nomad visa in June 2025, targeting high-skilled remote workers. It's not as flashy as Portugal's or Estonia's programs, but it allows remote workers to stay up to two years if they earn at least €3,500 monthly.
This doesn't directly affect hiring locals, but it does expand your talent pool if you're open to hiring nomads who want to base themselves in Luxembourg.
Social security contribution changes
Starting July 2025, Luxembourg reduced employer social security contributions for companies hiring their first employee. Instead of the standard 12.8% employer contribution, new companies pay just 8.5% for the first 12 months.
It's not a huge saving, but if you're testing the Luxembourg market with your first hire, it helps offset some setup costs. An EOR like Hire with Columbus can help you take advantage of this reduction from day one, without needing to establish your own entity first.
Parental leave expansion
Luxembourg extended parental leave benefits in September 2025. Parents can now take up to 8 months of paid parental leave (up from 6 months), and it's fully transferable between partners. The payment remains at 100% of salary up to €3,538 monthly.
This is great for attracting talent, especially in Luxembourg's competitive tech sector, but it does mean you need to budget for longer coverage periods when employees have children.
Anti-discrimination law updates
The employment anti-discrimination framework got stricter penalties in April 2025. Companies found guilty of workplace discrimination now face fines up to €75,000 (increased from €50,000), and there's a new requirement for companies with 50+ employees to conduct annual bias training.
If you're using an EOR, they'll typically handle compliance training requirements as part of their service, which saves you from tracking these evolving obligations yourself.