Hire employees in Luxembourg
What a foreign company needs to know before employing people in Luxembourg: whether you need a local entity, what an employee costs with employer contributions of about 12.6% to 15% and automatic wage indexation, how cross-border telework rules affect staff living in France, Belgium and Germany, what notice and severance require, and why the rules on labour supply shape how you structure a hire. Written for CHROs, CFOs, General Counsel and founders.
Employer of record in Luxembourg: quick answers
The questions leadership teams ask first.
Do I need a local entity in Luxembourg to hire?
No. There are three routes:
- Employer of Record. Dryft Global employs the person in Luxembourg through a compliant local employer, declares them to the Joint Social Security Centre (CCSS), applies indexation and withholds tax each month. You direct the work.
- Direct local entity. You form a private limited company (SARL) with EUR 12,000 capital, or a simplified SARL-S from EUR 1, register with CCSS and the tax office and set up payroll: plan for 3 to 6 weeks before the first payroll.
- Independent contractor. Lawful only for genuinely independent work. Where the person works under your authority, the relationship is employment and can be reclassified from the start.
When should I use an EOR instead of registering locally?
Use an EOR for your first hires in Luxembourg, when you want to start quickly and do not want to build CCSS registration, indexation, tax withholding and cross-border telework tracking yourself. Your own entity earns its keep for a sustained team, a regulated financial business or a sales office signing Luxembourg contracts.
What does an employee actually cost beyond salary?
The employer pays about 12.6% to 15% contributions on gross pay up to a ceiling of EUR 13,856.63 a month: pension 8.5%, health 3.05%, accident insurance, health at work and the employers' mutual insurance, whose rate depends on absence history. On a EUR 7,000 salary that is about EUR 880 a month. All pay also rises 2.5% with each indexation tranche.
How difficult is termination in Luxembourg?
The employer gives 2 months' notice under 5 years' service, 4 months from 5 to 10 years and 6 months after 10 years, and pays severance of 1 to 12 months from 5 years' service. The employee can ask for precise written reasons, and employers with 150 or more staff must hold a pre-dismissal interview. Unfair dismissal claims go to the Labour Court.
Can Dryft Global legally employ my team in Luxembourg?
Yes. Dryft Global employs your team in Luxembourg through a compliant local employer set up for the Luxembourg rules on labour supply. We issue Labour Code contracts, declare employees to CCSS within 8 days, apply indexation, withhold tax and contributions, track cross-border telework days and manage notice and dismissal.
Hiring routes compared
Speed, set-up burden and liability differ by route.
| Factor | Direct local entity | Dryft Global EOR | Independent contractor |
|---|---|---|---|
| Time to first payroll | 3 to 6 weeks | Days to 2 weeks | Days |
| Local entity required | Yes, SARL or branch | No | No |
| CCSS registration and withholding | Your registrations | Handled by Dryft Global | Contractor's own |
| Labour supply rules | Not applicable | Structured compliantly by Dryft | Not applicable |
| Statutory liability | Direct corporate exposure | Assumed by Dryft Global | High if the work is subordinated |
| Best fit | Sustained team, regulated activity | First hires, cross-border staff | Short independent projects |
What an employee costs in Luxembourg
The employer pays contributions of about 12.6% to 15% of gross pay, up to a monthly ceiling of EUR 13,856.63. The model below is a Luxembourg City software engineer on EUR 7,000 gross a month.
| Component | Employer share | Notes |
|---|---|---|
| Pension | 8.50% | Raised from 8% in January 2026 |
| Health | 3.05% | Benefits in kind and cash benefits |
| Accident insurance | 0.65% | Adjusted by a bonus or malus factor of 0.85 to 1.5 |
| Health at work | 0.14% | Occupational health service |
| Employers' mutual insurance | 0.23% to 2.66% | Class set by absence history; reimburses 80% of sick pay |
| Statutory subtotal | 12.57% | EUR 879.90 a month on EUR 7,000 (class 1) |
| Total employer on-cost | ~12.6% to 15% | Above gross salary, before any benefits |
For an employee on EUR 7,000 a month, budget roughly EUR 94,600 a year before the EOR fee and any 13th month or benefits. The employee pays about 12.95% contributions, including 1.4% dependency, plus progressive income tax and a solidarity surcharge, leaving net pay of about EUR 4,683 a month for a single resident. Ask us for a cost model with current rates applied.
Payroll and tax
Salary is paid monthly, at the latest on the last day of the month, in euro, with a detailed payslip. The employer declares a new employee to CCSS within 8 days of the start date, and CCSS bills contributions on the monthly salary list. All pay rises 2.5% with each indexation tranche; the last was on 1 June 2026.
Income tax withholding
Income tax uses a progressive scale from 0% to 42%, plus a solidarity surcharge of 7%, or 9% for higher incomes. The employer withholds it each month using the employee's electronic withholding tax card, which reflects the tax class (1, 1a or 2). A single tax class has been adopted from 2028, and a temporary 2026 credit and 2027 bracket changes are pending in Parliament.
Cross-border employees
About 45% of jobs in Luxembourg are held by residents of France, Belgium and Germany. Up to 34 days a year of work outside Luxembourg does not move the salary's taxation. For social security, an employee who works less than 25% of the time in their country of residence stays insured in Luxembourg, and telework up to 49.9% can stay covered under the EU framework agreement with an A1 certificate.
Social minimum wage 2026
EUR 2,771.33 a month for an unskilled worker and EUR 3,325.59 for a skilled worker from 1 June 2026, after the indexation tranche. A further 3.8% increase from January 2027 is proposed in a bill.
Leave and mandatory benefits
- Annual leave. At least 26 working days a year, usable after 3 months' service.
- Public holidays. 11 legal holidays; in 2026 four fall on a weekend and each gives a compensatory day off.
- Sick pay. The employer pays full salary until the end of the month in which the 77th day of incapacity falls, and the employers' mutual insurance reimburses 80%.
- Maternity. 20 weeks, paid by the National Health Fund.
- Paternity. 10 days, paid by the employer and largely refunded by the state.
- Parental leave. 4 or 6 months per parent, or part-time options, with a state allowance.
- Working time. 40 hours a week; overtime needs prior authorisation and is paid at 140% or compensated with time off. Sunday work carries a 70% premium and holiday work 100%.
- Right to disconnect. Employers must set up a disconnection regime; fines apply from 2026.
Termination and notice periods
Probation runs from 2 weeks up to 3, 6 or 12 months depending on qualification and pay. After that, notice and severance work as follows.
| Item | Rule |
|---|---|
| Employer notice | 2 months under 5 years, 4 months from 5 to 10 years, 6 months after 10 years |
| Severance | 1 month after 5 years, rising to 12 months after 30 years |
| Reasons | Precise written reasons within 1 month if the employee asks |
| Pre-dismissal interview | Mandatory for employers with 150 or more staff |
| Serious misconduct | Immediate dismissal without notice or severance |
- Protected employees. Staff delegates, employees on sick leave (for 26 weeks), pregnant employees and employees on maternity or parental leave.
- Unfair dismissal. Claims to the Labour Court within 3 months, extended to 1 year by a written objection to the employer.
- Small employers. Employers with fewer than 20 staff can extend notice instead of paying severance.
- Mutual agreement. The common clean exit.
Can I use independent contractors?
Only for genuinely independent work. Where a person works under your authority, with set hours, instructions, integration and a fixed fee, the relationship is employment and can be reclassified from the start, with back pay, social security and fines. Supplying staff for profit to work under another company's direction is lawful only through an authorised temporary work agency, with assignments limited to 12 months and equal pay. Lending staff outside the legal regimes makes the user company the employer on an indefinite contract, with joint liability and fines of EUR 500 to EUR 10,000 per employee. Luxembourg law has no separate employer of record category, so this is a point to settle for each hire. For anyone who works like an employee, an EOR set up through a compliant local employer is the safe route.
The legal framework in brief
Luxembourg is a civil law system where the Labour Code sets most terms directly, and collective agreements apply in sectors such as banking and insurance. The instruments you will hear most:
- Labour Code. Contracts, probation, fixed-term limits, working time, leave, sick pay, temporary agency work, notice, dismissal and severance.
- Indexation. Automatic 2.5% increase of all wages with each index tranche.
- Social security and income tax. Employer contributions of about 12.6% to 15%, employee contributions of about 12.95% and a progressive income tax with tax classes.
- Data protection. GDPR and the Law of 1 August 2018, enforced by the National Data Protection Commission (CNPD), with specific rules on workplace monitoring.
- Immigration and right to work. EU nationals work freely. Others need an ADEM certificate and a salaried worker residence permit, or an EU Blue Card at EUR 65,652 a year.
- Pending changes. A 2027 minimum wage increase, a temporary 2026 tax credit and 2027 bracket changes are before Parliament.
- Authorities. The Ministry of Labour, the Labour and Mines Inspectorate (ITM), CCSS, the Direct Tax Administration (ACD), ADEM and the CNPD.
Where the talent is
About 691,000 residents, with a workforce that draws heavily on France, Belgium and Germany. Unemployment was 6.5% in September 2026. Luxembourgish, French and German are the national languages, and English is widely used in finance and technology. Time is UTC+1 (UTC+2 in summer), and Luxembourg is in the EU, the eurozone and Schengen.
| Region | Talent and industry concentration |
|---|---|
| Luxembourg City (Kirchberg, Cloche d'Or) | Finance, funds, EU institutions, headquarters and technology |
| Esch-sur-Alzette and Belval | University, research and engineering |
| Differdange | Industry and services in the south |
| Cross-border region | Talent commuting from Lorraine, Wallonia, Saarland and Rhineland-Palatinate |
Luxembourg Implementation Kit
This page tells you the rules. The kit tells you what to do, in what order, and what goes wrong when you skip a step.
- Step-by-step checklist, from route selection to first payroll
- Written contract, probation and CCSS declaration within 8 days
- Gross to net and employer cost set-up with indexation
- Cross-border telework tracking for tax and social security
- Contractor reclassification and labour supply risk checklist
- Notice, severance and dismissal procedure pack
- Every official Luxembourg authority with direct links
Official sources
- 2026 contribution rates, employer and employee shares, Mutualite classes: Centre commun de la securite sociale (CCSS), notice of 16 January 2026
- Index, social minimum wage and contribution ceiling for 2026: Centre commun de la securite sociale (CCSS), social parameters
- Social parameters at 1 June 2026: skilled and unskilled minimum wage, maximum contribution base: Guichet.lu, Government of Luxembourg
- Automatic 2.5% wage indexation: Guichet.lu, Government of Luxembourg
- Telework and wage tax withholding for cross-border workers: Administration des contributions directes (ACD)
Hiring in nearby markets
Employer of record and hiring guides for other countries in Europe: Malta · the Netherlands · North Macedonia · Norway · Poland · Portugal · Romania · Serbia. See all global hiring guides or compare routes in EOR vs PEO vs entity.
This guide is general information, not legal, tax or immigration advice. Luxembourg indexes wages automatically, revises the social minimum wage and contribution ceiling regularly, and has tax and minimum wage changes pending for 2027 and 2028. Confirm current figures and the employment structure with a qualified adviser or with Dryft. Last reviewed November 2026.
Ready to hire in Luxembourg?
Tell us who you want to hire and where they sit. You will get a cost model and a compliant route within a day, from a person who has done this before.