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Global Payroll Team
Written by Global Payroll Team
Last updated May 7, 2026
Expert Reviewed
Payroll in Luxembourg
Tax in Luxembourg
Immigration in Luxembourg

Luxembourg map

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Mercans offers complete payroll, PEO and HR services in Luxembourg

Recognised for its political stability and central position in Europe, Luxembourg remains one of the world’s most open and international economies. It continues to attract employers with its multilingual workforce, advanced digital infrastructure, strong financial and logistics sectors, and business-friendly regulatory environment.

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Doing Business in Luxembourg

Businesses, new and mature, are supported by attractive incentives, strong institutions and a highly international market. Setting up and operating a business is generally efficient, and detailed guidance is available through Luxembourg’s official business portal, Guichet.lu. Employers should also be aware of the importance of cross-border workers, who make up a substantial share of the workforce.

Entity Registration and Incorporation Requirements

Setting up a new business or expanding an existing one in Luxembourg is straightforward. Choose how your company operates from a range of entity types that suit your individual circumstance.

Banking

Banking hours vary by institution and branch, but many banks operate during standard business hours from Monday to Friday.

Working Week

The standard working week is generally from Monday to Friday, with standard full-time working hours of 40 hours per week.

Labor Law

A significant feature of Luxembourg’s labor market is the large number of cross-border workers. The main sources of employment law are international treaties, European law, the Luxembourg Labour Code and related regulations. Collective bargaining agreements may also apply.

Main Industries

Banking and financial services, logistics, information and communication technology, construction, real estate services, iron, metals and steel

GDP Growth

0.4%

Dates & Numbers

dd/mm/yyyy

Official State Name

Grand Duchy of Luxembourg

Population

0.677 million

Capital

Luxembourg City

Major Languages

Luxembourgish, French, German

Currency

Euro (EUR)

Internet Domain

.lu

International Dialing Code

+352

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Luxembourg
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Sunset: 9:16 pm

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Payroll

Wages are determined by the employment agreement signed between employer and employee or by the applicable collective bargaining agreement. Employers must comply with the social minimum wage, indexation rules, monthly payroll reporting and withholding obligations.

It is acceptable to provide employees with online payslips

Payslip

Payroll reports must generally be kept for 10 years

Reports

Employees receive paid annual leave of 26 working days

Annual Leave

Employees remain entitled to continued salary during sickness, generally until the end of the month containing the 77th day of incapacity

Sick Leave

Employees are entitled to 20 weeks of paid maternity leave and 10 days of paid paternity leave

Maternity & Paternity Leave

Termination of an employee may require up to 6 months’ notice, depending on length of service

Employee Termination

There are no provisions mandated by law regarding the 13th month salary

13th month salary

2703.74 Euro per month

Minimum Wage

Overtime is generally compensated at 1.5x the employee’s ordinary rate of pay

Overtime

Employees dismissed with notice and with at least five years of service may be entitled to statutory severance pay based on length of service

Severance Pay

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Tax and Social Security

Individual income tax is levied on an individual’s worldwide income if they reside in Luxembourg. Non-residents are taxed on Luxembourg-source income. Luxembourg social security applies to employees and covers illness, maternity, pension, workplace accidents and dependency insurance.

Tax

Income tax liability depends on an individual’s personal situation and tax class. Corporate taxation generally combines corporate income tax, solidarity surcharge and municipal business tax, while the standard VAT rate remains 17%.

23.87%

Corporate Income Tax

45.78%

Personal Income Tax

17%

Sales Tax

17%

VAT

Social Security

Social security is financed by contributions from employees, employers and public authorities. Employee contributions are relatively stable, while the employer share varies depending in part on the accident insurance rate and the employer mutual insurance class.

24.38%+

Social Security Rate

11.93%+

Social Security Rate for Employers

12.45%

Social Security Rate for Employees

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Employment Law

In general, Luxembourg labor law applies to work performed locally. Employment disputes are handled by the labour courts, and the Labor Code sets out the main framework for contracts, working time, leave and termination.

Employment Agreement

In general, the rule is to use agreements for an indefinite duration, while fixed-term employment contracts are permitted only in specific cases and typically may not exceed 24 months including renewals. There are three official languages, namely Luxembourgish, French and German. There are no strict rules about the language used in contracts, but it should be understood by the employee.

Working condition

There are exceptions to the general 40-hour work week, but flexible working arrangements are possible. Work on Sundays is generally prohibited unless an exception applies.

Leaves

Outside of the 11 public holidays, employees are entitled to paid annual leave and may also benefit from extraordinary leave and additional leave provided by collective bargaining agreements or internal regulations.

Employment termination

An employer may terminate an employment agreement with notice where the legal conditions are met. The applicable notice period depends on the employee’s length of service. In the case of gross misconduct, either employer or employee may terminate the agreement without notice.

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1 month

Minimum notice period for terminating an employee

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11 days

Total number of public holidays

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40

Working hours per week

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Varies

Total number of days for Compassionate & Bereavement Leave

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Immigration

Any individual who is a third-country national and intends to stay in Luxembourg for more than 90 days to work generally must obtain a temporary authorisation to stay before entry and then apply for the appropriate residence permit after arrival.

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Residency permits

Short stays of up to 90 days do not in themselves authorise third-country nationals to carry out salaried or self-employed activity unless the relevant permission has been granted. For standard salaried workers, the first residence permit is generally valid for a maximum of 1 year and is renewable if the conditions continue to be met.

Work Permit Validity

1 year

Required Documents

Valid passport

Temporary authorisation to stay, where required

Type D visa, if applicable

Declaration of arrival in the commune after entry

Medical check completion

Residence permit application form

Employment contract or employer supporting documents

Proof of suitable housing

Proof of payment of the applicable government fee

Compliant, reliable, error-free and touchless payroll in Luxembourg

Build the best team and hire top talent compliantly in Luxembourg. Get in touch with Luxembourg payroll outsourcing & PEO specialists for a free consultation!

This document was prepared for informational purposes only. As local laws & regulations keeps on changing. Please consult your tax & legal advisors as well.
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    FAQs

    What is an Employer of Record (EOR) in Luxembourg, and how does it work for foreign companies?

    An Employer of Record in Luxembourg, through Mercans, acts as the legal employer for your local workforce. Mercans manages employment contracts, payroll, tax withholding, social security contributions, and full compliance with Luxembourg labour laws, enabling foreign companies to hire in Luxembourg without forming a local entity.

    Why should businesses use an EOR instead of establishing a legal entity in Luxembourg?

    Using Mercans as your EOR in Luxembourg removes the complexity of setting up a local legal entity. It cuts time and cost, delivers compliant employment and payroll from day one, and allows you to focus on business growth while Mercans handles administrative and legal employment obligations.

    How does payroll outsourcing in Luxembourg ensure compliance with tax and labor regulations?

    Mercans ensures payroll outsourcing in Luxembourg covers salary processing, tax deduction, social security registration, and statutory filing,s all aligned with Luxembourg law. This full-service approach ensures that your workforce in Luxembourg is paid correctly, contributions are made on time, and legal risks are minimized.

    Can an Employer of Record in Luxembourg hire employees and manage work permits for international companies?

    Yes. Mercans as your EOR in Luxembourg, can hire staff on your behalf and handle work permits, visas and residence permit formalities for non-EU nationals. This allows international companies to employ both local and foreign talent seamlessly in Luxembourg through a compliant framework.

    What are the main benefits of using EOR and payroll services in Luxembourg for global expansion?

    The key benefits include rapid entry into the Luxembourg market without entity setup, guaranteed compliance with labour and tax laws, reduced administrative burden and legal risk, access to local HR and payroll expertise via Mercans, and flexible workforce scalability to support your global growth strategy.

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