Employee Benefits in Luxembourg
Happy and satisfied employees make your businessthrive and lead to even better profits. However, the specific benefits for employees in Luxembourg might not all be familiar to you yet. By using our PEO and EOR service we can provide compliant labor contracts for employees in Luxembourg including local benefits.
When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. These involve social security contributions, sick leave, health insurance, and unemployment, to name a few. In Luxembourg, benefits are guaranteed by national legislation as well as collective agreements with trade unions or workers’ councils.
Our guide will explain what benefits and employee compensation are guaranteed, and what can be modified, for any employer who wishes to expand their business into Luxembourg
What are Employee Benefits in Luxembourg?
Benefits and entitlements for Luxembourg employees are based on the Labor Code, the Social Security Code, European Union (EU) directives, case law and collective and trade union agreements. Foreign companies hiring employees in Luxembourg must operate within this fluid arrangement of legislation that provides safeguards and guarantees for the workforce.
Minimum guaranteed benefits, either from legislation or agreements, include:
- Minimum wages
- Paid vacations
- Working hours
- Termination, severance, and notice periods
- Sick leave
- Maternity allowances and benefits
The responsibilities of foreign companies reach further than simply complying with tax, social security, and payroll regulations. Failure to comply with specific regulations applying to benefits and entitlements runs the risk of fines and sanctions. It is vital that employers have a firm grasp of what is guaranteed for their employees, as this will affect the employer-employee relationship.
What Compensation Laws exist in Luxembourg?
The bulk of legislation concerning the rights of employees and obligations of employers are drawn together under the Labor Code, with some additional regulations.
The Labor Code (Code du Travail, Arbeitsgesetzbuch) covers most aspects of employment law, with the Social Security Code (Code de la Sécurité Sociale/Gesetzbuch der Sozialen Sicherheit) supplementing for some specific benefits. Collective Bargaining Agreements (CBAs) play a leading role in improving employees’ entitlements. As a member of the European Union, Luxembourg must also integrate various EU Directives into their legislation.
- The Labor Code: The Code applies to all employees working in the private sector as well as all work undertaken in the Grand Duchy of Luxembourg. The Code comprises six main sections: Individual and collective relationships; regulations on working conditions; health and safety; staff representation; employment and unemployment regulations; labor administration
- The Social Security Code: The Code relates to minimum entitlements such as maternity, parental and sickness benefits. Registration with Luxembourg’s Joint Social Security Center (CCSS) is mandatory for everyone in paid employment
- The Criminal Code: This applies to employment in areas of discrimination and harassment in the workplace
The requirement for employers to respect employees’ rights stretches further than simply complying with tax and payroll procedures. Legislation and binding collective agreements apply to such as maternity allowances and benefits, holidays, sick pay and severance payments, minimum wages and working hours.
Drawing up contracts is tricky enough, but in Luxembourg it is vital for employers to be up to speed with responsibilities to their staff over benefits, compensation, and minimum requirements. Employees must be given a written contract no later than the first day of employment. Do not take the risk of paying penalties for ignoring these responsibilities … or being late!
Compensation, entitlements, and benefits include the following, all of which can be improved by collective agreements, but not diminished.
- National Minimum Wages: The annual ‘unskilled social minimum wage’ in 2021 is €26,423 (US$29,808) divided into 12 monthly payments of €2,201.93 (US$2,482) for full-time (40 hours a week) workers. The ‘minimum qualified social wage’ of €2,642.32 (US$2,980) depends on qualifications or seniority and can be improved by collective agreements.
- Sick Leave and Benefit: The employer is responsible for paying sickness benefit until the 77th day the employee is incapacitated, after which the National Health Fund Caisse Nationale de Santé (CNS) or Gesondheetskeess takes over payments. Sickness benefit entitlement is 11 weeks in an 18-month period plus any extra days due till the end of the calendar month in which the employee became incapacitated. The employer pays 100% of net salary plus any benefits and can recoup up to 80% of the cost through the Employer’s Mutual Insurance Scheme. If the employee is still sick at the end of this period, the CNS pays 100% of basic salary (with some exclusions and capped to a specified limit) for up to 78 weeks during a two-year period.
- Working Hours and Breaks: The Labor Code stipulates ‘normal’ working hours as eight per day and 40 in a week. Exceptions include those working five-day weeks (nine hours on some days but not exceeding 40 in a week); shift workers; in the case of labor shortages (maximum 10 hours daily, 44 in a week averaged over two years maximum); emergency situations. Employees are entitled to a break after working six hours and to have 11 hours continuous rest every 24 hours; 44 hours rest every seven days, which should include a Sunday.
- Overtime: Work completed over and above ‘normal working hours’ (eight hours a day or 40 a week) as per the employment contract or collective agreement, is considered overtime and is stringently controlled. All overtime undertaken must be reported to the Inspectorate of Labor and Mines and with the permission of the Ministry of Employment. Employees receive time off in lieu or are paid at 1.5 times the normal hourly rate. Sunday work, although generally prohibited, is compensated by 170% of the normal hourly rate. Overtime hours are not taxed and to some measure exempt from social security contributions.
- Paid Vacations: All salaried workers or apprentices with a fixed or permanent contract are entitled to annual leave, generally a minimum of 26 working days, adjusted pro rata for part-time workers. New employees, unless the employer agrees, must work for three months before they can take accrued vacation which is at the rate of 2.167 days per month over a 12-month period. Any additional leave may be written into CBAs.
- Maternity / Paternity / Parental Benefit and Leave: All women employees are entitled to 20 weeks maternity leave, eight weeks pre-natal and 12 weeks post-natal with the possibility of parental leave to follow. Fathers are entitled to 10 days paid paternity leave, used within two months after the birth and the employer must be notified two months before leave is to be taken. The state can cover the salary for paternity leave from the third day if the employer applies to the Ministry of Labor, Employment and Social and Solidarity Economy. Parents can take parental leave at the same time. The first parental leave is taken by one parent following maternity leave and the second parental leave until the child is six years old.
- Termination and Severance: Under Luxembourg’s Labor Code all employees are subject to laws on termination of employment. Immediate termination is possible on grounds such as employee’s behavior, operational ability or for the structural reorganization of the company. Statutory minimum entitlement to severance pay depends on length of service. Severance pays begins at one month’s salary for five to 10 years’ service and increases by one month for each extra five years of service up to 20 years. 20 – 25 years equals six months’ severance; 25 – 30 years nine months and for over 30 years 12 months’ severance.
- Notice Periods: These depend on length of service and companies with fewer than 20 employees can offer extended notice periods without severance pay. For all other enterprises, employers with between five to 10 years’ service receive four months’ notice; for service exceeding 10 years the requirement is six months.
Employer Statutory Costs in Luxembourg
- Social Insurance: All Luxembourg employers must contribute the equivalent of between 12.15% and 15.20% of the employees’ salaries into social insurance. All employees must be registered with one of the funds and join through the Joint Social Security Center (Centre commun de la sécurité social, CCSS). Employers must register each new employee
- Corporate Income Tax (CIT): Rates of 15% or 17% apply depending on taxable profits. Additionally, a solidarity surtax of 7% and municipal business tax of 6.75% can apply to businesses operating in Luxembourg City
- National Minimum Wages: The ‘unskilled social minimum wage’ in 2021 is €26,423 (US$29,808) divided into 12 monthly payments of €2,201.93 (US$2,482) for full-time (40 hours a week) workers. The ‘minimum qualified social wage’ of €2,642.32 (US$2,980) depends on qualifications or seniority and can be improved by collective agreements