Luxembourg Employment Laws: A Detailed Guide for Employers

Luxembourg is a small European country that hosts the most advanced economies and collaborates with several major international organizations. As one of the founding members of the European Union (EU), Luxembourg’s strategic location allows businesses to test the European market with utmost precision while enjoying a systemic process implemented by the EU.

As the home to a multilingual and multicultural population with exquisite skills in varying industries, residents are always open to taking up challenging roles and succeeding. The prime getaway to test the European market for companies is made easier with favorable business protocols and a highly-skilled population in Luxembourg. 

Because of Luxembourg’s immense reach and subsequent support, it is not surprising that businesses seek to expand here. However, the government has implemented several protocols through the Luxembourg labor law to ensure well-optimized employment with utmost transparency. 

Even though the laws are simple to follow, several protocols require a steep learning curve. This article aims to reduce the learning curve by highlighting the most crucial information in a quick and digestible format. 

Who Is Covered by the Employment Act?

The labor code in Luxembourg applies to every resident working in the Grand Duchy of Luxembourg. The labor code can also extend to protect particular residents working abroad and non-residents in some instances. 

Employees can opt for the statutory benefits of labor act rules in Luxembourg for residents working abroad. However, the laws can be overridden by the local labor law should they prove to be more favorable to the employee than the Luxembourg labor code. 

Employment Contract

Hiring firms must provide a written employment contract either before the start date or on the first date of joining. According to the labor regulations in Luxembourg, every employment agreement must underline the mentioned information. 

• Involved party’s identities
• Contract start date
• Area of work or office address
• Designation deliverables
• Base salary and all other benefits
• Working hours
• Probation tenure, when applicable
• Tenure of paid leaves and notice periods
• Additional clauses, if any. 

By default, a contract is considered to be an indefinite contract or CDI (contrat à durée indéterminée) unless a termination date is mentioned. The most common categories of contracts used in Luxembourg are indefinite contracts, definite contracts, and seasonal contracts.

Key Provisions of the Act

The Luxembourg labor law and specific data protection rules of the General Data Protection Regulation (GDPR) implement some crucial employment provisions. These include:

Working hours

• Per the labor regulations in Luxembourg, the typical working tenure is 40 hours per week. 
• Employers can implement a 9-hour work day over five working days, but it should be capped at the mentioned working hour notification. 
• Companies can increase the maximum working hours to 10 per day with a maximum of 48 hours per week. However, employers must gain approval from the Inspectorate of Labour and Mines. 
• Any work done beyond the 40-hour rule is considered overtime. 
• Payment for overtime work is at 150% of the regular salary. According to the labor code in Luxembourg, employees are entitled to one and a half hours of leave for every hour of overtime work.

Holiday entitlements

Individuals protected by the labor act rules in Luxembourg are entitled to specific rest breaks and annual leaves, as mentioned below. 

• Rest breaks during shifts

1. 1. Employees serving shifts longer than 6 hours are entitled to one or more breaks. 
   2. The labor act rules in Luxembourg do not prescribe a tenure for the mentioned rest breaks. 
   3. The mentioned rest breaks can be paid or unpaid. Apart from providing a rest break, employers are allowed to determine factors like tenure, and remuneration for rest breaks, accordingly. 

• Rest breaks between shifts

1. 1. The minimum rest break for every employee should be 44 hours per week. 
   2. Employers must ensure that their employees have 11 hours of undisturbed rest for every 24 hours of work done. 

• According to the labor code in Luxembourg, Articles L. 232-2 and L.233-4, on 25th April 2019, companies must provide 26 days of paid leave to their employees annually. 
• For a part-time employee, the calculation is based on 2.167 days of paid leave for one month’s continuous employment. 
• There are 11 paid public holidays, which are as follows:

1. 1. 1st January, New Year’s day
   2. 10th April, Easter Monday
   3. 1st May, Labor day
   4. 9th May, Europe day
   5. 18th May, Ascension day
   6. 29th May, Whit Monday
   7. 23rd June, National day
   8. 15th August, Assumption day
   9. 1st November, All Saint’s day
   10. 25th December, Christmas day
   11. 26th December, Saint Stephen’s day

Leave schemes

Residents covered by the labor regulations in Luxembourg are entitled to specific special leave schemes, which are added to the annual holidays. 

Maternal leave

• Luxembourg paid maternity leave can be divided into eight weeks of prenatal rest before the expected birth date and 12 weeks after delivery. 
• A pregnant employee must register with the mandatory sickness and maternity insurance six months before starting the pre-birth leave. 
• Employees must also submit a medical certificate underlining the assumed delivery date to the National Health Fund (CNS). 
• The CNS pays the remuneration for the maternity leave.

Paternity leave

• Fathers covered by the labor act rules in Luxembourg are entitled to 10 days of paternity leave. 
• The employee must provide a written notice to their employer, highlighting the foreseeable due date. 
• The written notice should be issued two months before the estimated due date.

Parental leave

• Parental leave can be taken by both the mother and father simultaneously. 
• Parental leave can be taken twice. The first leave starts immediately after the end of maternity leave. The other parental leave should be taken before the child turns 6. 
• The tenure of leave depends on the contract type. However, for most employment contracts, the tenure is four and six months. 
• For special contract types, parental leave is calculated internally.

Bereavement leave

• During the death of a minor child, an employee is entitled to a 5-day leave. 
• The bereavement leave for the death of a first-degree and second-degree relative is 3 and 1 day, respectively. 
• During the death of the partner or a spouse, the employee must get a 3-day leave.

Adoption leave

• The adoption leave per the Luxembourg labor law is 12 weeks, as communicated by the CNS. 
• Adoption leave is only applicable when the child is under 16 years.

Marriage leave

• Employees who are getting married are allowed to take up a 3-day holiday. 
• During the marriage of a child, the employee is entitled to a one-day paid leave. 

Minimum wage

• The minimum wage in Luxembourg is changed on 1st January every year. 
• As of 2023, the minimum wage is €2,387.4 per month. 

Pension fund

The pension schemes established by the Luxembourg labor code are divided into two categories, as mentioned below. 

State pension fund

• The state pension fund covers all residents receiving employment-related benefits. 
• The total premium is 24% of the employee’s monthly remuneration. 
• Employers must pay 8% and deduct another 8% from their employee’s wages. The rest is paid by the state. 
• Long-term care insurance and public health insurance fall under the mandatory pension scheme. 

Supplementary fund

• The supplementary fund is commonly called the second pillar of the pension scheme. 
• The premium is bespoke per the requirements and selected scheme per the private pension authority. 
• Participation in a supplementary pension fund is voluntary. However, it is common for companies to set up such a scheme while employing more than hundreds of employees.  

Payroll tax

The labor act regulation in Luxembourg enforces a well-segmented tax system to uphold the utmost transparency. The total employee contribution ranges between 12.22% and 15.3%. A comprehensive breakdown of an employer contribution is provided below. 

Employers must also deduct additional tax slabs from their employee’s salary for pension and health insurance with another 1.4% as dependency contribution. 

As companies are obliged to follow the withholding taxation system, they must ensure that the necessary deductions are made per an employee’s income before crediting the salary. Personal taxation is divided into several brackets. The applicable taxes for each bracket is given below. 

Taxes applicable for a single taxpayer, categorized under class 1. 

Taxes are applicable for a class 2 married taxpayer. 

Probationary period

• The probationary period per the labor regulations in Luxembourg can be anywhere from 2 weeks up to 6 months. 
• Employers are allowed to determine the length of the trial period within the mentioned caps. 
• However, when an employee is trained under the Technical and Professional Aptitude Certificate for Technical Education (CATP), the trial period should be less than three months. 

Dismissal Rules

As per Luxembourg labor law, every employee must serve a notice period during both resignation and termination. However, the notice period requirement can be negated when the employment contract is canceled for reasons such as misconduct. The tenure for the notice period for resignation and termination has been provided below. 

• Notice period during termination

1. 1. Two month notice period is applicable for less than five years of employment. 
   2. Four month notice period is applicable for employment tenures spanning five to ten years. 
   3. Six month notice period is applicable for more than ten years of employment.

• Notice period during resignation

1. 1. Employees must serve a notice period of one month for an employment tenure of at least five years. 
   2. The applicable notice period is two months for an employment tenure between five to ten years. 
   3. A three-month notice period is applicable for an employment tenure of more than ten years.

Severance pay

Employers must provide severance pay for employees who have served the applicable notice period as per the Luxembourg labor code.

Data protection and employee privacy

• As one of the founding members of the European Union (EU), data protection is moderated by the labor regulations in Luxembourg and General Data Protection Regulation (EU 679/2016). 
• Under the mentioned laws, employers are obliged to obtain and process data only for the intended purpose as required by the job type. 
• Candidates should be notified about the data requirement and the type of data collection method the employer intends to use. 

Penalties

The labor code in Luxembourg enforces fines and penalties for non-compliance with various regulations. Several fines and punishments like temporary and permanent closure of businesses are implemented. The severity of the labor law violation determines the penalty. Some pre-determined fines for non-compliance are listed below.

• In case of late tax filing or inaccurate calculations, employers must pay 0.5% of the deficiency as a fine. 
• Anyone representing themselves for a designation that highlights involvement in activities regulated by the Law of 13 July 2005 without proper authorization is liable for a fine ranging from EUR 500 to 25,000.

Compliance Strategies for Employers

While hiring and subsequently complying with labor laws in a foreign country, employers use several compliance strategies based on their specific requirements. Some effective compliance strategies every business can use according to their requirements are listed below. 

In-house HR specialist

• Employers can hire an in-house specialist who is well-versed with the labor code in Luxembourg and EU rules. 
• The hired specialist ensures the company complies by streamlining minimum wage, holidays, rest breaks, and every other rule with the company employment terms. 
• Firms with a sizable hiring budget can hire an in-house team.

HR agencies

• There are several HR agencies available for partnerships. 
• An HR agency ensures that a company complies with the Luxembourg labor law by aligning the crucial aspects of employment with their regulations. 
• HR agencies are relatively affordable compared to an in-house HR team, and companies looking for an affordable option can opt for this strategy.

Employer of Records (EOR)

• An employer of records solution is a platform designed to allow employers to stay compliant without the need for an HR, in-house or outsourced. 
• The predetermined rule allows an employer to create employment terms that abide by the labor act rules in Luxembourg. 
• EOR solutions are the most affordable compliance strategy that has enabled several small and medium-sized businesses to expand globally. 

How Can Multiplier Help?

Multiplier is a SaaS-based EOR platform with features such as payroll, multi-currency payment, contract management, etc., and its ability to help employers comply with labor regulations in Luxembourg. Furthermore, with Multiplier, businesses can test 150+ economies while staying compliant. 

The average Multiplier customer exercises more control over the global market, as they can hire, comply and deploy payroll in record times without going through a new learning curve. With all the necessary features to support a business in a foreign land, Multiplier is considered a one-stop solution for every business of every size.