Employee benefits indicate any compensation or perks that employers provide employees in addition to their base wages. Alternatively, any form of indirect pay (voluntary or mandatory) offered to staff is an employee benefit. These benefits assist companies in attracting and retaining skilled employees. Moreover, they boost employee work productivity and keep them happy. The employees are entitled to monetary or non-monetary benefits depending on the employee’s existing requirements and the company’s capital.
Employees must receive certain statutory benefits as stipulated in the employment contracts. These benefits cover paid time off, working hours, statutory minimum wage, overtime compensation, maternity leave, paternity leave, retirement benefits, sickness benefits, disability pensions, severance funds, and more.
Compensation Laws in Luxembourg
Different compensation laws govern compensation and benefits in Luxembourg. Let’s check out the laws related to the compensation and benefits policy in Luxembourg:
Luxembourg Labour Law:
- It covers additional rights and employee benefits in Luxembourg entitled to employees who have served under the same employer for many years.
- Such employees are entitled to higher severance payments, a more extensive duration of the notice period when leaving the company, more holiday leave days, and a national minimum salary (depending on the employee’s qualification).
- According to article L125-3 of the Labour Code of the compensation and benefits policy in Luxembourg, the pension is provided if the employee has contributed a minimum of 120 months to the pension insurance.
Luxembourg Social Law:
- It assures a minimum social wage for all employees depending on their skills.
- Specifically, it stipulates a monthly social wage of EUR 2,071.10 for unskilled employees and EUR 2,447.07 for skilled employees.
- The law is applicable as of August 1st, 2018.
How to Design an Employee Benefits Program for Employees in Luxembourg?
You should incorporate specific essential considerations before creating a compensation package in Luxembourg, which are as follows:
Step 1: Prescribe your business objectives and financial plan
Firstly, you should prescribe the objectives you expect from the compensation structure in Luxembourg. You must examine employment contracts or collective bargaining agreements to validate employment relationships and entitlements of compensation and benefits in Luxembourg.
You should also consider your company’s available financial resources to invest in employee benefits. Before formulating the employee compensation policy in Luxembourg, you should consider the business sector it functions in, the company’s potential, and the commercial climate.
Step 2: Understand employee requirements
You must thoroughly understand the employees’ requirements and anticipations by arranging use cases, interviews, or creating an opinion poll. This step in designing the compensation and benefits policy in Luxembourg motivates the employees to share their ideas confidently.
Carefully research the existing industry standards and the benefits your competitors provide to their employees. Based on the relevant research findings and internal survey, you can create a comprehensive compensation and benefits policy in Luxembourg that abides by industry regulations and market competition. Hence, you can create a compensation package in Luxembourg that provides optimum employee advantages.
The internal survey identifies the areas that demand amendments and specify required modifications to be covered in the compensation and benefits policy in Luxembourg. To control the company’s expenditures, you can exclude certain redundant benefits.
Step 3: Draft your benefits plan
Once you’ve deduced the employees’ requirements and expectations, the next task is to perform a gap analysis to gauge the existing situation of the benefits plan. Make sure to create a flexible employee compensation policy in Luxembourg that matches the transient nature of business. A flexible benefits and compensation structure in Luxembourg lets the employees easily shortlist the statutory benefits. Besides, it instructs the employer to acquire the optimum benefits from the designed compensation and benefits policy in Luxembourg.
When creating a benefits plan for workers’ compensation in Luxembourg, you should assimilate factors like the company’s capital, employee contributions, and outsourcing requirements.
Step 4: Communicate the benefits to the stakeholders and receive feedback
Share your benefits plan’s worth with all the stakeholders and employees. Based on your plan’s draft, they can submit feedback. Accordingly, you can put into place a worthwhile plan of worker’s compensation in Luxembourg that benefits the company and the workforce.
You can incorporate any constructive feedback into your benefits plan. Conversely, you can modify the employee benefits in Luxembourg if the feedback discerns any benefit as superfluous.
Step 5: Regularly and carefully study the plan
You should routinely review the compensation structure in Luxembourg. It indicates the efficiency and sustainability of the benefits plan.
Move ahead with implementing the employee compensation policy in Luxembourg after confirming that it is error-free. Make sure that you meticulously evaluate all the benefit plan’s components and implement them subsequently.
Types of Guaranteed Benefits in Luxembourg
Employers offer certain statutory employee benefits in Luxembourg to their employees. Let’s check out their details:
- The minimum monthly wage in Luxembourg ranges from 2,387.4 EUR.
Working hours and overtime
- The standard working hours in Luxembourg are 8 hours a day and 40 hours per week.
- The employees get compensation for working hours exceeding the agreed standard working hours in the form of overtime.
- The overtime limit is 2 hours per day and 8 hours per week.
- The compensation of this employee benefits in Luxembourg is 150% of the standard salary rate.
- The employment contract/collective agreements govern the overtime compensation.
- The employees in Luxembourg receive a minimum paid annual leave of 26 working days.
- The employers or the collective bargaining agreements may grant additional paid vacation days.
- The following table shows the leave benefits in Luxembourg based on the type of employee.
No. of additional paid leaves
Disabled or those employees who have suffered a work accident
An apprentice or employee who hasn’t obtained a continuous rest period of 44 hours/ week
1 for every 8 weeks in which the employee didn’t receive the continuous rest
- The employees in Luxembourg get 11 public holidays per year.
New Year’s Day
All Saints’ Day
2nd Day of Christmas
- The employees in Luxembourg are entitled to up to 26 weeks of sick leave.
- Employees receive 100.00% payment of their standard salary.
- The employee need not present a medical certificate for 1-2 days of sickness.
- The employee must present a medical certificate for more than three days of sickness.
- Pregnant employees in Luxembourg get 20 weeks of maternity leave.
- The employee must be covered under the mandatory health insurance for at least six months within the last year before maternity leave.
- The maternity benefits in Luxembourg can start eight weeks before the expected delivery date.
- The employee must inform their employer at least 12 weeks before the expected delivery date.
- Social insurance provides maternity benefits in Luxembourg. Its amount is five times the minimum wage.
- The employees in Luxembourg are entitled to up to 10 days of paternity leave.
- To get this workers’ compensation in Luxembourg, the father should inform the employee at least two months before the leave, or the leave will decrease to 2 days.
- The employees can take paternity leave within two months of the child’s birth.
- The employees must work at least 10 hours per week.
- The employees must register with social security during the child’s birth/adoption for at least 12 continuous months.
- The Children’s Future Fund compensates for this workers’ compensation in Luxembourg.
- The employees in Luxembourg receive severance pay as follows:
Duration of employment
Less than 5 years
4 months’ pay
2 months’ pay
3 months’ pay
6 months’ pay
9 months’ pay
12 months’ pay
Employee Benefits for Expatriates
Foreign employees in Luxembourg are entitled to similar compensation and benefits in Luxembourg as local employees. During their employment in Luxembourg, the expats get benefits like family allowance, health care insurance, child home care allowance, meal allowance, dental care, travel allowance, and unemployment benefits. The compensation package in Luxembourg also entitles expats to accommodation benefits, relocation benefits, language training, free public transport, and expatriate family benefits (children’s tuition fees assistance, obtaining a visa, and compensation for loss of spouse’s income).
Expats may routinely move abroad to achieve their short-term projects. So, businesses apply a simple, cost-effective substitute to recruiting and compensating expats through local subsidiaries.
How are Employee Benefits Taxed in Luxembourg?
In Luxembourg, employees must pay income tax ranging from 921 EUR to 76,642 EUR (based on the income of Class 1 employees) and 0 EUR to 75,885 EUR (based on the income of Class 2 employees). The tax residents must pay for their worldwide income. Commonly, non-residents only pay for their income earned from Luxembourg. Self-employed individuals must pay contributions for general sickness, pension, and disability.
Both employers and employees in Luxembourg must make the following contributions from their monthly salary:
Type of Contribution
2.80% – 3.50%
2.80% – 3.50%
Accident at Work
0.68% to 1.13%
Mutual Health Benefit
0.60% to 2.98%
Health at Work
Restrictions for Luxembourg Benefits and Compensation
Mostly, all benefits offered to employees in Luxembourg are taxable. Therefore, you should know the benefits’ monetary worth to accurately calculate the tax amount billed by the employer. An employer should also guarantee that tax payments are released and sent to the concerned authorities timely.
You should design employee benefits plans after ensuring your business is established in Luxembourg and legally operates there. The benefits and compensation package in Luxembourg should follow all the labor laws regulated by the government. Also, companies should pay the minimum remuneration to employees per their work departments.
Foreign nationals planning to work legally in Luxembourg must obtain a work permit. However, the citizens of the EEA, EU, and Switzerland are exempted from this obligation. Luxembourgers should acquire a separate work permit in their first year.
Before recruiting a new employee and authorizing an employment contract, all employers should submit a statement of a vacant position to the Employment Agency (ADEM). An employee can commence another employment relationship during their service, except when the employment contract of the compensation package in Luxembourg specifies otherwise. The restrictions imposed on an employee’s upcoming employment are unacceptable.
Employees in Luxembourg can’t be restricted from engaging in any kind of competition agreement. It means they are allowed to promote and sustain market competition and avoid practices laying adverse impacts on market competition. However, by mutual agreement between employees and employers, the employer can stipulate in the employment contract that the employee can’t sign a competition agreement for a fixed duration after termination.
Supplemental Benefits for Employees in Luxembourg
Here are some additional benefits provided to employees as per the compensation package in Luxembourg.
It is mandatory to pay the 13th-month pay in Luxembourg. Typically, employers must pay it at the end of the year.
A few additional compensation and benefits in Luxembourg are.
- Meal voucher: It’s a special rechargeable card that employees can use in most restaurants in Luxembourg to receive free meals during work.
- Annual bonus: Employees working for their employers for more than three months are entitled to an annual bonus paid once annually.
- Travel allowance: Certain employees provide this compensation and benefits in Luxembourg each month to their employees.
- Take-home car: Some companies allow their employees to use a company vehicle free of cost for certain hours of the day.
- Gym or health club memberships: Many companies in the country provide employees with free access to a company gym.
- Dental and Vision insurance: Certain companies entitle employees to vision care and dental benefits in Luxembourg.
- Profit-sharing bonus: Some companies pay this bonus to employees who have contributed to improving the company’s performance.
- Other perks: Some companies may provide any or all of these additional perks, i.e., additional annual leave, personal learning and development budget, supplementary pension scheme, supplementary health insurance, therapy or coaching allowance, mentorship programs, volunteering days, and flexible working hours.
How Multiplier Can Help with Benefits Management in Luxembourg
Establishing a business overseas and contracting a proficient workforce can be challenging and time-consuming. The employer should obey the local laws and regulations before drafting employment contracts and confirming employee benefits. You can regulate this process by contacting an international PEO platform like Multiplier.
Multiplier supports compliance with Luxembourg’s labor rules. We also aid you in hiring expert employees. Our proficient staff can support you in competently managing the workforce without setting up a subsidiary in the country. Hence, you can lower your employment expenses and learn more about new markets.